Something curious is happening in the heart of Malaysia's tech scene, and it could send shockwaves through the global semiconductor industry. VAT Group, the Swiss vacuum valve giant, has been quietly building a manufacturing powerhouse in Penang, and the whispers coming out of that factory hint at a strategic shift that could redefine the company's future.

While analysts pore over market share gains and WFE (Wafer Fab Equipment) growth projections, VAT Group's CEO, Urs Gantner, keeps dropping cryptic hints about the Penang operation. He speaks of a "supplier for the 1A," almost like a secret code, a hidden stage in a larger production plan. And Fabian Chiozza, the CFO, casually mentions a cost benefit of "3.5 times to 4 times" in Malaysia, a tantalizing number that speaks volumes about the potential of this Asian hub.

But here's the catch: the Penang factory is not fully operational. It's operating at around 60-70% capacity, and VAT is deliberately keeping it that way. Why? Gantner says they're "investing ahead of the cycle," and that makes sense on the surface. But what if there's more to this story? What if Penang is more than just a cost-efficient production facility? What if it's the breeding ground for a revolutionary new product line, a game-changer that VAT is holding back until the perfect moment?

The evidence is circumstantial, but compelling. Gantner repeatedly emphasizes VAT's commitment to innovation, boasting of 120 "spec wins" in 2023. He talks of "adjacent products" and new launches, but remains tight-lipped on specifics. Could some of these "spec wins" be for entirely new technologies, developed and manufactured in Penang?

Consider this: Malaysia's semiconductor industry is renowned for its expertise in advanced packaging, a crucial process for high-performance chips used in AI and other cutting-edge applications. Could VAT be leveraging this local expertise to develop next-generation vacuum solutions specifically for advanced packaging?

If so, this could explain the secrecy surrounding Penang. VAT wouldn't want to tip its hand to competitors until it's ready to dominate this emerging market. Imagine the disruption if VAT, already the leader in vacuum valves for traditional chip manufacturing, suddenly unveiled a portfolio of products tailored for the high-growth advanced packaging segment.

The numbers tell a compelling story. VAT's 2025 sales target of CHF1.5 billion assumes a WFE market of CHF110-115 billion. However, current projections for 2025 WFE range from CHF105 billion to CHF125 billion, suggesting potential upside to VAT's target. Could this upside be driven by a secret weapon developed in Penang?

Here's a hypothetical scenario: VAT launches its advanced packaging solutions in late 2024 or early 2025, coinciding with the projected surge in WFE spending. The market is caught off guard, scrambling to catch up as VAT rapidly gains market share. With its lower production costs in Penang, VAT can undercut competitors while maintaining its industry-leading margins. The result? A significant revenue boost, potentially pushing VAT's sales well beyond the CHF1.5 billion mark.

Of course, this is just a hypothesis. But the pieces of the puzzle are falling into place. VAT Group is clearly up to something in Penang, and the implications for the company and the semiconductor industry could be profound. Keep your eyes on Malaysia, because the whispers of Penang may soon turn into a roar.

Financial Performance

Source: VAT Group Transcripts

Projected WFE Spending and VAT Group Sales

"Fun Fact: Vacuum valves are essential components in semiconductor manufacturing, controlling the flow of gases and ensuring a contaminant-free environment for chip production. VAT Group's high-performance valves are renowned for their precision and reliability, enabling the creation of the advanced chips that power our smartphones, computers, and other electronic devices."