What has remained constant is the company’s focus on producing high-quality precision parts, and the involvement of the Chandaria family, which helped found the company more than four decades ago and continues to be the largest shareholder, holding a stake of over 36%. Under the leadership of Chairman Neal Manilal Chandaria today, Innotek is poised to capture more business in another major new trend: the AI computing market.
On Oct 13, Innotek announced that it has been approved as a “preferred vendor” to supply parts used in the assembly of servers running Nvidia chips. Nvidia, of course, is the hottest stock around, making business history recently as the first company to fetch a market value of more than US$5 trillion ($6.51 trillion), as investors are convinced of its role in creating chips preferred for AI applications, promising to vastly improve the way companies collect and analyse data, interpret information and deliver answers.
Innotek participated in the initial phases of product development for AI servers with Nvidia, supplying prototypes and high-precision components. The company plays a vital role in product design support and the production of specialised parts, enhancing the overall quality and appearance of the server systems.
As Innotek produces the individual parts, the actual assembly of the servers is done by contract manufacturers, mainly based in Taiwan. However, as the company is capable of producing components with very high heat tolerance and surface finishings, the use of Innotek as a supplier required direct approval from Nvidia. “We possess a high-quality surface treatment facility, large volume capability and a strong tooling capability, which Nvidia appreciates a lot,” explains Chandaria in an interview with The Edge Singapore.
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Another reason Innotek was able to win this business is that it can quickly produce what this customer wants. In Nvidia’s case, whose management philosophy and technical concept is “speed of light”, the process from the start to qualifying Innotek was just six months. Innotek expects to commence production of the components for Nvidia this current quarter, with volume ramp-up in the new year.
News of Innotek’s deal with Nvidia has sent the shares jumping. From Oct 13, the day the announcement was made, Innotek shares have gained 16 cents to close at 71.5 cents on Nov 10, extending a gain of 58.9% year to date, which is at around the same level as its net asset value per share of 71.4 cents. At this level, Innotek is valued at $163.1 million and trades at 28.5 times historical earnings.
Eyeing bigger wallet share
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In an earlier era, investors were closely analysing the component suppliers of iPhones to make informed bets accordingly. However, they soon realised that the company taking the lion’s share of the profits from an iPhone was Apple itself and not the suppliers.
Will Innotek face a similar conundrum selling to Nvidia, serving a high-profile customer but not necessarily a profitable one? Chandaria points out that the cost of each server is significantly higher and can vary substantially, depending on the configuration and the number of chips installed in each server. “The cost of each server depends on the number of graphic processing units and various components within the server are highly priced as well,” he says.
In the most recent 1HFY2025 ended June, Innotek generated around 21% of its revenue from the server segment, up from 20% of the total as of 1HFY2024. The largest revenue contributor by segment remains the automotive sector, with 37% for 1HFY2025 and 33% for 1HFY2024.
With its foot in the door, Innotek is eyeing a bigger wallet share, which will presumably increase the proportion of revenue from the server segment. “We will see more customer engagement in the near term. As new components come on stream, we are quoting for new components and hopefully we will win more and more of these contracts and then we will go into production,” Chandaria says.
For its most recent 1HFY2025, the company generated revenue of $102.5 million, down 15.6% y-o-y, primarily due to softer demand across all its business segments, which was attributed mainly to the trade war’s impact on sentiment. Due to a less favourable product mix, the company’s gross margin for 1HFY2025 was also lower, resulting in earnings of $0.4 million for 1HFY2025, compared to $3.2 million in the year-earlier period.
He is optimistic that this market holds significant growth potential for Innotek. “The global AI business is strong, the capex amount committed has been huge and the pipeline in AI looks strong for years to come. We have to see how sustainable this trend will be as the companies will need to monetise this capex to be viable and therefore we need to see in the next few years how it will develop,” says Chandaria.
Chandaria explains that the company’s in-house capabilities to serve the AI orders are already in place. In a typical year, the company spends between $10 million and $15 million on capex, which is very much aligned with the orders it won. “The increase in orders will increase our capex overall. We will also invest in specialised equipment for certain customers to meet their requirements,” he says.
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Thus, while Innotek remains in a healthy net cash position of $54.1 million as of June 30, is there a need to raise funds for higher capex? “We may consider this in the future, but currently, we are comfortable with our balance sheet and the large cash reserve in the company. If it becomes necessary, we may look at external funding,” says Chandaria.
“Today, we have significant cash reserves. This is very critical, especially in the eyes of our customers. Our customers want to be sure that we have the financial capability to see through the respective projects and support their requirements,” he adds.
Coping with the trade war
Besides the server segment, Innotek is continually seeking new growth areas, such as medical equipment and gaming. “The whole objective of entering a new segment is to prevent Innotek from facing specific market risk as we are a relatively conservative company,” Chandaria explains.
In the near term, the company sees some challenges in some of the markets it serves. For example, its automotive segment is exposed to China’s electric vehicle (EV) market, which is currently undergoing a brutal multi-year price war, and where suppliers are being required to bear lengthy credit terms by the carmakers. Even so, Chandaria believes that the EV market remains one with considerable growth potential down the road. Innotek, for one, supplies parts to Contemporary Amperex Technology Co (CATL), which is the world’s largest lithium-ion battery maker and itself a key supplier to numerous EV brands. Recent policy moves have helped address the problem of stretched credit terms. “Even though there is a lot of ongoing turmoil in China’s EV market, we believe that it will stabilise in the next one to two years,” says Chandaria.
Unsurprisingly, for a manufacturer with multiple operating sites across various parts of China, Thailand, and Vietnam, the trade war has also affected its operations. “Uncertainty is the biggest problem,” says Chandaria. “Timeline for major investments and projects could take years; clients might not want to commit at this juncture due to the uncertainty.”
To support its customers, Innotek has expanded its operating sites, aiming to reroute and improve the resilience of its supply chains. For example, the company is expanding its facility in Thailand by four times its current size to 20,000 sqm, to support other customers.
In May, Innotek incorporated Mansfield Manufacturing Sdn Bhd in Melaka, Malaysia, marking the company’s first foray into the country. Mansfield Melaka will focus on precision metal stamping, tool and die fabrication and assembly operations for one of Innotek’s major customers in the office automation segment.
In addition, Innotek is in active discussions with another key customer, server maker Ablecom, to supply its existing operations in Malaysia, as well as to support the partial relocation of operations from China to Malaysia. “As you know, Malaysia is a semiconductor production country and we are finding a very good combination of competitive costs and great infrastructure,” explains Chandaria.
He acknowledges that the trade war is not making things easy. Still, Chandaria points out that with all the years of operating experience, Innotek had previously overcome previous rough patches such as the Covid period. “We managed to ride out of it. We do not see why we cannot ride it out this time round.”
In fact, Chandaria has ambitions to drive further growth for the company, bringing it closer to its previous level. When it sold off Magnecomp in 2007, its revenue dropped from $721 million to around $449 million, relegating Innotek to a small-cap company. “Over the medium term, Innotek will seek out inorganic growth, such as any potential merger & acquisition opportunities. We will also focus on our organic growth, as we still see opportunities to expand our business internally. We want to lift Innotek’s scale and size so that we can attract the interest and attention of institutional and retail investors,” he says.
