China No Longer the Destination for Low-Cost Manufacturing? (VRGY)

| About: Verigy Ltd. (VRGY)

While some companies are choosing Asian countries other than China for low-cost manufacturing, Verigy (proposed ticker: VRGY), which designs, develops, manufactures and sells advanced test systems and solutions for the semiconductor industry is not. From the company's S-1 filing in preparation for an upcoming IPO:

The economies of Asia have been highly volatile and recessionary in the past, resulting in significant fluctuations in local currencies. Our exposure to the business risks presented by the economies of Asia will increase to the extent that we continue to expand our operations in that region, including establishing our headquarters in Singapore and transitioning our contract manufacturing activities to China through our contract with Flextronics.

We have selected Flextronics (ticker: FLEX) as our primary CM and we will shift our production to its facilities in China. We expect Flextronics to begin manufacturing our Versatest V5000 Series platforms in China beginning in the middle of calendar 2006. The complete transfer of the Versatest V5000 Series platform manufacturing to China is planned to be completed by the end of calendar 2006. We expect Flextronics to begin manufacturing our 93000 Series platform in China in the second half of calendar 2006. The complete transfer of volume manufacturing of the 93000 Series platform is expected to occur in the first half of calendar 2007. Flextronics will continue to do limited early production runs of the 93000 Series platform in Germany.

We expect this model to improve our ability to manage costs in a cyclical market, drive down inventory costs and exposure, improve our responsiveness to customer demand and place us closer to emerging markets.