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MANAGEMENT DISCUSSION AND ANALYSIS (continued)
Business review (continued)

Even though the Group’s notebook PC business made progress in terms of the number of
units sold when compared with the same period last year, it however did not grow as quickly
as it could have been. Among the factors impeding its growth included a weakened Chinese
economy which resulted in many popular local Chinese notebook PC brands competing
purely based on price; social incidents in Hong Kong (– one of the most important markets
for AVITA laptops,) that led to a substantial drop in consumer traffic to electronics and I.T.
stores, especially those in traditionally high-tourists traffic districts; and relatively cooled
consumers spending in Taiwan (– yet another important market for AVITA laptops), due
likely to the fact that an important part of the Taiwan economy is still dependent on the
manufacturing industries where many participants have varying links with China, hence are
susceptible to the PRC’s slowing economy.

Despite the aforementioned developments, the Group has continued to invest in advertising
and promotions, product development and R&D, with a view to further raise awareness and
increase market shares for its notebook PC brands. In addition, the Group has made towards
penetrating untapped markets. As regard to operations for the period under review, efforts
were made to reduce overall fixed costs and headcount in the Group. Furthermore, resources
allocated to the different Asia markets for the Group’s notebook PC business were re-focused
with the majority of the investments concentrated on the top 5 markets.

Prospects

Based on the latest information available, negotiations aimed at defusing the trade dispute
between China and the United States have made some progress. However, as negotiation
tactics are constantly changing, there are no guarantees that the anti-Chinese-goods tariffs will
be lowered in the immediate future. After visiting some South East Asia based ODM/OEM
manufacturing candidates last year, the Group has started in-depth price negotiations with
some of them, especially those in Vietnam and Malaysia. The expectation is to have ODM/
OEM manufacturers in South East Asia possibly producing AV products on behalf of the
Group starting in the year 2020.

In addition to the defensive action outlined above, the Group will proactively leverage its
many years of experience in audio-visual technologies, together with its know-how in the
latest IoT features, such as wireless charging, app controls and the like, to create “Smart
Home Products” that possess much higher value add than those of the Group’s traditional
AV products. Already, some of these products are set to make their debut at the upcoming
Consumer Electronics Show (“CES”) in January 2020, in Las Vegas.

Interim Report 2019 ALCO HOLDINGS LIMITED 23