Weathering the recession storm, Part 3

briankrauseIf there is one thing that leading suppliers in the electronics industry agree on is that the downturn hit fast and steep. As a result, most suppliers moved quickly to reduce cost by consolidating plants, cutting their employee headcount, and pruning product lines. However, most suppliers tried to keep their research and development investments intact, particularly for key projects. Here’s our third interview with Brian Krause, vice president of marketing & communications, Molex Inc. (Lisle, Ill.)

Editor: What have been your biggest strategies for business survival during the downturn?

Krause: Over the last year, we consolidated five global product divisions down to three — the microminiature products division (in Japan), integrated products (in Ill. HQ) and commercial products (in Singapore). We incorporated AEPD, the industrial division, into integrated products and folded the automotive division into the commercial products division. We have one global sales and marketing organization.

With the downturn, we had to reduce costs. Like so many manufacturers, we closed a number of smaller facilities and transitioned those products into much larger facilities that house all manufacturing processes under one roof.

About two years ago, we regionally structured our company with organizations in the Americas, Europe, Far East south and Far East north, along with establishing five global product divisions to better focus on our customers. When the recession hit it allowed us to take the next step to fold some of smaller divisions into the larger ones. By doing that we were faster than some of our competitors in doing the same thing.

In terms of revenue trends, we’ve had a difficult time. It’s not something we saw coming and it came very quickly. We did what we needed to do and we’re coming out of this a stronger company. We continue to spend on the development of new technologies and new products so when things turnaround, we’re going to turn with it. Our outlook for the fourth quarter is higher than the third quarter.

We’re starting to see sequential bookings increase. We’re going to see much better profit gross margins as our cost structures are very much lower now. We also have people covering the right accounts. I think the channels have done an outstanding job of managing inventory, a much better job than 2001.

Our business has improved with our OEM and EMS customers but distribution continues to be weak. What that tells me is that the second-, third- and fourth-tier companies are continuing to struggle in this recessionary period. They aren’t coming back as fast as the bigger guys. This was a very tough recessionary period. There are a number of those companies that aren’t going to come out of this very well.

Editor: Have you or do you plan to shift your product focus as a result of current economic conditions? In which areas?

Krause: It was a very severe recession. Molex continues to reinvest in our industry and our marketplace, and at a higher rate than the industry itself. We continue to garner industry standard wins along the way. Our focus is to continue to invest, drive industry standards and look for new and creative opportunities for our products. We’ve introduced a lot of new products and new technologies so when things turnaround we’re going to turn with it.

[Editor’s note: Molex has introduced several new products over the past year including its solid-state lighting Transcend Lighting Series, HDMI Type D (micro) connectors, CLIK-Mate wire-to-board connectors, HSAutolink Interconnect System for vehicles and a capacitive switch. The connector maker also expanded its line of LumaCore-based optical inserts for ARINC connectors and its iPass+ HD connector earned a spot in the SAS 2.1 standard.]

There is also a big push on vertical markets. Molex now has a medical campaign, and a Rebuilding America Together campaign for the industrial market.

Editor: Are there beginning signs of a possible recovery in the second half of 2009?

Krause: There are some opportunities coming out of this recession that span all markets. I think it’s up to manufacturers to find where those opportunities are. We have opportunities in the industrial area and renewable energy. It really comes down to how fast the buying will come back.

If you look at the marketplace, there are three areas that drive purchasing power. One is the consumer market and certainly over the past year the consumer has held back a bit; worried about their jobs and their ability to stay employed. We’re not seeing the consumer segment come back as fast as it has in the past.

The second part is business buying — IT equipment. I think they are holding back as well. The federal government is continuing to spend and we’re starting to see some life come back.

We’re also starting to see our OEM business return. In the fourth quarter of last year we saw a tremendous drop as did most manufacturers. But now sequentially month over month, we see increased bookings. I think we’ll be in a long period of recovery but there are signs that things are improving.

We don’t foresee a double dip. We are watching it very closely. I think the federal governments around the world have done a nice job shoring up the economies. Even China put $700 billion into their economy. I think the [Obama] administration has done a pretty good job; they were quick to react. They did what they needed to do to make sure there wasn’t a complete meltdown of the financial institutions.

Editor: What will be the biggest drivers of future demand?

Krause: The consumer market will drive a large portion of demand across a wide variety of products. They have held back and certainly flat panel displays, cameras and navigation products are down in sales. Other areas that will drive opportunities include the industrial market and 4G wireless. China and India will drive some large purchases as we go forward.

Editor: Which emerging markets, including renewable energy, show promise as potential growth drivers over the next few years.

Krause: The federal government is spending billions on alternative energy systems. We just recently released a new solar photovoltaic junction box and have some proprietary systems that we’re working on with manufacturers in the U.S. There is tremendous opportunity in this space.

See related articles:

Weathering the recession storm, Part 1

Weathering the recession storm, Part 2

Weathering the recession storm, Part 4