Yageo Corp. had been quietly building up its presence in passive components for a few years, when a move it made this past summer caused a stir-the Taiwanese company bought Philips Components and suddenly became one of the world's largest passives suppliers.
Yageo's interest in Philips-which it renamed Phycomp-was threefold: for growth, to expand its sales channels, and to gain access to its technology.
The acquisition beefed up Yageo's passives technology and products, particularly for multilayer ceramic capacitors (MLCCs) and
base-metal-electrode (BME) devices, and added 10 manufacturing locations.
"Acquiring Philips' MLCC activity made it much easier to grow and to put mass production into place," said Lambert Hilkes, chief executive of Yageo America Corp., the company's U.S. subsidiary in Woodinville, Wash.
"The Philips acquisition was risky from an analyst's point of view, but from a strategy point of view, it was nothing less than brilliant that they actually got the company," said Dennis Zogbi, president of the Paumanok Group, Cary, N.C. "It made a tremendous amount of sense for Yageo to buy Philips because it gave them a variety of competitive advantages over their local and global competitors.
"First, it gave them a significant market share in MLCCs and a significant technology base in base-metal MLCCs. Second, it projected them to be at least tied for the No. 1 position with the largest manufacturer of chip resistors in the world," Zogbi said.
Zogbi projects that in 2001, Yageo will emerge as the world's largest chip-resistor manufacturer.
Yageo Corp. has increased production capacity of chip resistors from 7.6 billion pieces per month in 1999 to 14.5 billion pieces per month in 2000. That's nearly 65% to 70% of world production next year, Hilkes said. The company expects capacity to reach 30 billion pieces per month by the end of 2001.
Yageo's production capacity for MLCCs has also doubled in the past year, from 1.2 billion per month in 1999 to 4.5 billion this year. The company will produce 9 billion pieces per month by the end of 2001.
The component maker's worldwide sales were roughly $400 million last year and are expected to reach $1 billion in 2000. Without the Philips Components acquisition, Yageo had expected to tally about $550 million in sales. In 1994, the company's annual revenue was just $68 million.
Aggregated sales for this year's first nine months grew 71% from the same period in 1999. The company attributes some of that success to production expansion at its Dongguan and Suzhou plants in China, in combination with strong market demand and prices. This has also resulted in a profit margin of 32%, compared with 23% in 1999.
"Yageo is well on its way to becoming a major force in the passive-electronics component market, not only in the Far East but worldwide," Paumanok's Zogbi said.
The first steps in Yageo's transformation from a small, almost exclusively Taiwan-focused resistor supplier to global passives powerhouse began with bolstering its presence in Southeast Asia. In 1994, it acquired resistor maker ASJ Pte. Ltd. in Singapore.
At the time, ASJ was manufacturing only leaded devices such as carbon-film and metal-film resistors. Yageo introduced chip-resistor manufacturing and leveraged the company's existing sales contacts in Indonesia, Malaysia, and Singapore to sell chip resistors to ASJ's customers.
Yageo followed that by purchasing two Taiwanese manufacturers that turned the company into a one-stop shop for passives: capacitor maker Teapo Electronics Corp. in 1996 and inductor manufacturer Chili- sin Electronics Corp. in 1997.
After building a strong foundation in Southeast Asia, Yageo made its first acquisition outside Taiwan in 1996 by purchasing Vitrohm Deutschland GmbH, a German manufacturer of precision and power resistors.
At the time, Vitrohm was a private-label supplier of Yageo's products. The acquisition of Vitrohm gave the company a foothold in the European market and manufacturing plants in China, Germany, and Portugal. It also broadened the company's lineup to include power resistors and custom design.
"Yageo was focusing primarily on commodity products, while Vitrohm had a lot of design-in activities in Europe, which added technical sales to Yageo's activities," Hilkes said.
In 1997, Yageo's facilities in Dongguan and Suzhou, China, came online, which provided additional production capacity and a presence in that country.
Yageo then set its sights on North America. With the acquisition of Stellar/Paccom in November 1999, the company established Yageo America. Two months ago, Hilkes, previously chief executive of Yageo Europe, took the helm at Yageo America. Hilkes had also been the president of Vitrohm.
"We realized that a lot of the approvals were made in the U.S. for global companies. Many of our key account customers have their central R&D and design-in facilities as well as AVL approvals in the United States. Customers told us that if we wanted them as customers, we needed to be a global company. We needed a local presence where they design in," Hilkes said.
"We discovered we couldn't start from scratch," Hilkes continued. "We needed an existing entity. Like Vitrohm, Paccom was already reselling Yageo products under the Paccom name."
The acquisition brought Yageo a sales channel through Seattle and a warehouse in the Philippines that supplied a key customer. Yageo's top corporate priority for the next few years is to become an important player in North America, Hilkes said.
Today the North American operation generates 12% of the company's total sales. Next year the company expects to derive about 15% to 20% of its sales from North America. Hilkes' goal is to have regional sales reach more than 30% in two years.
The company currently derives about 20% of its sales from Europe and the remainder from the Asia-Pacific region.
Thanks to Phycomp, Yageo offers a broad range of ceramic capacitors in different package sizes, capacitance, and temperature coefficients. Prior to acquiring Philips, Yageo offered a limited line of MLCCs in 1206, 0805, and 0603 package sizes.
Nearly 80% of Philips' MLCCs have been converted to BME production for lower-cost manufacturing. (Many MLCC manufacturers are substituting BME technology for palladium, the price of which is highly volatile.)
In addition, Philips' ferrite operation in Poland has synergy with the Chilisin operation in China, Paumanok's Zogbi said. "This, coupled with its current ownership of Vitrohm in Germany and Teapo in Taiwan, gives them a broad passive-component technology base and access to the Asian and European markets."
After weathering the Asian financial crisis, the shortage of MLCCs and chip resistors also helped Yageo's position, Hilkes noted. "We more than doubled our production capacity from 18 months ago," he said.
Yageo expects sales to reach roughly $1.3 billion next year without the benefit of an acquisition. "We plan to continue with an acquisition strategy, but it's getting more difficult in the field of passive components," Hilkes said. "There are a few big players, and the acquisition of one of those at this time isn't an issue, but you have to look at what's next in passive components, and that's IPDs [integrated passive devices].
"From a technical point of view, you need a lot of semiconductor production technology. It would make sense to have an acquisition in the area of power semiconductors as a next step within two years," Hilkes said.
Currently, Yageo doesn't offer IPDs, but it plans by year's end to establish an R&D team of about 20 engineers who will focus on IPD development. "We expect to go into production by the middle of next year," Hilkes said.
The company spends about 4% of its sales on R&D. "With a much wider spread of revenue after the Philips acquisition, [R&D is] getting important," Hilkes said.
Yageo also wants to spread its R&D resources into more advanced products, expand its business into high-growth market segments such as automotive, consumer, and telecom, increase its production capacity in MLCCs, and beef up its technical sales.
"We want to increase profitability by enhancing manufacturing efficiency and expanding into higher-margin products such as IPDs, high-end MLCCs, and electrolytic capacitors, and to gain more exposure in high-growth market segments such as telecommunications, consumer, and automotive," Hilkes said.
Today, Yageo derives about 65% of its total sales from the computer/peripheral sector, a key Taiwanese market. That's down from 80% in prior years. In the next two years, about 40% of the company's sales will come from computers/peripherals, 25% from automotive, 15% from consumer, and 20% from telecom.
"We'll turn BME technology into mass production next year and focus on electrolytic and inductor sales in North America, where we have zero market share," Hilkes said. "By putting specialists in field sales in Europe and America rather than the Asia-Pacific, we'll focus on our biggest growth potential. We'll also make progress to support the CEM business, where our share is limited."
To achieve its expansion goals, Yageo needs to have a worldwide presence in the form of just-in-time (JIT) warehouses. Yageo has several JIT warehouses or distribution centers in Asia and Europe and one in Seattle.
Another, located in El Paso, Texas, came on line in early September. By the end of the year, the warehouse will have 1.8 billion chip resistors and about 400 million to 500 million MLCCs in stock.
The company is also close to signing a contract for a JIT warehouse in Guadalajara, Mexico.
Yageo America also plans to focus heavily on product development. In 2001, the company expects to introduce a line of surface-mount inductors in 0402 packages and focus on product development for high-frequency applications.
In the resistor area, Yageo will expand its resistor-package offerings to include a larger selection of 0402 devices and chip-array packages.
The company also plans to supply the market with thin-film chip resistors at virtually the same price as thick-film resistors in the next two to three years by improving production processes, technology, and materials.
Plus, Yageo, which wants to become a major player in MLCCs, is developing a wider range of voltages and capacitance values as well as a new 0201 package size.
To improve its position in inductors, Yageo Corp. has appointed David Fancher to the new position of inductor product manager. Fancher was previously a product manager at Vishay/Dale. He will be responsible for marketing and technical sales of Yageo's line of multilayer surface-mount inductors, wirewound surface-mount inductors, surface-mount ferrites, and through-hole inductors.
In the next few weeks, Yageo America will have appointed a distribution manager, a contract manufacturing manager, and product specialists in MLCCs and electrolytic capacitors.
To keep up its torrid pace, the passives manufacturer needs more than organic growth. "The challenge is that organic growth of passive components in the long term is only 4% to 5% per year, which makes it very difficult to follow big growth visions. You need acquisitions," Hilkes said.
"The acquisitions are pretty much stand-alone in their activities," Hilkes said. "The culture, company, history, regional philosophy, and attitude in Europe and America are respected very much. Yageo accepts different philosophies and styles, and this makes it more successful," Hilkes said.