Astec America Inc. has been a major player in the power supply business for a number of years following its inception in 1971. Today, however, it finds itself tucked into a much larger power, Emerson Electric Co., and feeling along the walls to determine just how much autonomy it possesses.
Astec America, now unofficially called Astec Power, is counting heavily on growth in the communications market to fuel its power supply business. Last year the
communications sector accounted for 37%, or about $600 million, of Astec's sales, making it one of the world's top three merchant power suppliers.
But in the face of the recent economic downturn that has the communications industry at least temporarily on the ropes, both Astec and its potent parent are facing major challenges.
Last week, Emerson Electric said it expected earnings for its fiscal second quarter, ending March 31, to increase 5% from $3.9 billion in the year-ago quarter, with earnings up a penny or two from the 82 cents a share a year ago. But Emerson had been expected to earn 87 cents a share, according to Thomson Financial/First Call.
Despite the lackluster forecast, Howard Lance, an executive vice president at Emerson, speaks positively of the longer-term outlook. "Our overall order rates have slowed, but we still see some growth," Lance said. "We also believe Astec is well positioned to grow as fast or faster than the market."
But Nicholas Heymann, an analyst at Prudential Securities Inc. in New York, warned that Emerson and its vast holdings could be in for more trouble, at least in the short run.
"Emerson is definitely not fully disclosing the magnitude of its problem," Heymann said. "Right now, all of Emerson's power companies, including Astec, are positioned for short-term challenges because of their exposure to the communications industry's woes," he said. "How is it that Emerson is standing in a circle with a hologram and deflecting all the bad news? There's definitely a hole under that circle."
A face among many
Once an independent force determining its own course, Astec's future fortunes, or misfortunes, are now tied to those of Emerson.
The Astec/Emerson relationship began in 1989, when Emerson bought a 50% stake in Astec. As part of that massive business transaction, five of Emerson's power supply companies were rolled into Astec.
When Astec became wholly owned by Emerson in 1999, those companies retained Astec names but became independently managed under Emerson.
Astec is one of several power suppliers that Emerson has acquired in recent years. Others include Liebert, a maker of uninterruptible power supplies, and Ericsson Energy Systems, which Emerson purchased last year from LM Ericsson. All are part of Emerson's Electronics and Telecommunications sector.
According to Lance, these companies operate fairly autonomously, with Emerson executives sitting in on monthly board meetings and planning sessions.
That degree of autonomy, however, may not include growth projections. Dick DuBois, senior vice president of marketing at Astec, declined to project growth for 2001. But Lance did, predicting that the Electronics and Telecommunications sector will grow 15% year-over-year-lower than the 20% to 30% growth the sector has been experiencing.
But if DuBois chose to defer broad financial and marketing questions to Emerson, he didn't hesitate to speak enthusiastically of Astec's technology and product strengths.
The Carlsbad, Calif.-based supplier of AC/DC and DC/DC supplies is relying on its technological expertise, vertical integration, and established global manufacturing capability to develop a growing range of products.
"We're very excited about what we're doing," said DuBois, who has been with Astec since 1983, when the company was primarily a supplier of switching power supplies to the PC market.
Astec got involved in the datacom business in the early '90s and began moving into telecom five years ago, according to DuBois.
To improve its position in communications, Astec will continue to focus on new products, he said. In recent years, the company has complemented its long-established custom power supply business with an expanded standard product line. This now covers a power range from 1 to 6,000W and includes AC/DC switched-mode and linear supplies, DC/DC converters, and rack-mount power systems.
Much of the product expansion is in DC/DC converters. "An area of real growth for us is our line of board-mounted DC/DC modules in the 15 to 75W range to meet distributed power needs for communications," DuBois said.
Nor is Astec standing still with long-established power products, he noted. "In our LP series of AC/DC supplies, we're incorporating power factor correction to meet more stringent industry line-harmonic standards."
The global nature of the power supply business is suited to Astec's manufacturing and business setup, DuBois believes. "Our manufacturing has long been concentrated in low-cost production areas such as China, Mexico, and the Philippines," he said.
Astec has set up advanced engineering design centers in Hong Kong and the Philippines, where the technologies for the company's future power supplies are being developed.
Another Astec strength, according to DuBois, lies in being a vertically integrated entity. The company builds its own magnetics and all enclosures, cables, and harnessing. Many of the ICs for Astec's power supplies come from its semiconductor division in Milpitas, Calif.
By building all its products in-house, Astec is running counter to the electronics industry's common practice of outsourced manufacturing. "We don't use contract assemblers because of concerns over cost and quality," DuBois said. "And we don't plan to outsource manufacturing anytime soon."
With its vast global manufacturing and vertical integration, Astec has a daunting inventory control challenge. To tackle it, the company last year invested more than $6 million in inventory control software from Manugistics Group Inc.
"We decided to implement the software to optimize our inventory management," DuBois said. "The software has improved our on-time delivery of products."