At the beginning of July, Molex Inc., one of the world's largest connector suppliers, saw two new leaders take the helm. J. Joseph King became vice chairman of the board and chief executive, while Martin Slark took over as president and chief operating officer. King and Slark replace Fred A. Krehbiel and John H. Krehbiel Jr., who are retiring from their positions as co-chief executives. The Krehbiel brothers will remain co-chairmen.
This is the first time in Molex's 63-year history that a Krehbiel family member has not been chief executive.
King and Slark have the formidable task of steering Molex out of an industry downturn in its consumer, automotive, communications, and computer markets. Sales in the company's most recent quarter declined by 16.9%, to $510.5 million from $614.6 million in the year-ago period, and the company's projected revenue for fiscal 2002 is $2.05 billion to $2.25 billion, slightly less than the $2.4 billion recorded in fiscal 2001, ended June 30. The company has resorted to layoffs and wage freezes to cut costs.
King and Slark spoke with EBN's senior editor, Spencer Chin, last week.
EBN: How will the fact that two non-Krehbiel family members are running the day-to-day operations of the company change the way Molex is managed?
KING: Frankly, I think that you're not going to see much change because the culture of the company has not changed and the systems we use to run the company have not changed. They will continue to evolve over time, but you will not see any steep changes.
SLARK: Both Joe and I have been at Molex for 25-plus years. Obviously, we have grown up in this culture, and one of the reasons we've both stayed here is we believe very strongly in the core values of the organization. So, obviously, we're not going to change those because we've been part of it and have been contributing for a long time. The second point is, even though Molex is publicly traded, the Krehbiel family has a significant ownership position and isn't going away.
EBN: Many companies, including Molex, have been hit hard by the industry downturn. What factors do you think made this downturn difficult to predict and deal with?
SLARK: I think what has made this downturn difficult to predict and manage is that we're basically seeing a slowdown in most of the major industry sectors, and in virtually all of the geographies that we deal in. Typically, when we've worked through slowdowns before, it's either been one region or one major industry. This just happened so quickly and has been so severe.
Also, I think what's made it different is the involvement of contract manufacturers and distributors. It's much tougher to see what the end-customer demand is today than 10 years ago.
EBN: What lessons from this downturn can Molex apply to changing the way it manages its supply chain? What aspects of your supply chain strategy do you see changing?
KING: When you look at our performance through this upturn and downturn, we feel that our own piece of the supply chain was managed reasonably well. If you look at our inventory as it moved from the peak demand point to the peak rate of reduction in demand, our inventory increased by only 10 days. And that 10 days we have successfully dissipated again over the last two months, so we're back to what we consider normal operating inventory levels. We may need to take another two or three days out of it, but nothing like the kind of horror stories that you hear in the industry.
But if you look at the supply chain in total, clearly there are problems because what's stuck out in the pipeline in front of us is the single biggest damper to our growth going forward. I guess the lesson that we learned from that is don't believe what the intermediaries tell you, do your own verification of what the true underlying demand is.
EBN: How is the role of the distributor and electronics manufacturing services (EMS) provider changing the way you're doing business?
SLARK: Today we tend to do more of the technical sale at the OEM and then the commercial sale, which is the negotiation of the service issues; the price and service issues tend to be done at the contract manufacturer. It tends to make the whole process somewhat more complicated because you can end up dealing with more people as a process of completing the whole sale.
You could be doing the designing in California and dealing with a contract manufacturer in Malaysia, so having the ability to deal with all those multiple locations, and in some cases having to do it globally, is obviously something you need to be versed in.
EBN: Is Molex considering acquisitions or other strategic partnerships at this time? What type of businesses would you consider acquiring or partnering with to ready yourself for an upturn?
KING: Those familiar with the company know that acquisition has not been and will not be our primary mechanism for growth. Nevertheless, we pursue acquisitions of a technical nature, those which bring us pieces of technology, which either are inaccessible to us because of patent coverage or which would take too long through internal development. If you look at what we've done over the years, most of our acquisitions and partnerships have been of that nature.
EBN: What future markets and product areas is Molex looking into? Can the company diversify further beyond the communications, computer, consumer electronics, and auto- motive markets?
SLARK: We think data storage is an attractive market for us because even though the telecom infrastructure market is clearly down, people continue to use the Internet, and there is more and more demand for data storage. We think that market will come back sooner than some of the others. Clearly, there's going to be a proliferation of wireless devices around the world-all these handheld devices that you see people carrying. I think that whole wireless area is exciting. The industrial market is also an area that Molex has a small share in where I think we can grow.