One On One: Peter Cherry

If component-industry watchers were in the mood for surprises last year, Cherry Corp. proved obliging.

First, the longtime player in the switch and keyboard arenas sold its mixed-signal semiconductor division. That move

improved Cherry's cash reserves but ended its participation in an industry with considerably more growth potential than its traditional switch business.

Then, chairman and president Peter Cherry and a group of financial backers formed CABO Acquisition Corp. to take Cherry private. When the acquisition succeeded last July, some real head-scratching began.

Cherry's financial performance had been less than stellar and its stock price had taken a beating, but so had more than a few technology stocks last spring.

And compared with many competitors, the Waukegan, Ill.-based company has plenty of muscle-including enviable brand recognition, customer loyalty, a reputation for quality, and a global presence-to stage a comeback, according to analysts.

So what was Peter Cherry doing? For months, he wasn't saying, at least publicly. Then, late last month, he discussed with EBN freelance writer Mary Ann Murphy his reasons for acquiring Cherry and plans for a “new Cherry.”

EBN: Given the growth potential in analog and mixed-signal semiconductors-especially contrasted with a mature business like switches-why did Cherry sell off its semiconductor division last spring?

Cherry: Mainly because we weren't getting recognition in the analog-semiconductor marketplace. Our portfolio was heavily weighted toward power semiconductors for automotive applications, and there are plenty of well-known, established players in that arena.

Plus, semiconductors comprised just a quarter of Cherry's sales, and many of our shareholders didn't like [Cherry's expanded participation in] the automotive industry-it's gotten pretty brutal.

There are other downsides to an analog-semiconductor business: You are always faced with significant capital expenditures, and it's a real challenge these days to attract design talent. So, when we put all of those shortfalls together, selling the division just seemed right.

EBN: And what made taking Cherry Corp. private the right thing?

Cherry: Cherry Corp. looked like a good buy, and privatization makes it easier to steer the company in the direction we want it to head.

Cherry has operations and custom-ers around the world, and our customers often have a global presence as well. Our primary aim during the next few years is for Cherry's multiple functional organizations and subsidiaries to operate effectively as one integrated, global company that can serve the needs of our global customers better than our competitors can. That's how we intend to increase our share of a very mature switch market, while we also pursue growth opportunities in new products and technologies.

EBN: How did Cherry's privatization come about?

Cherry: There was no master plan for taking the company private, although the board had authorized a stock-repurchase program. The Cherry family had owned a bit over 50% of the stock, and other sizable shareholders owned 30% of the stock. So a lot of shares were tied up in the hands of family members who weren't going to sell and in a group that would have a hard time selling because the trading volume was so thin-we'd been getting volatile [price] swings on modest volumes of trade.

[By last spring], some of those large shareholders were making it clear they thought the company should go private so they could move on to other interests. We had available the proceeds from the sale of the semiconductor division in March, and shortly after that Cherry had gotten caught in the Nasdaq downdraft. So, it just ended up being an opportune time to acquire the company.

But the real point of going private was to have fewer people to answer to and more leeway to implement our company integration strategy in the fashion we think will deliver the greatest long-term benefit. Now we don't have the quarterly profit pressures a public company faces. And the family members and management Cherry needs to satisfy are naturally in tune with the strategy, since they're the ones who set it up.

EBN: What was the immediate fallout for Cherry employees from taking the company private? Are any organizational changes planned?

Cherry: There have been no layoffs or additional division sales. There has been very little impact on day-to-day operations, in fact. When [the decision to privatize] was announced, I spoke at length with the managers of each division about the reasons for this move and for selling the semiconductor unit. I made it clear that we had no hidden agenda-that there was no other shoe waiting to drop.

Of course, there was a certain amount of concern and angst along the lines of when is all this going to end? But once it was over, it was over, and we've moved on.

There are no great organizational changes pending or plans for slicing Cherry in a different way. Our intention is to change the Cherry culture, but this is an aggressive evolution we're talking about, not a revolution.

EBN: So what led you to adopt a company integration strategy, and what does it entail?

Cherry: Back before privatization took place, we had embarked on a lengthy process of self-evaluation and developing new corporate strategies. The whole management team was involved, plus outside consultants.

One of the themes that emerged was Cherry is uniquely positioned for a company of our size [$360 million in annual revenue] to deliver great product. We're small enough to be nimble and quick in responding to market and customer needs.

We're also large enough, and have been around long enough, to have developed very positive, longstanding relationships with customers of our traditional switch products, plus we have a reputation for excellent product quality, technology, and customer service.

The problem is, we haven't been exploiting those relationships or leveraging our strengths on a global basis. And that has prevented us from optimally serving our customers, no matter where their home base might be.

A big focus now is on fostering cross-directional, cross-boundary relationships within Cherry, especially in design engineering and product sales. That's how we'll ensure consistency throughout the company and promote use of common technologies and exchange of technology advances [across Cherry's geographically dispersed operations and markets].

EBN: In the mature switch market, how does Cherry differentiate itself?

Cherry: As I mentioned, among Cherry's advantages are our very strong relationships and longstanding customer base for electromechanical switches. We're leveraging relationships with customers and using our traditional switch business as a springboard to launch into faster-growing electronic-product areas.

An example is sensors. They perform the same function as many of our snap-action switches-position sensing-but they do it digitally.

Since Cherry understands position sensing, we've been able to expand our product portfolio with a growing line of sensors for appliance, office equipment, and other customers that now want an electronic switch.

And we've moved aggressively into electronic controls [including packaged sensors incorporating logic circuitry and one or more transducers to perform position, proximity, and speed sensing].

In appliance controls, we're starting to get into subsystem design and manufacture. For instance, Cherry is supplying an East Coast appliance company with the unit that controls an entire oven cooktop. It's not just a digital switch.

EBN: What about R&D ?

Cherry: Our biggest efforts right now are in the automotive arena. [Custom switches and electronic modules for power seats, power doors, and other auto applications represent the lion's share, roughly 40%, of Cherry's sales.]

One area where we're doing intriguing work is in using Hall-effect technology to develop electronic sensors that can detect occupants in a vehicle for safety and security reasons. That's a burgeoning automotive market. And again, since many of our traditional switch products perform position and proximity sensing, it's a natural outgrowth for Cherry.

EBN: More than a year ago, Cherry said it was developing an e-commerce strategy. What is that strategy, and what role will it play in the new, integrated Cherry?

Cherry: We'll be unveiling our e-commerce initiative in March. But the idea behind it is to enhance our customer-service capabilities by making it easier than ever to do business with us.