IEC Electronics Corp.

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IEC Electronics Corp.

105 Norton Street
P.O. Box 271
Newark, New York 14513
U.S.A.
Telephone: (315) 331-7742
Fax: (315) 331-3547
Web site: http://www.iec-electronics.com

Public Company
Incorporated: 1966 as Intercontinental Electronics Corp.
Employees: 1,509
Sales: $204.16 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: IEC
NAIC: 334412 Bare Printed Circuit Board Manufacturing

IEC Electronics Corp. is a contract electronics manufacturer of complex printed circuit-board assemblies and electronic products and systems. Its wide spectrum of services includes product design, material procurement and control, manufacturing and test engineering support, statistical quality assurance, complete resource management, final packaging, and distribution. IEC’s customer list of original equipment manufacturers is international and includes Fortune 500 companies.

Concentrating on Printed Circuit Boards: 1966–93

The company was founded in 1966 as Intercontinental Electronics Corp. by Roger E. Main and two other executives of General Dynamics Corporation’s electronics division. Originally located in Fairport, a suburb of Rochester, New York, it moved to East Rochester in 1970 and the rural community of Newark, about equidistant from Rochester and Syracuse, three years later. It became a public company as IEC Electronics in 1967 and was making handheld radios on contract in fiscal 1972 (the year ended September 30, 1972), when it earned net income of $165,160 on sales of $1.9 million.

IEC revenues reached $3.3 million in fiscal 1974, but the following year its sales dropped by one-third and it incurred a loss. Accordingly, the company entered the consumer products field, chiefly by the manufacture of TV games. It enjoyed a profitable fiscal 1976 on sales of $4.06 million but lost money the following two years in spite of annual revenues that reached close to $5 million. IEC’s largest contract customers in the late 1970s were Coleco Industries, IBM, and Xerox. Its consumer line consisted of radio communications products, especially VHF and UHF portable radio transceivers and mobile handheld adapter systems, VHF and UHF paging receivers, and a base-station encoding control system. In 1980 IEC sold its consumer-products operations to Sab Harmon Industries Inc. for an estimated $1.3 million in cash, plus royalty payments on future sales of the acquired products.

IEC Electronics lost money in fiscal 1980 and 1981 but became profitable again the next year, when it doubled its sales. By fiscal 1985 it had again doubled its revenues, and its net income passed $1 million for the first time, on net sales of $14.42 million. At this time IEC was producing electronic assemblies for a range of products, such as computers and computer peripherals, office copies and high-speed duplicators, industrial photography and video imaging systems, communications systems, and medical electronics. These customers included Control Data, Digital Equipment, Eastman Kodak, and Polaroid, as well as IBM and Xerox. The company faced severe competition from low-balling Asian firms, but IEC contended that its own costs were actually lower because of a superior level of quality control.

In order to limit its expenses, IEC was concentrating its efforts on labor-only sales where the material was supplied by the customer. However, in a 1986 talk to security analysts, Main, who was president and chief executive of IEC, indicated the company now was in a position to seek contracts whereby it purchased materials as well. Specifically, Main saw a growing opportunity in surface mount technology (SMT), a relatively new process of making electronic circuit boards with devices mounted directly on the printed circuit rather than the older method of inserting wire leads into holes drilled in a printed board. IEC eventually would become one of the largest independent SMT contract manufacturers in the United States.

IEC Electronics was purchased by four of its own executives and the New York City investment firm of DeMuth, Folger & Terhune in 1988 for $30.4 million. IEC officers and employees retained 20 percent of the shares, with the investment firm holding the rest. In 1989, some 400 different products were in production or on order at the Newark factory for the company’s 125 customers. Sales reached $55.06 million in fiscal 1990. In 1992 IEC purchased Calidad Electronics Inc., a manufacturer of printed circuit boards based in Edinburg, Texas. The purchase was enabled or enhanced by $29.74 million in funds raised from a 1993 offering of shares that took IEC public again. The money also allowed IEC to reduce its long-term debt to $3.92 million, compared to $21.82 million in 1989.

IEC’s Best Years: 1993–97

During 1993 IEC Electronics’ net sales reached $102.96 million—nearly double the 1990 total—and its net income climbed to $8.44 million. CEO Main and General Manager Russell Stingel attributed the increase to growth in the markets for security devices, certain types of computers, medical instrumentation, and machine control. IEC was now serving 64 different customers, but Compaq Computer accounted for 60 percent of sales. To keep up with its increased orders, IEC more than doubled its workforce. IEC’s sales reached $130.3 million in fiscal 1994 and its net income $10.95 million. That year the company acquired a southern firm, Accutek Inc. of Arab, Alabama, for $4 million. Sales dipped a little the following year, and net income fell by more than 50 percent.

Main died in 1996 and was succeeded as chief executive by Stingel, an original stockholder who had worked with Main at General Dynamics and had joined IEC in 1977. By this time supply shortages had cost the company at least $30 million in sales in 1994 and 1995, according to Stingel, leading to a reduction—albeit temporary—of the workforce to 1,000 from a peak of 1,700. In order to meet its needs faster, IEC arranged partnerships in 1997 with two large electronics-supply companies, Arrow Electronics Inc. and Pioneer-Standard Electronics Inc., that allowed personnel from these companies entry into IEC’s factories. The partnerships were credited with enabling IEC to obtain supplies three days ahead of production, instead of the two weeks it needed before. The company also designed and installed computer databases allowing it to cut its price-quotation time to its customers from several days to 24 hours. That year IEC received an award for the highest overall customer rating given to a large contract electronics manufacturer.

Another important IEC decision was to focus on turnkey manufacturing, in which the company directed every stage in the process, starting with obtaining the materials and extending, in some cases, to distribution. By contrast, as late as 1994 about 90 percent of the company’s work was dependent on materials provided by its own customers. IEC also upgraded its management, hiring senior level managers with a broader level of experience. In addition, the company reduced its dependence on Compaq and the personal computer market, adding networking, telecommunications, and communications customers. In place of the standard weekday eight-hour shifts at its factories, IEC converted to 12-hour shifts every day. Besides putting the company’s expensive equipment to work around the clock, the conversion gave employees more free time, resulting, Stingel said, in higher productivity and lower absenteeism. Net sales soared to $260.69 million in fiscal 1997—more than double the 1995 level—and net income was nearly three times greater than the previous year.

Immersed in Red Ink: 1998–2000

Interviewed by Mike Dickinson of the Rochester Business Journal, Stingel was not shy about accepting the credit. While crediting Main, whom he described as “a good partner and a good friend” with the “sheer guts” needed to create IEC, Stingel said that Main “was trying to do everything himself and that does not work.” Stingel, by contrast, called himself “a team player. I believe in team management, team motivation.” IEC’s chief executive did not have much time to bask in the good news, however. By mid 1998 the company was losing money, and its stock, which peaked at $22.25 a share in September 1997, was trading at only about a third of that level. With the price now below book value, the board of directors adopted a “poison pill” plan to forestall a possible takeover bid. Heartland Advisers, Inc., a mutual fund manager, controlled about 26 percent of the company’s stock while the top 13 officers and directors owned only 7.6 percent combined.

IEC’s net sales dropped by more than $12 million in 1998, and it lost $6.16 million, which included a $4.7 million restructuring charge to close the Alabama plant, which had been operating in the red after several key customers canceled or reduced their contracts. The company shed 38 percent of its workforce. IEC’s sudden fall from grace resulted from the loss of its two leading customers, Compaq and Matrox Graphics, Inc. Both were personal computer manufacturers that shifted their work to low-cost, foreign producers. Their departure left IEC with no choice but to accelerate its transition to low-volume production runs and an emphasis on rapid changes, targeting the communications and industrial sectors. During fiscal 1999 industrial accounts made up 65 percent of IEC’s revenues and telecommunications comprised 30 percent. (IEC’s industrial market consisted of making the bar-code scanners used in retail stores.)

Company Perspectives:

IEC’s customer focus is on emerging and established high-technology manufacturers of telecommunication and industrial and instrumentation equipment. IEC’s customer list is international, and includes Fortune 500 companies. An important element of IEC’s strategy is the establishment of partnerships with major and emerging leaders in the electronics industry. The company’s goal is to provide its customers with total manufacturing solutions for both new and present products, and to meet customer needs as they evolve .

Stingel now also sought more international business by acquiring a plant in Langford, Ireland, from Ohshima Electronics Manufacturing Ltd. for $1.2 million. In addition, he also leased a newly constructed factory in Reynosa, Mexico, only 32 miles from the Edinburg facility. “The close proximity of our new Mexican facility will allow IEC to leverage the excellent purchasing, program-management, engineering, quality, and transportation infrastructure in Edinburg, thus offering our customers a low-risk transition into low-cost manufacturing in Mexico,” a company executive told Darrell Dunn of Electronic Buyers’ News.The company’s new “TexMex” strategy bore fruit almost immediately, when it won a major contract to produce a variety of industrial electronics products for General Electric.

Nevertheless, fiscal 1999 was by far the worst year ever experienced by IEC Electronics. Net sales sank to $157.49 million from $248.16 million the previous year, and the net loss widened to a record $20.57 million. Company stock dropped to as low as $1 a share. Before the year was out, Stinger’s hand-picked successor, David Fradin, died suddenly, forcing the retired chief executive to resume his job on an interim basis. As part of a restructuring plan, IEC sold the manufacturing assets of its Irish plant in late 1999 and leased the facility to the buyer.

Thomas W. Lovelock, a specialist in repairing ailing companies, became chief executive officer of IEC Electronics in August 2000, shortly before the company reported net sales of $204.16 million and a net loss of $8.03 million in the fiscal year. He said that he wanted to broaden IEC’s customer base to reduce its dependence on a few large orders from a small number of industries. By the end of the year, however, IEC was reported to be planning to reduce its client list from 65 to 25 in an effort to recast itself as a niche service provider. The company canceled, for example, its contract with struggling communications equipment manufacturer Lucent Technologies Inc. and looked instead to grow by signing contracts with telecommunications companies such as JDS Uniphase. “We’ve made a number of changes [but] the challenge is taking this company that has been floundering for the last three years, with a turnover in leadership, and [to] refocus it and pull it up by its bootstraps,” Lovelock told Claire Serant of Electronics Buyers ‘ News. “The company has been operating in a high-mix, medium-volume environment as opposed to a low-mix, high-volume environment, which is a big change.”

During fiscal 2000 IEC Electronics provided contract manufacturing services to about 75 customers. These were primarily for telecommunications equipment, measuring devices, medical instrumentation, imaging equipment, office equipment, micro, mini, and mainframe computers, and computer peripheral equipment. The company’s long-term debt was $15.27 million at the end of 2000. Fifteen directors and officers collectively owned a total of 21 percent of the common stock. Heartland Advisers remained the largest institutional investor, with 11 percent.

IEC Electronics announced in 2001 that it would downsize its Edinburg plant, moving some of the production lines to the Mexican facility. It also signed a contract for a variety of services with RiverDelta Network Inc., a provider of broadband routing and switching communications products. As a long-term goal, the company was seeking to enter the upper end of a group of about 250 midsized U.S. contract electronics manufacturers—those with annual revenues ranging between $100 million and $1 billion. To further this goal, the company in 1998 opened a state-of-the-art technology center at its Newark manufacturing facility. During 2000 the center added prototype assembly to its services and an advanced materials technology laboratory.

Principal Subsidiaries

IEC Electronics-Edinburg, Texas, Inc.; IEC Electronics Foreign Sales Corporation (Barbados) .

Principal Competitors

Flextronics International Ltd.; Hadco Corporation; Sanmina Corp.; Solectron Corp.

Key Dates:

1966:: Roger E. Main and other General Dynamics executives form Intercontinental Electronics Corp.
1967:: Company goes public as IEC Electronics Corp.
1980:: IEC leaves the consumer products field, concentrating on contract manufacturing.
1988:: Four IEC executives lead management buyout of company.
1992:: IEC purchases a Texas manufacturer of printed circuit boards.
1993:: Company goes public again.
1994:: IEC has record net income of $10.95 million on record net sales.
1998:: The company leases a factory in Reynosa, Mexico.
1999:: In by far its worst year ever, sales slump 37 percent and IEC loses $20.57 million.