Methode Electronics, Inc.

views updated

Methode Electronics, Inc.

7444 West Wilson Avenue
Chicago, Illinois 60656
U.S.A.
(708) 867-9600
Fax: (708) 867-3288

Public Company
Incorporated: 1946
Employees: 2,500
Sales: $213.3 million
Stock Exchanges: NASDAQ
SICs: 3678 Electronic Connectors; 3679 Electronic Components Not Elsewhere Classified; 3676 Electronic Resistors

Methode Electronics, Inc. produces and sells electronic components used in a variety of manufacturing processes. Most of the company’s products are involved in connecting, controlling, or distributing electrical energy, pulse and signal. Methode’s devices are commonly found in data processing equipment, instruments, communication products, and automobiles. The company also supplies components for military and aerospace manufacturing. Methode maintains 16 manufacturing facilities and three service centers. The company produces connectors for the electronics industry at four factories in Chicago and two plants each in Singapore and the United Kingdom. In one U.K. plant and four facilities in the midwestern United States, the company produces a wide range of controls, air bag transducers, and wiring harnesses for the automotive industry. The Big Three U.S. automakers together account for about 45 percent of Methode’s sales. Methode manufactures printed circuit boards, its staple product until about 1980, at sites on both coasts of the United States.

Methode Electronics, Inc. was founded by William McGinley just after the end of World War II. As of 1995, McGinley remained the only company president in Methode’s half-century history. During its first three decades of operation, Methode’s bread-and-butter product was the circuit boards it provided to television manufacturers and makers of other consumer electronics. By the 1960s, the company was big enough to begin swallowing up smaller operations. In 1962, Methode acquired Carter Precision Electric Co., Inc., and five years later, the company purchased Technical Components Co., Inc., a manufacturer based in the suburbs of Chicago. In 1969, Methode swapped 5,000 shares of convertible preferred stock for Graphic Research Inc., a maker of printed circuit boards for military applications, based in Chatsworth, California.

During the 1970s, Methode continued to grow steadily. In 1975, the company formed a new subsidiary called Carthage Precision Electric Company, located in Carthage, Illinois. The Carter unit it had acquired 13 years earlier was integrated into the new Carthage subsidiary. Meanwhile, executives at Methode’s Graphic Research subsidiary had expressed a need for better printed circuit board testing equipment. To meet this request, another subsidiary, PWR, Inc., was formed. By the beginning of 1976, PWR had set up shop in the Graphic Research building, and manufacturing of printed circuit board testing systems had begun.

Toward the end of the 1970s, McGinley initiated a couple of strategic shifts that paid off handsomely for Methode. Prior to that time, the company was making primary custom-built circuit boards and connectors according to designs supplied by its customers. McGinley decided that these custom-building contracts, while a fairly low-risk proposition, were not profitable enough. Methode began instead to sell products that it had designed itself. While this approach was riskier, since it involved the additional expenses of designing and developing the products, it would lead to much greater profit margins.

McGinley’s other change of direction stemmed from his recognition of the fact that most television and other consumer electronics manufacturing were emigrating from the United States to Asia in rapid fashion. To adjust to this phenomenon, he began shifting Methode’s product development efforts away from televisions toward a greater emphasis on making connectors for the automobile, computer, and aerospace industries. The shift was in full gear by 1980. By that time, the company had annual sales of $44.7 million, up from $27.5 million only four years earlier. Printed circuit boards still generated the biggest share of sales—35 percent—by 1981. Connectors accounted for 24 percent, while 20 percent came from switches and other transportation controls.

Over the next few years, Methode focused increasingly on producing connectors and controls, and its best customers were the major car companies. For 1984, those two products accounted for 61 percent of the company’s $82.4 million in revenue, and one-fifth of Methode’s net sales for the year came from one company, General Motors. Windshield wipers, turn signals, and cruise control components were among the hot sellers to the auto manufacturers. By this time, printed circuit boards were accounting for only about 19 percent of the company’s total revenue.

By 1985, it was clear that Methode’s decision to concentrate on the auto industry was a good one. Homing in on the car companies meant that Methode was largely steering clear of the computer market. Most of its rivals had done the opposite. When a major sales slump hit the personal computer business in the mid-1980s, most electronic component manufacturers suffered along with it. Methode’s largest competitor, Amp Inc., for instance, saw its sales shrink by seven percent and its earnings decline by one third in 1985. Methode, on the other hand, remained on a roll. The company was supplying nearly all of Ford Motor Company’s cruise-control switches, and all three major American auto makers were buying a large share of their steering-column controls (for headlight intensity, wipers, etc.) from Methode. In addition to its automotive products, Methode’s military business was booming as well. The Reagan administration’s beefed-up defense budget put large sums of money into the hands of big military contractors like Raytheon Co., Boeing Co., and Hughes Aircraft. Since each of those, and many others, were Methode customers, a healthy share of that defense budget eventually ended up in Methode’s till.

In the second half of the 1980s, Methode made moves to place itself in an even more vital position in the automotive chain of production. By 1986, Methode was the only major producer of the electronic components for the new passive restraint systems being built into many new cars. Unfortunately, auto production was slow that year, resulting in flat sales and a small decline in earnings for Methode. Nevertheless, Methode was able to take advantage of the quick proliferation of electronic gizmos appearing in cars. Meanwhile, the company sought to stake out a bit more territory in the computer business. Toward that end, Methode began producing sophisticated connectors for IBM’s new generation of personal computers. Having already taken a beating from the consumer electronics industry a decade earlier, the company proceeded somewhat cautiously in the volatile computer market. Methode made one major geographical move in 1986; in order to be closer to manufacturers in the Far East, the company opened a plant in Singapore that year.

Methode’s sales grew to $113 million by fiscal 1988. The company’s biggest boost during the last few years of the 1980s came from the accelerating use of air bags in automobile manufacturing. With federal regulations requiring incremental increases in the inclusion of air bags, a huge new demand for the necessary electronic elements was created. Methode completed the development of a specialized spring system that connected impact sensors to the air bag’s inflation mechanism in 1988. Before the end of the year, contracts for the air bag springs were already signed with Ford and Chrysler, and negotiations with General Motors—which was already coming to Methode for all of its fluid-level sensor switches—were underway.

While Methode’s automotive business was cruising along in high gear, its aerospace operations were stuck on the ground. The company’s Graphic Research subsidiary was encountering several problems. One obstacle was the slowdown of the space shuttle program, a big source of Graphic Research’s revenue, in the wake of the Challenger disaster. An even bigger headache was created by repeated delays in the company’s production of multilayer circuit boards for the government’s Trident missile system. The situation at Graphic Research eventually got so bad that Methode began looking for somebody to take the subsidiary off its hands. No takers emerged, however, and by the middle of 1989, Graphic’s Trident troubles were solved, enabling the subsidiary to begin operating profitably once again.

Just as Graphic Research was righting itself, another of Methode’s California subsidiaries was entering a rough period. Trace Laboratories, a manufacturer of circuit board testing equipment, began losing money after experiencing numerous delays in the development of its state-of-the-art Manufacturing Defects Analyzer. Meanwhile, the company’s car controls continued to sell like hotcakes, and Methode’s overall sales reached $122 million for the fiscal year ending in April of 1989. Even a sickly automobile industry at the start of the 1990s could not slow Methode down. The company’s air bag spring mechanism alone generated about $15 million in revenue for 1990. During 1991, the heart of the recession, Methode’s sales grew to $149 million, chiefly on the strength of its position as the only domestic supplier of the clockspring air bag sensor connector. By that time, the company had begun to penetrate the Japanese auto market as well, landing deals to supply electronic components to Mazda and Mitsubishi.

By 1992, General Motors, which had previously made its own air bag connectors, finally became the last of the Big Three to sign on with Methode. Automotive controls and electronic connectors for other applications were combining to account for all of Methode’s earnings by this time, as the company’s aerospace operations remained in a holding pattern. Trace Laboratories’ circuit board testing business was still floundering, losing about $1 million a year and failing in its attempts to finish developing its long-awaited Manufacturing Defects Analyzer. After countless delays, false starts, and missed deadlines, Methode finally decided to cut its losses on Trace in 1992. The subsidiary was sold off, and Methode took a big write-off against earnings for its years of unfulfilled investment.

Foreign sales began to receive more and more attention at Methode as the 1990s continued. By 1993 the company had added Volvo as a customer and was negotiating with Honda and Nissan. In addition, it was building a factory in Scotland. Around this time, Methode started to forge a broader presence in the fiber-optics industry. In July of 1993, the company purchased Mikon, Ltd., a manufacturer of fiber-optic cable assemblies, based in Haverhill, England. The acquisition of Mikon gave Methode an instant foothold in the European telecommunications business. Altogether, 1993 was a big year for Methode, with major jumps in both earnings and revenue.

1994 was another record year for Methode, with sales reaching an all-time high of $213 million. Automotive controls, as usual, played a large role in the company’s performance, as car makers continued to include more and more electronic gadgetry for safety and comfort on their standard models. 1994 was also a big year for the company’s fiber-optics operations, as sales of components for that industry doubled. The increasing importance of fiber optics led Methode to create a new Optoelectronic Products Division. Another new area to receive much attention at Methode was smart connectors. This new line of products was capable of using intelligence to monitor and adjust signal in very little time. Other areas in which Methode began testing the waters included interconnection devices for airplane telephones and thermoplastic connectors capable of withstanding extreme environmental conditions.

In November 1994, Methode expressed a commitment to acquire a plant in China, which was thought to be the world’s most important emerging market. The company hoped to initiate production there during the mid-1990s. The company also acquired cable assembly operations in New Haven, Connecticut, and Limerick, Ireland, from ETOS Fujikura International during the latter part of 1994. These moves represented the most logical next step for Methode—to make itself into a truly international company. Methode’s record of growth since about 1980 had been extremely impressive, whether through astute planning, or, as company president McGinley suggested to H. Lee Murphy of Crain’s Chicago Business, “just dumb luck in having the right products at the right time.” Methode’s lingering growth spurt was expected to continue for some time if that luck extended to its international expansion as well.

Principal Subsidiaries

Graphic Research, Inc.; Intertrace Technology, Inc.; Methode Electronics Europe, Ltd. (U.K.); Methode Development Company; Methode Electronics Far East PTE, Ltd. (Singapore); Trace Laboratories East; Trace Laboratories Central; Methode Electronics, Inc.—East; Methode Mikon Ltd. (U.K.); Methode Technical Components