Universal Electronics Inc.

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Universal Electronics Inc.

6101 Gateway Drive
Cypress, California 90630
U.S.A.
Telephone: (714) 820-1000
Fax: (714) 820-1135
Web site: http://www.ueic.com

Public Company
Incorporated: 1986
Employees: 232
Sales: $125 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: UEIC
NAIC: 33431 Audio and Video Equipment Manufacturing

Universal Electronics Inc. develops and markets a variety preprogrammed universal control devices, including remote controls, wireless keyboards, and gaming controls. The company’s devices control virtually all infrared remote controlled televisions, DVD players, VCRs, cable converters, CD players, audio components, and satellite receivers. Under the All For One brand name, Universal sells its products to retailers overseas, as well as to private label customers and original equipment manufacturers (OEMs). Domestically, the company licenses its proprietary technology and the One For All brand name to third-party companies who, in turn, market the devices to retailers. Universal sells its wireless control devices to private label customers and OEMs in the United States, having abandoned the domestic retail market in 1998. The company also markets a line of home safety and automation products under the Eversafe brand name.

1980s Origins

Incorporated in 1986, Universal began producing its signature and sole product the following year, the All For One television set remote. For founders Frank Doherty, Paul Darbee, and Frank O’Donnell, the debut of the All For One marked the introduction of a pioneering product, one that they hoped would spark explosive growth for their entrepreneurial creation. Before Universal’s remote was released, those who purchased televisions were forced to purchase remotes from the manufacturer of their television. As its name implied, the All For One operated virtually any remote-controlled television, representing a major evolutionary step beyond the capabilities of existing remotes.

The distinction proved to be a marketable one, fueling remarkable growth for the Twinsburg, Ohio-based company. Profit margins were high, enabling the company to finance further advancements in technology. After being developed at the company’s research and development center in Anaheim, California, later models of the All For One allowed customers to operate their audio systems and televisions with the same remote. Under the stewardship of Thomas Tyler, Universals first president and chief executive officer, the company grew at a dizzying pace, drawing the attention of the national business press. From $166,000 in 1988, annual revenue swelled to $50 million by 1992 and reached $89 million in 1993, the year Business Week listed Universal as the seventh fastest growing company in the country.

According to research sponsored by Universal, Tyler and his management team could look forward to further tantalizingly substantial growth. In 1993, the year Universal filed with the Securities and Exchange Commission for an initial public offering, the company sold 11.76 million remotes. By 1997, the retail market was expected to expand significantly, with forecasts calling for the sale of 46 million units. The projected growth, according to Universal’s estimates, would lift retail sales from the $347 million generated within the market in 1993 to $751 million by 1997. Such prognostications caused a stir of excitement, both at Universal’s headquarters and among investors. Company executives signed long-term production contracts, while investors flocked towards Universal’s stock, lifting its per share price from $13 to a high of $30.

The enthusiasm swirling around Universal in 1993 was underpinned by the company’s technology and the database of information the company had collected to utilize its technology. Universal maintained a database, or “library,” of infrared codes that gave the company’s products their ability to communicate with a range of electronic products. The digital codes were obtained by purchasing the original remotes sold with consumer electronics manufacturers’ equipment, analyzing the codes in a lab, and then storing the codes on Universal’s database, which contained nearly 40,000 individual codes.

The wealth of the company’s library, which was augmented on a daily basis, enabled Universal to compete on an international basis. The remotes were manufactured overseas, primarily in Korea by a company named Kimex Electronics, and distributed in 15 other countries. Universal sold its products to retailers such as Kmart, Wal-Mart, Montgomery Ward, Sears, and Circuit City, and to other manufacturers such as Bose, Goldstar, JVC, and Samsung. The company also supplied remotes to cable operators, including Comcast, TCI, Time Warner, and Continental. Although nearly all of Universal’s sales were derived from the sale of remotes, the company also sold a line of home safety and automation products under the Eversafe brand name, which it had acquired in 1991 from Eversafe Battery for $1.6 million.

Profound Problems Surface in 1994

Universal’s broad market reach coupled with its extensive library of digital codes pointed toward robust growth during the 1990s, particularly in light of the growth projections for the retail remote market, where the company collected more than half of its sales. The frenetic growth of the Tyler-led era screeched to halt in 1994, however, just months after the company was hailed as one of the country’s fastest-growing enterprises. The high profit margins enjoyed by Universal during its first years in business were gone, stripped away by the emergence of a host of competitors who drove retail prices downward. During a six-month period ending January 1993, for instance, the retail price of remotes had plunged 40 percent. Universal was also crippled by excess inventory, a result of long-term production contracts that saddled the company with large, slow-moving supplies of merchandise. Further, Universal suffered from what it termed “production difficulties,” according to a statement filed with the Securities and Exchange Commission. By December 1994, the company was hobbled by $14.7 million in backlog orders, including $2.4 million worth of orders to cable operators that it could not ship because of Universal’s production difficulties.

After Universal posted a staggering loss of $12.8 million in 1994, Tyler left the company, vacating his posts as president and chief executive officer in January 1995. His replacement had joined the company one month earlier, having spent the previous five years at Mr. Coffee. At Mr. Coffee, David M. Gabrielsen had risen to the offices of executive vice-president and chief operating officer, the same posts he occupied when he was hired by Universal in December 1994. When Tyler left the company in January, Gabrielsen was promoted to president and chief executive officer, inheriting control over a company that spent the previous twelve months losing money.

Gabrielsen faced a daunting task when he took over early in 1995. The company’s relationship with banks that issued lines of credit had deteriorated, as had the company’s reputation among creditors, vendors, and customers. The prices of its shares had toppled from a high of $30 to $4, further eroding any confidence in the company. In an interview with the trade publication HFN on January 1, 1996, Gabrielsen shared his recollection of Universal’s condition at the beginning of 1995: “We had issues with inventory. We had far too much. We had issues with our information systems. We had issues with turnaround time with our vendors. We had product development issues; not getting product to the marketplace. Our market share was declining.”

Although Gabrielsen faced numerous problems, perhaps the most threatening challenge was presented by the complexion of the retail market. Retail sales were crucial to Universal’s financial well-being, but since it had introduced the All For One, other companies had followed suit and begun producing similar products. The existence of a variety of universal remotes induced competitive pricing, making it harder to make a profit. During Gabrielsen’s first three months at the helm, Universal posted another loss of $2.5 million, but he nevertheless did make progress. Gabrielsen reduced the company’s direct sales force, turning instead to independent representatives, and brought in senior and middle-level executives who had worked at Mr. Coffee. Gradually, Universal’s reputation among its business associates began to improve, and the company, with revamped retail lines, narrowed its losses as it slowly reduced its bloated inventories. By the end of 1995, the value of the company’s stock had doubled, reinvigorated by three consecutive profitable quarters. For the year, the company posted a profit, albeit meager, of $320,000.

Company Perspectives:

Universal Electronics Inc. (UEI) develops technology that simplifies access to entertainment and information in the home. Our company delivers this technology in a variety of ways: as licensed proprietary firmware, as custom and customizable chips, and as turnkey solutions in the form of wireless remotes, keyboards, and other devices. UEI licenses its patented technologies and sells its products to original equipment manufacturers (OEMs), private label retailers and companies involved in the cable and satellite industries worldwide.

Although the company was far from reclaiming the vitality that described its growth during its first five years in business, Gabrielsen was convinced full recovery was near. In a January 1996 interview with HFN, he noted: “Phase 1 [of the restructuring in 1995] is getting the business stabilized, which I think we did a good job of.… 1996 should be a good year. 1997 should be a great year.” In mid-1996, the company announced its decision to expand its home security electronics business, which accounted for 15 percent of sales. Management was keen to strike a more even balance between its two business segments, thereby reducing its reliance on the troublesome retail market for universal remotes. The home safety and security products, which were used to operate lighting, temperature, and thermostat control, used radio frequency and infrared technologies. “We’ve been perceived as a one-product company,” explained Universal’s senior vice-president of marketing and product development to HFN on June 10, 1996. He added: “We’re looking to expand our business. Our thrust going forward is on home control. We’re going to move into the wireless area.” Universal planned to market its line of home security systems under the One For All and Eversafe brands, hoping to derive 35 percent of its revenues from the sale of such products by 1998.

As the company attempted to move beyond the troubles of 1994, the harsh condition of the retail market delayed its recovery. Several months after it announced the plans for a greater involvement in home control products, founders Doherty, Darbee, and O’Donnell resigned from Universal. Their departure ceded greater authority to Gabrielsen, who added the title of chairman to his posts as president and chief executive officer. Concurrent with his promotion, Gabrielsen had the unenviable task of informing analysts that Universal was failing to perform as expected. “It’s going to take us a little longer to make this business profitable than we originally thought,” he conceded in the September 2, 1996 issue of Television Digest. Net income for 1996, Gabrielsen told analysts, was expected to be half the per-share price projected by the company earlier in the year. The news delivered a crushing blow to the hope that the restructuring of 1995 had cured the company’s ills. Universal continued to wade through excess inventories of outdated products and memory chips. Equally distressing, profit margins continued to shrink because of price pressures, forcing Gabrielsen to submit new, much lower, earnings projections to analysts. By the end of 1996, the news was grim. Universal lost $2.3 million during the year, reverting to the money-losing enterprise that had stumbled profoundly in 1994.

Exiting North American Retail Market in 1997

Hounded by the losses incurred from its retail operations, Universal entered its second decade of business backpedaling. In January 1997, a deal to sell the company’s One For All retail remote business collapsed. In the wake of the failed divestiture, the company announced its was not actively seeking another buyer for its beleaguered retail operations. In late 1997, however, the company announced it was abandoning the North American retail business for universal remotes, which accounted for 29 percent, or $26 million, of its overall business. The company also decided to relocate its headquarters from Twinsburg to Cypress City, California, 25 miles north of Los Angeles, completing the move in 1998. Universal officially exited the North American retail market in 1998, licensing the One For All brand name and certain proprietary technology to third parties, who assumed Universal’s former role of selling to domestic retailers.

Amid the drastic changes that occurred in 1998, Universal gained new leadership, marking the end of the Gabrielsen era. Camille Jayne joined Universal in February 1998 as president and chief operating officer, before being named chief executive officer in August 1998 and chairwoman four months later. Formerly the senior vice-president in charge of the digital television business unit at TCI, Jayne took control of Universal in the company’s new guise. Although the company had abandoned the North American retail market, it continued to participate in retail sales in Europe, where profit margins remained sufficiently high to warrant further investment. The company was also supported by sales to OEMs, cable and satellite television operators, and by private label sales.

Analysts were encouraged by the composition of the restructured Universal, at last free of the domestic retail business that had halted the company’s remarkable growth during its first five years of business. Universal’s proprietary technology and its library of digital codes, which exceeded 80,000 individual codes by the late 1990s, were valuable assets in a digital age replete with consumer electronics products. No longer forced to compete as a low-cost producer of what had become a commodity product, Universal stood in a better position to reap the rewards of its technological advantages over competitors. The company’s financial performance during the last two years of the 1990s demonstrated as much, ending the pattern of debilitating annual losses. After posting a $6.5 million loss in 1997, Universal recorded a $5.6 million profit in 1998, followed by a $7.7 million gain in 1999.

The difficulties of the mid-1990s appeared to have disappeared as Universal entered the 21st century. The company derived one-third of its sales from OEM customers, another third from cable and satellite operators, and the remainder from private label and international retail sales. For the future, expansion was expected on all fronts, but the company was particularly interested in increasing its cable and satellite business. Universal’s new management team was exploring new distribution relationships and was intent on expanding the company’s presence in Europe, Asia, South America, and Canada.

Principal Subsidiaries

Universal Electronics B.V. (Netherlands); One For All GmbH (Germany); Ultra Control Consumer Electronics GmbH (Germany); One For All Iberia S.L. (Spain); One For All Ltd.

(U.K.).