Wyle Electronics

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Wyle Electronics

15370 Barranca Parkway
Irvine, California 92718
U.S.A.
(714) 753-9953
Fax: (714) 753-9909

Public Company
Incorporated: 1953 as Wyle Laboratories
Employees: 2,000
Sales: $792 million
Stock Exchanges: New York
SICs: 5046 Commercial Equipment Not Elsewhere
Classified; 5065 Electronic Parts & Equipment Not
Elsewhere Classified; 8711 Engineering Services

Wyle Electronics is one of the leading U.S. marketers of high-technology electronic products and components, specializing in semiconductors, computer systems, and related services. The company’s wide distribution network encompasses 30 locations across the United States. Wyle started out providing engineering and testing services but sold that division of the company in 1994 to focus solely on its thriving electronics distribution operations.

Wyle Electronics was created in 1994 as the successor to Wyle Laboratories. Wyle Laboratories, in turn, was incorporated in 1953 as the successor to a venture started in the late 1940s. In 1949 that enterprise was created to take advantage of the burgeoning market for specialized engineering testing services. The company built a highly advanced testing facility in Norco, California, and secured major contracts primarily with the U.S. government to test military and aerospace equipment. During the 1950s, in fact, Wyle tested components for the first intercontinental ballistic missiles. When contracts related to that business began to wane, Wyle turned to the emerging U.S. space program for work. Among other distinctions, Wyle’s laboratories and highly skilled engineers played an important role in testing equipment for the Saturn rocket used in the Apollo moon program.

Norco secured a profitable niche in high-tech testing during the 1950s and 1960s. By the early 1960s, in fact, Wyle was generating revenues of about $30 million annually. Besides testing missiles, rockets, and other aerospace equipment, the company began branching out into other arenas. Importantly, early in the 1960s Wyle entered into the electronics marketing and distribution business. Although that segment would serve simply as a sideline for several years, it would eventually surpass the testing division in sales and would became Wyle’s core business. In addition to getting into other related industries, Wyle continued to expand its Norco testing facilities. In the 1970s, for example, Wyle began offering testing services for high-speed trains and for equipment being developed for nuclear plants.

Although Wyle Laboratories was a leader in its unique niche, the company suffered from sporadic revenue and profit levels. That volatility was the result of the company’s heavy reliance on government contracts and defense spending. Partly in an effort to minimize that volatility, Wyle placed an increasing emphasis on its electronics distribution business. During the late 1970s, in fact, sales from that segment surged past $100 million annually, and the importance of Wyle’s testing services began to decline in comparison. Wyle’s electronics business enjoyed big sales gains during the 1970s, but by the late 1970s and early 1980s its profit performance was spotty. In fact, Wyle was having problems throughout its organization. The laboratory testing services division encountered a number of setbacks and the electronics business, despite the fact that it was generating about $140 million annually in revenues, lacked focus and was floundering.

To whip the electronics marketing group into shape, Wyle hired an outsider named Charles Clough. Clough was hired away from Texas Instruments, where he had gained experience that was valuable to Wyle. He was hired in as president of the division and as an executive vice-president of the company. Two years later he was made a member of the board. When Clough arrived at Wyle, he felt that the electronics group had become too diversified, both geographically and in the number of products its was offering. He decided to eliminate all efforts east of the Mississippi and concentrate on the western United States, particularly in California. He also chose to concentrate on the two high-growth product segments at the time: semiconductors and computer systems. That decision turned out to be a fruitful one, as both the computer and semiconductor markets exploded during the early 1980s.

Wyle began to experience a turnaround in 1983 and 1984, largely as a result of Clough’s efforts. Importantly, during his first three years at Wyle, Clough succeeded in securing a number of franchises from manufacturers to market and distribute their products as complete systems with peripheral manufacturers’ products like printers and modems. Among the big name companies with which he was eventually able to reach agreements were NCR, Digital Equipment, Motorola, Intel, and Wyse. Evidencing the importance of his role and of the electronics division, Clough was elevated to president of Wyle Laboratories in 1985. Industry turbulence, combined with restructuring and divestiture of some of Wyle operations, reduced the company’s sales from about $275 million in 1985 to less than $200 million in 1986. Furthermore, Wyle posted net losses in both 1986 and 1987. Sales were back to $265 million by 1988, however, and both sales and profits headed for record gains during the late 1980s and early 1990s.

Wyle’s comeback in 1988 was partially attributable to its scientific services and systems division, which represented the original core of the company. That group was benefiting from increased defense spending and specific government contracts that were generating hefty cash flow. Notable was a $27 million contract that Wyle had secured for engineering and testing support on the Titan 34D rocket motor recovery program. Wyle was also in the running for two big space contracts and was even building a 60,000-square-foot, $6.5-million facility in Huntsville, Alabama (adjacent to the Marshall Space Flight Center), in anticipation of capturing at least one of the contracts. More important than contributions by the scientific services and systems division, though, were gains in the flourishing electronics marketing group.

Indeed, by 1988 Wyle had become the largest semiconductor distributor in the western United States. The company had accumulated a customer base of 14,700, not one of which represented more than two percent of the division’s total sales. Importantly, Clough had smartly focused the company’s efforts on the burgeoning market for customer-specific semiconductors, or applications specific integrated circuits (ASICs). ASICs differ from conventional semiconductor devices in that they are designed for specific applications. In comparison to their off-the-shelf cousins, ASICs are typically smaller, more expensive, more efficient and flexible, and simpler to install. Increased use of ASICs was reflective of growing demand for more specialized, noncommodity semiconductor devices. They also brought higher profit margins and signaled the beginning of the redemption of the U.S. semiconductor industry after years of market share gains by Japanese competitors.

By late 1988 Wyle had snared 65 percent of the fast-growing ASICs distribution business in the United States. Sales rose upward to nearly $320 million in 1989, and Wyle began to once again expand its distribution business east of the Mississippi. By that time, Clough had been promoted to chief executive of Wyle. In 1988 he replaced 62-year-old Stanley Wainer, who had served as Wyle’s chief executive since 1979 and had recruited Clough from Texas Instruments. Within a year of the management change, Wyle’s electronics group had undeniably surpassed the scientific services and systems division in terms of sales, profits, and future growth potential. Reflecting the profit potential of the distribution business were large contracts, such as a $20 million agreement reached in 1988 to supply Prudential Insurance Co. with custom-tailored computer systems. As sales of systems and semiconductors improved, moreover, Wyle began tagging on a growing number of complementary support services that brought additional dollars to the company’s bottom line.

Buoyed by a rapid rise in shipments of ASICs, Wyle enjoyed heady demand growth for electronics products throughout the late 1980s and early 1990s. Also boosting that division beginning in the early 1990s was a new business called’kitting.’ Under that program, Wyle supplied the entire kit of materials and components needed by a customer, inspected and packaged to that company’s specifications. In contrast to the electronics distribution business, the scientific services division languished. Hurting sales in that segment was a big decrease in U.S. defense spending and a lull in new testing and engineering contracts. As they had been doing since the late 1980s, managers of the scientific services group tried to capture additional revenue by chasing the market for cleaning up and closing military bases and other government facilities. Still, the division stagnated and by 1990 was supplying little more than 20 percent of Wyle’s total revenues.

In 1992 Clough promoted former Texas Instruments coworker Ralph Ozorkiewicz to president and chief operating officer of Wyle, which left Ozorkiewicz in charge of both the electronics marketing and scientific services groups. Ozorkiewicz was credited with launching Wyle’s kitting program and, among other achievements, establishing a successful quality and customer satisfaction program. Ozorkiewicz had earned his engineering degree at University of Missouri before serving ten years at Texas Instruments and then a stint with Kierluff Electronics. By 1995 the 48-year-old Ozorkiewicz would succeed 66-year-old Clough as chief executive of the company, while Clough remained as chairman.

Under Clough’s and Ozorkiewicz’s leadership, Wyle’s electronics division continued to prosper going into the mid-1990s. In fact, Wyle established itself as one of the top distributors of high-tech electronic components and systems in the country. Important to the company’s growth was the trend toward outsourcing, in which Wyle’s customers were increasingly contracting Wyle to handle add-on services such as semiconductor design and materials management. Wyle’s distribution and services network swelled to include 30 facilities around the country that were generating company-wide sales of about $450 million by 1993. In 1994, moreover, Wyle achieved impressive growth as the market for semiconductors and computer equipment exploded. Revenues reached $792 million in 1994 as operating profits hit record levels. Unfortunately, Wyle was forced to record a $381 million net loss for the year.

Wyle’s net loss in 1994 reflected write-offs related to the company’s disposition of its scientific services and systems division. Indeed, in December ofthat year, Wyle completed the sale of the division to a buyout group that included some members of the new company’s management team and was headed by a former secretary of the U.S. Treasury. The division was sold for $30 million and the resultant company was headed by F. Stephen Wyle, son of the company’s founder. Although it had languished in comparison to Wyle’s electronics division, the scientific services group was still a force in its unique industry. The Norco complex, where Wyle had started out in the 1950s, maintained state-of-the-art facilities that could, among other tasks, put a battle tank through its paces in an environmental chamber, simulate forces created in an earthquake, and test steam valves used in nuclear plants. The company also sported some of the industry’s best talent. Managers of the new company planned to chase growth markets, such as the disposal of unexploded ordnance and hazardous waste cleanup.

Ozorkiewicz stepped into Clough’s chief executive shoes in April 1995. He planned to sustain the growth strategy that had made Wyle an industry powerhouse during the 1980s and early 1990s: focus on marketing, distribution, and servicing high-quality, high-technology electronic products and components. In mid-1995 Wyle was stocking approximately 30,000 items from over 50 electronic component and computer product suppliers including industry giants like Intel, Texas Instruments, Motorola, Micron Technology, Digital Equipment, and others. In addition, from its system enhancement center in Garden Grove, California, and from its Liberty Contract Services division, the company provided a wide range of value-added services, such as computer system configuration and networking, and semiconductor design and inventory management.