Multi-Fineline Electronix Inc. has made good on a promise to mix it up.
The Anaheim-based maker of flexible circuit boards that go into cell phones, personal digital assistants and other handheld devices had taken heat for its longtime reliance on Motorola Inc.
“We made a commitment in June 2004 that within three years Motorola would be less than half of our business,” Chief Executive Officer Phil Harding said. “We did it.”
Motorola once made up more than 85% of sales at Multi-Fineline, which is known as M-Flex. That was great when Motorola’s Razr was hot. But when the sleek phone lost its luster, Motorola slashed prices and forced its suppliers to do the same.
Now Motorola’s roughly a quarter of M-Flex’s sales, which are projected at $675 million for the 12 months through this September.
The company also said it’s looking to new uses for its flexible circuit boards, which are used to make electronics smaller, lighter and use less power.
M-Flex said it may look to auto, medical device and consumer electronics makers for sales.
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Harding: “We did it” |
Wall Street
The diversification is a relief for analysts, who had been wringing their hands over the issue for years. Since M-Flex released better-than-expected quarterly results earlier this month, the company’s shares are up more than 40% with a market value of $480 million last week.
“My biggest concern for this company was its sales concentration with Motorola,” said analyst Dan Su from Morningstar Inc. in Chicago. “I was really glad to see the company has been making solid progress over the past year in terms of diversifying its customer base and trying to look beyond handsets to other potential industries. That’s a step in the right direction.”
M-Flex now has four big customers that make up about 95% of revenue.
Besides Motorola, they are Research in Motion Inc., maker of the BlackBerry, Sony Ericsson Mobile Communications AB and Apple Inc.
“We used the technology we had put in place and applied it to other customers in the same market,” said Reza Meshgin, president and chief operations officer. “We were able to cultivate and get new customers and grow and diversify.”
For the three months ended Dec. 31, M-Flex’s net income grew 72% to $13.6 million, handily beating Wall Street’s expected $3.5 million.
Revenue doubled to $184 million from a year earlier and surpassed the $175 million analysts were expecting.
The dependence on Motorola stemmed from the company’s early days, according to Meshgin.
“About 10 years ago we were working with Motorola and we grew in the handset business right along with them,” Meshgin said. “That coincided with the fact that a lot of other sectors were in a recession. That’s how they came to be such a large percentage of our business.”
M-Flex’s circuit boards allow for “flip” phones,a cell phone style that Motorola pioneered with its StarTac line.
Analysts still have their concerns. A concentration of sales among just four customers is troublesome also, according to Morningstar’s Su.
“Given the competitive nature of the handset industry, I wouldn’t be surprised to see that one may demand heavy price concessions from M-Flex,” Su said.
Parent Company
Another concern: M-Flex’s Singaporean parent WBL Corp., which owns 60% of the company.
M-Flex dodged a bullet last year when WBL tried to force a combination of it and sister company MFS Technology Ltd., a circuit board maker in Singapore that’s also owned by WBL.
The deal stood to up M-Flex’s reliance on Motorola and worsen a slump at both M-Flex and MFS.
M-Flex went through the motions of the deal, all the while urging minority shareholders to reject it.
After a drawn out fight that included a lawsuit by M-Flex, WBL’s shareholders voted against the deal in July.
Despite the ordeal, relations with WBL are “copasetic,” Harding said.
“It’s like everything was before,happy board members and happy stockholders,” he said.
Analyst Su isn’t convinced that will always be the case.
“Although the deal with MFS was abandoned last year, I’m still feeling uncomfortable,” Su said. “I’m not 100% sure what WBL has in mind. The fact that it has such a high stake and it has other affiliates in the same line of business raises concerns over corporate governance.”
For now, M-Flex is plugging on.
The company has been expanding its plants in China to meet increased demand.
The first phase of expansion, which cost $32 million, is set to be done by the end of the year.
M-Flex is building a factory on the same campus where it has two other plants. Eventually, the new factory will replace the oldest one at the site, which the company bought in 1994.
The second phase involves replacing manufacturing gear at an existing plant on the campus, an investment of $30 million to $45 million that’s set to take place this year.
The expansion is set to add an extra $30 million in sales a month, according to the company.
The last of M-Flex’s local assembly jobs were sent to China last year. Some 250 workers in Anaheim now do research, development and prototype manufacturing.
