Tucked among nondescript manufacturing buildings in Anaheim’s industrial corridor is one of America’s hottest companies: Multi-Fineline Electronix Inc., or M-Flex for short.
The maker of flexible circuit boards has seen its shares shoot up seven-fold since the summer of 2004. They’re up more than 80% in the past three months alone.
That’s better than the likes of Google Inc.,and just about any other highflier out there.
$1.3B Market Value
M-Flex, which had a recent market value of nearly $1.3 billion, is tied to some of the hottest wireless phones from Motorola Inc., like the sleek Razr V3.
The company’s circuit boards allow Motorola engineers to manipulate the guts of a phone to fit the most stylish of designs.
M-Flex’s leader, Philip Harding, isn’t as big on style, even if that’s how his products are used. He’s a down-to-earth chief executive who rather would go over the details of how a product is engineered than the sexy design of a phone.
The company makes a product that first was designed for one of Orange County’s older industries: aerospace.
Harding has preached the advantages of flexible circuit boards for use outside aerospace since the 1980s.
M-Flex has emerged as a leader in flexible boards with low-cost production in China and streamlined engineering.
Nearly $500M Yearly Sales
The company’s challenge is attracting other phone and device makers. M-Flex’s close relationship with Motorola, which makes up three-fourths of its nearly $500 million in yearly sales, makes it vulnerable to the phone maker’s fortunes.
It won’t be easy. Big contract electronics makers are going after M-Flex’s market.
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Workers in Anaheim: about 500 locally |
For now, M-Flex has been putting together healthy sales and profit growth, which have caught the eye of Wall Street.
The company said in late December it expects net income of $15 million to $17.5 million for the quarter ended Dec. 31, up from an $11 million to $12.4 million forecast in November.
The next day, M-Flex’s stock soared, surpassing the $1 billion market value mark.
“Exceptionally strong” sales of circuit boards for wireless phones drove the higher forecast, Harding said. Analysts expect sales of $134 million for the quarter, up nearly 60% from a year earlier.
“Revenue trends continue to be solid,” wrote Reik Read, an analyst with Robert W. Baird & Co., in a research note. “Manage-ment continues to execute well.”
For the 12 months ended Sept. 30, sales climbed more than 40% to $360 million. Net income expanded by nearly 50% to $37 million.
The company’s growth lured coverage from two investment banks, Morgan Stanley & Co. and First Albany Capital Cos. Four analysts now cover the stock.
Humble Start
M-Flex came from humble circumstances.
When Harding arrived in the 1980s, the company was struggling and had yearly sales of less than $700,000.
Engineers weren’t going out of their way to understand more of what customers wanted. They waited for order specifications and dutifully filled the request.
Back then, flexible boards were seen as a replacement for bulky wires that went on planes.
But Harding said he saw that flexible “circuitry” could be used a variety of ways, including in small electronic devices.
“We were one of the early people to say, ‘It’s more than cable. It looks like a circuit,'” he said.
Why? Traditional circuit boards are stiff, made with a shell of epoxy. The sturdy green boards force engineers to design around them.
But “flex” is made of a kind of floppy plastic that looks somewhat like apricot fruit leather. It can hold and run just as many components as an old circuit board, if not more.
In the late 1980s, Motorola engineers began to use pieces of flex in phones. It took a while.
But through the years, engineers saw how the flexible circuitry made design simpler and easier in a small phone.
“You can tuck the flex anywhere you want it,” Harding said. “To solve the problems of style, you have to have the electronics go where the style says, not where the board says.”
The product only was part of the battle. In the 1990s, Harding built one of the industry’s first Chinese plants, giving it cheap production,and sustaining traditional margins of 18% to 22%. Today, the company has two China plants and is building a third.
The company employs about 9,000 people in China and about 500 in Anaheim, including at a production facility.
By 2000, M-Flex had $100 million in yearly sales.
After reaching that mark, Harding said he wanted to take the company public in an ongoing bid to reach $1 billion in sales. M-Flex went public in 2004.
The company needed money to compete in an increasingly competitive market.
In 2004, Sinagpore’s Flextronics International Ltd. acquired Minnesota’s Sheldahl in a move into flexible boards.
Analyst Read said he doesn’t see Flextronics as a big threat in mobile phones.
Another big rival is Taiwan’s Foxconn Electronics Inc., which has operations in Fullerton.
M-Flex’s manufacturing in China gives it a leg up, according to Read.
“Few competitors have this low-cost footprint, and will likely require time and resources to reach parity,” he wrote.
Another edge: The company builds ties with customers early on by working with their engineers.
“We believe such relationships provide M-Flex with a strong, completive advantage,” Read wrote.
Potential Customers
M-Flex is eyeing other big phone makers, including Sony Ericsson Mobile Communications AB, LG Electronics Inc. and Samsung Electronics Co. as possible customers.
“If we want to succeed near-term, we have to go after them,” Harding said.
Besides Motorola, current customers include Symbol Technologies Inc., Royal Philips Electronics NV and Research In Motion Ltd.
Harding still is more engineer than anything else. He’s likely to spend his breaks between calls to analysts or board members in the lab,for fun.
He also just bought his first pair of jeans to wear on casual Fridays to better fit in with other workers at the Anaheim site.
Harding said he has no plans to move M-Flex to more fashionable Irvine or Newport Beach.
It would explode his commute from Palos Verdes, he said. And he seems to have no problem being a tech company among old-line manufacturers and metal scrap yards.
