Anaheim circuit board maker Multi-Fineline Electronix Inc. is due for a turnaround after a tumultuous past two years.
The company, known for making bendy circuit boards that go into cell phones, personal digital assistants and other handheld devices, saw its shares fall some 85% from early 2006 to August of this year.
The swoon came after a big run-up in 2005 and early 2006 that saw the company, known as M-Flex, peak at a market value of $1.6 billion.
M-Flex was worth $480 million on Wall Street last week.
The company is enjoying something of a resurgence on Wall Street. As of last week, its shares have nearly doubled from their August low.
Driving the gain: a move beyond Motorola Inc.
Reliance on Motorola, which has been 90% of M-Flex’s business, drove the company’s 2005 run-up when the sleek Razr phone was all the rage. But Motorola’s inability to match the Razr’s success with follow-up models torpedoed M-Flex.
The company has spent the past few years going after new customers.
In the September quarter, Motorola made up 38% of M-Flex’s $167 million in sales, slightly less than new top customer Sony Ericsson Mobile Communications AB.
“We have grown the company significantly,” Chief Executive Philip Harding said. “Because of the diversification, you see more design wins.”
Cell phone makers are racing to one up each other with smaller, slimmer phones that download and play music, take and send pictures and video and surf the Internet.
M-Flex’s circuit boards make it possible for companies to design phones that flip open and close.
Strong Quarter
The company’s better-than-expected results for the September quarter point to an upswing.
M-Flex reported a 52% rise in sales from a year earlier to $167 million. Analysts expected $119 million in sales.
The company’s profit rose 50% to $3 million. Analysts were expecting a loss of about $737,000.
M-Flex’s diversification is paying off, said Reza Meshgin, president and chief operations officer.
“This is an effort that we started over three years ago,” he said. “It’s a long cycle for us to get engaged (with a customer) and actually turn that engagement into meaningful business.”
Besides Motorola and Sony Ericsson, other customers include Nokia Corp. and Research in Motion Ltd., the maker of the Blackberry.
There were some initial worries about what would happen with Motorola as M-Flex added other customers, according to Harding.
Sales to Motorola actually grew 22% to about $12 million in the September quarter from the prior one, he said.
“One troublesome thing was what was going to happen with our formerly No. 1 customer,” Harding said. “But we did see growth with Motorola. That part of the concern has seemed to vanish.”
Another concern that seems to have come to pass: a combination with sister company MFS Technology Ltd., a circuit board maker in Singapore.
Both are units of Singapore’s WBL Corp., which owns 60% of M-Flex and 55% of MFS.
WBL sought to combine the two companies, which would have upped M-Flex’s reliance on Motorola just as the company was slumping. Minority investors also balked at the deal’s $500 million price tag.
M-Flex went through the motions for the acquisition, 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.
The end of the deal was met with both “relief and anxiety,” Harding said.
“It was a difficult thing,” he said. “Parts of the deal made a lot of sense, such as the (manufacturing) capacity that would have been available to us if we bought MFS. The part that didn’t make sense was the economics.”
The ordeal was “complicated” but relations with WBL are good, Harding said.
China
M-Flex has been readying itself for more business by beefing up its manufacturing in China.
This year, M-Flex invested more than $33 million to install assembly equipment and add capacity to its plants in Suzhou, near Shanghai.
The company was one of the first circuit board makers to outsource work to China back in 1994, according to Harding.
It added a second plant in 2004 and expanded it in May by taking up more floors in the building. The company now has about 16,000 workers there.
Startegy
M-Flex’s strategy for winning business revolves around getting in with phone and device makers when they are in the early stages of designing products, up to six months before competitors, according to executives.
“We’ve been doing this for 18 years,” Harding said. “We believe the right approach is to go to the customer early. It gets us a marketing advantage and we can jump ahead of our competition.”
Rivals include Sinagpore’s Flextronics International Ltd. and Innovex Inc. of Minnesota.
The company is looking to land its circuit boards into different products and uses, including medical devices and auto manufacturing, according to Meshgin.
Meshgin is set to take over as chief executive when Harding, 75, retires.
“We have been grooming Reza to take my place since 2003,” Harding said.
He said there’s no date in place for his retirement.
“I’m in pretty good shape, but I can’t do this forever,” he said.
