Remote Maker Aims to Take It Off Pause
By ANDREW SIMONS
After a year of rewinding, Universal Electronics Inc. is ready to hit play.
The Cypress-based maker of remote controls for everything from DVD players to stereos is betting that consumer electronics,and their remotes,will keep getting more complex.
As consumers buy more gadgets for home entertainment, they’ll want a single remote to work them, Universal officials contend. And that could drive Universal into fast forward, they said.
“Consumers will keep adding more devices in their home,” said Paul Arling, Universal’s chief executive. “We here at Universal Electronics can master that environment. We’re well positioned for what’s to come.”
For the most part, Universal is part of a growing industry. The number of devices requiring remotes,digital video disc players, digital cable and satellite TV boxes, disk-drive video recorders,is on the upswing. But the company hit bumps last year.
The rollout out of digital cable boxes,where Univer-sal claims a 70% market share,slowed last year. Companies that contract with Universal for the production of remotes to be sold under their own names tempered their business. And an ailing economy likely gave some consumers pause about spending $20 or so on a new remote to replace those three or four on the coffee table.
For the fourth quarter, Universal saw sales drop 28% to $27.9 million. Earnings fell 25% to $3.6 million.
Remotes that go with cable set-top boxes make up about 40% of Universal’s business. Remotes sold under other brand names are about 35%. Retail makes up the rest.
Universal also can claim fallout from Sept. 11. The company provides remotes to hotels, which aren’t buying like they used to.
“There were a number of effects on us over the past year,” Arling said. “Obviously, the challenges presented by the Sept. 11 attacks,there were many different effects from that. Our customers in the lodging industry went through a slowdown, so they weren’t spending money. Since we are a supplier to them for those remotes in the rooms, our business slowed. Much of that product ends up distributed through the retail channel.”
Universal’s shares have been hit. At a recent check, the company’s stock was off nearly 20% from its highs of last June,shaving about $110 million off the company’s market value and dimming hopes for a planned acquisition spree.
Last week, Universal counted a market capitalization of more than $200 million.
And Universal hasn’t been able to spin off business to help tighten its focus,an intention the company made clear in its quarterly filings with the Securities and Exchange Commission.
But a declining stock price hasn’t been enough to deter some attention from Wall Street. Three major investment banks have initiated coverage of the company in the past six months, each with a rating of outperform or better.
Even Newport Beach’s Roth Capital Partners LLC, which downgraded Universal shares from “strong buy” to “buy” last year, has good things to say about Universal.
“They are in a very good place right now,” said Jason Sam, an analyst at Roth Capital.
Universal is putting a new sheen on the old idea of remotes. Universal’s latest gear, which it unveiled at the Consumer Electronics Show in Las Vegas last month, has some funky twists.
There’s a remote fitted with a joystick, allowing users to navigate electronic devices more intuitively. Another in-cludes a wristwatch that can double as a remote in any place where there is an electronic device to be turned off and on.
“You can play some good jokes on your friend with that product,” Arling said.
Universal has room to grow. Of the 150 million remotes sold last year, 30 million of those were made by Universal, amounting to about a 20% market share, according to industry estimates.
The company competes with big names in the consumer electronics world, including Royal Philips Electronics NV, Sony Corp. and Thomson Multimedia SA’s RCA, which also make universal remotes.
While Universal has a small share of the overall remote market, it claims a 70% share of the market for remotes used with digital cable boxes.
When it comes to all-in-one remotes, Universal has an edge, according to analyst Sam.
“Most equipment makers don’t want to spend the money to develop so they outsource it,” Sam said of remotes. “They would just rather have a specialist do it.”
The company’s focus on remotes is a point of pride for Arling. One of the company’s biggest boasts is its database of codes that allow its remotes to interact with nearly every brand of consumer electronics.
The database, which Universal has compiled since opening its doors in 1987, is the basis for the company’s claim that its products work with just about any bit of remote controlled home electronics.
As advanced as Universal’s remotes get, the process for assembling codes is fairly low tech. If a customer has a Universal remote that does not work with a piece of electronics, they mail in the device’s original remote along with their new Universal remote to a facility in Ohio. There, workers figures out what the original remote code is. After the code is found, they embed it into the Universal remote, punch it into the database and send both remotes back to the customer.
That’s a last resort, according to Arling. That process rarely needs to be done since the company has keyed almost every code into its database, he said.
“They have the best database of codes,” Sam said.
Once the economy swings out of recession, Universal should rebound, according to Arling, who hinted the company also could be looking to make acquisitions.
Until then, Universal has plenty of cash on hand,about $34 million as of Dec. 31, vs. $20 million a year earlier.
