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Back From Brink, M-Wave
Enjoys Boom
By James DeTar
Investor's Business Daily
MWave Inc. is struggling to keep up with demand for its circuit boards. After what the company’s been through, that’s a welcome challenge.
Less than two years ago, M-Wave was struggling to stay alive. The company was hemorrhaging cash, analysts say, and some creditors wanted to see it liquidated.
M-Wave pulled through. Now it’s growing so fast it’s had to come up with a new manufacturing strategy. It plans to contract out some production to Asian companies.
"We continue to see growth," said Joseph Turek, the company’s founder and chief executive. "Projections for next year are stronger than this year."
Circuit boards are small plastic boards that hold semiconductors. Every kind of electronic device, from toys to cell phones to mainframes, has a circuit board inside.
M-Wave’s boards are used mostly in base stations, which transmit signals to cellular phones.
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Image: Riding A Wave
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The company has also developed a manufacturing process, called Flexlink II. It uses silicone to bond a circuit board to a metal heat sink - a part that dissipates heat within a device. That’s critical in today’s high-speed communications systems.
M-Wave is riding high amid a boom in cellular phones and other devices.
Third-quarter sales were $18.1 million, up more than 700% from $2.2 million in the year-ago period. The company reported a profit of $1.2 million, or 52 cents a share. That’s up from a loss of $495,000, or 22 cents, the prior year.
M-Wave shares hit a record closing high of 29 11/16 on Friday. After some up-and-down sessions this week, they’re back around 29.
It’s a remarkable turnaround for a stock that languished below a dollar a share for part of 1998. In May, it was selling at less than 4.
What’s behind this unexpected comeback? In part, M-Wave was in the right place at the right time.
It’s always sold circuit boards to cellular equipment makers and the military. When wireless phones took off in the 1990s, M-Wave got a lift.
Dark Days
But larger rivals such as Sanmina Corp. began eating into its market share. Sales fell from $30 million in 1995 to $11 million last year.
The company nearly drowned in red ink. It lost $4.4 million in 1996 and $3.2 million in 1997.
M-Wave managed to break even in 1998, but many observers thought the company was done. By early 1999, creditors were urging M-Wave to sell off its assets so it could pay at least part of its debt, analysts say.
The company refused to give up, but it did take drastic measures. It started looking for a way to boost manufacturing capacity quickly.
M-Wave couldn’t woo such big customers as Motorola Inc. and Lucent Technologies Inc. without the capacity to make millions of parts. But the company had only a small factory outside Chicago. So it devised what it calls a virtual manufacturing process.
M-Wave decided to contract with several Asian companies - nine at last count - to make some of its boards. Under the plan, M-Wave builds the prototypes of products, which it gives customers to test.
If a customer wants larger volume, M-Wave can make them itself or contract out production to Asia.
The company says it’s still able to keep tight control over quality. After it receives the boards from Asia, M-Wave tests and inspects the products at its own facilities.
The arrangement saves money, says Chief Financial Officer Paul Schmitt. And it provides a lot more capacity. "Fully 75% of our growth this past year has come from virtual manufacturing," Schmitt said. "When demand is great, we go to the Asian suppliers."
He says he’s confident that M-Wave can meet the needs of cell-phone gear makers such as Lucent, Motorola, LM Ericsson AB, Nokia Corp. and Alcatel. All buy circuit boards from M-Wave.
In a conference call following last week’s earnings report, CEO Turek said the company is on track to hit annual sales of $100 million in three to five years.
Still Some Risks
But M-Wave isn’t out of danger yet. About 90% of its sales are to one customer, Lucent. And Lucent hasn’t been in great shape lately.
Sales of Lucent’s fiber-optic equipment slowed this year. Lucent’s stock dived from above 60 in July to around 24.
Turek says his No. 1 priority is to broaden M-Wave’s customer base. The new virtual manufacturing process will help, he says.
In May, M-Wave opened an office in Singapore. From there, it will manage its worldwide manufacturing operations. It plans to work with suppliers in South Korea, China, India, Japan and elsewhere.
M-Wave also plans to license its patented Flexlink II process to Asian manufacturers. "Our office in Asia will give M-Wave a strong starting point," Turek said.
M-Wave already uses Flexlink II in its Bensenville, Ill., factory to make parts for Lucent, Motorola and Sunnyvale, Calif.-based Spectrian Corp.
Even with Asian partners on board, M-Wave is busy expanding its own capacity. It bought a 50,000-square-foot facility in West Chicago, Ill., near its Bensenville headquarters. It’s outfitting the plant with gear now. |
