VOX-CEO-Interview (long)
Audiovox Corporation-Chairman, President and Chief
Executiv
FDCH CEO Wire/Associated Press
THIS IS A RUSH TRANSCRIPT. THIS
COPY MAY NOT BE IN ITS FINAL FORM
AND MAY BE UPDATED.
Mr. John J. Shalam
"Actually, I came to this country with my family
from Egypt in 1948, completed my education at
the University of Pennsylvania's Wharton School
and graduated in 1954. I worked at many
different opportunities and companies until the
mid-60s when I started the predecessor
company of [ Audiovox Corporation ] (VOX). That
company was a small trading company that
imported and bought odds and ends from
Japanese manufacturers such as transistor radios,
sporting goods, fishing reels and dinnerware. One
day, I had a buyer who wanted to buy car radios
from me and he agreed to buy 3,000 radios. I
shipped the first 1,000 radios and to make a long
story short, he did not honor his commitment and
I ended up owning 2,000 car radios that I really did not know what to do
with.
"Being resourceful, I went to the library and looked up the names of different
retailers in the U.S. that were selling car radios. I sent them a sample with an
introductory letter and within a few months, managed to dispose of the entire
lot of 2,000 radios. The people to whom I had sold those radios kept calling
me back and asking for more product and then it dawned on me that this
could be a very good business. I started buying more radios, formed
Audiovox and started shipping radios to these people. That was back in late
'65 and subsequently from car radios, we went into car security products. In
early 1985, we had an opportunity to enter into the cellular phone business,
which was just taking off and we established a relationship with Toshiba to
start bringing in car telephones.
"If you recall, initially all cellular phones were actually car phones and they
needed to be installed in cars. We had a very active distribution network for
car radios and car stereos and so cellular phones were a natural parallel item
through our distribution. That was so successful that in 1987, we took the
company public with a listing on the [ American Stock Exchange ] and that is
where we are now. With the investments that were made in the company we
were able to capitalize and continue to finance our growth and this year, 34
years after founding this company, I expect to achieve one of my lifelong
dreams, which is to see Audiovox exceed $1 billion in sales."
Audiovox Corporation
"Audiovox Corporation is an international leader in the marketing of cellular
phones and other wireless products, auto sound, vehicle security, mobile
video systems, FRS (Family Radio Service) radios and home and portable
leisure products. Today, Audiovox Corporation has two major sales
divisions: Our communications company, which is called Audiovox
Communications Corporation and that is a 95% owned subsidiary of
Audiovox Corporation. Toshiba of Japan, one of our key suppliers,
acquired the remaining 5% of Audiovox Communications Corporation this
year.
"Our other company is involved in the distribution of electronic products
such as car radios, car security and mobile video, which is very strong for us
right now. The other successful item in that area that we are introducing now
is the MP3, which is a product that allows you to download music from the
Internet. In fact, we think that is going to become a very major item for us
and will compliment our product lines of portable CD players, portable
cassette players, boom boxes and home stereos."
A worldwide company
"Audiovox is a worldwide company and has sales offices outside the United
States and in Canada. We are very active in Mexico and have a major sales
operation in Venezuela where we supply OE type radios to General Motors
(Company: [ General Motors Corporation ] ; Ticker: GM; URL:
gm.com) and Chrysler (Company: [ DaimlerChrysler AG ] ;
Ticker: DCX; URL: daimlerchrysler.com). In addition, we are
very active in Malaysia and have a major sales operation doing business with
the Malaysian national car manufacturer (Proton). We supply cruise control
and security systems for Proton cars in addition to products for [ Honda ] in
Malaysia. We also have a minority investment in a communications company
in Thailand, which is something that we did about four years ago and had
been very successful, particularly in Southeast Asia, until the meltdown two
years ago. We have been able to ride out that storm; but we did have some
losses resulting from that last year.
"However, I am very happy to tell you that the Southeast Asian economy is
recovering strongly and countries like South Korea, Thailand and Malaysia
are all coming back nicely so our companies are starting to do much better
this year and we are hopeful that will continue. We also maintain a chain of
buying offices whose sole purpose is to maintain and liaison with our key
suppliers in the major markets in China, Japan, Taiwan and Korea. The
buying offices maintain communication with the different manufacturers,
inspect all merchandise shipments, negotiate prices on our behalf and keep
us advised of developments in the different markets."
Customer base
"The key customers in our communications company are Bell Atlantic
(Company: [ Bell Atlantic Corporation ] ; Ticker: BEL; URL:
bellatlantic.com, AirTouch (Company: [ Vodafone AirTouch
Plc ] ; Ticker: VOD; URL: vodafone-airtouch-plc.com,
PrimeCo and major Bell operating companies and service providers. In the
consumer and automotive electronics group, our large customers include
[ Kmart ] (Company: Kmart ; Ticker: KM ; URL: kmart.com,
WalMart (Company: WalMart Stores Inc.; Ticker: WMT ; URL:
wal-mart.com, Sears (Company: [ Sears Roebuck & Company ]
; Ticker: S; URL: sears.com, AutoZone (Company: AutoZone
Incorporated; Ticker: AZO; URL: autozone.com, Circuit City
(Company: [ Circuit City Group ] ; Ticker: CC; URL:
circuitcity.com, Best Buy (Company: [ Best Buy Co. Inc. ] ;
Ticker: BBY; URL: bestbuy.com and all of the specialized
electronic chains so we have quite varied distribution, of course, depending
on the product line. In fact, we try to specialize in terms of product lines to
have the best market access and penetration. In addition, no more than 10%
of our sales are concentrated with any one customer and I would suggest
that would be Bell Atlantic."
Sales and marketing
"The company does not own any factories and does not manufacture
anything. However, we do have extensive engineering and product
development facilities and work closely with manufacturers, mostly in Asia,
but we don't own the factories. We decide what products we are going to
buy and commit for those products. We then pay for the tooling and design
development and issue a major contract and the product then becomes our
model with our name on it. All of our efforts and resources are focused on
marketing, distribution, customer service and maintaining our position in the
marketplace and that is what we focus on most strongly.
"In the consumer product line, we have independent sales representatives
that represent Audiovox and in the automotive and distributor-type work,
we have our own salespeople who call on the dealers and distributors. In the
communications division, we have our own individual regional and vice
presidents of sales who cover the market for us. Of course, we also attend a
lot of trade shows throughout the world and in fact average two each month.
Some of them are very large such as the Consumers Electronic show in Las
Vegas, which is the first week of January and the Cellular Telephone
Industry Association show, which rotates between Dallas and New Orleans.
There are a lot of shows going on all the time and it is important to maintain
our presence, image and exposure to the marketplace and that is why we
attend as many as we can. In addition, we do some OEM business with
companies like Nissan (Company: [ Nissan Motor Company Ltd. ] ; Ticker:
NSANY ; URL: nissan.co.jp, Delco and Chrysler in Canada
and Venezuela.
"We like that business and want to grow that business to make it larger, but
at this time, it is only a very small segment of our total sales. By far and
away, our most active sales group is the communications company, which
today represents over 80% of our turnover and the consumer electronic and
automotive electronics represent 20% of the company's sales based on the
last six months numbers. With the developments that are taking place in the
communications business and the introduction of new technologies and
products, that area is growing very rapidly and offers a lot of promise, both
in the U.S. and other external world markets. In fact, we expect that
percentage to even grow larger in the next two to three years.
"As the sales of the company grow, the cellular and communications
company is growing very rapidly so their share of the total sales will become
even greater going forward. One of the things that is fueling that growth is
our first digital phone model, which was introduced last year. When that
phone was first introduced, it was selling at over $200, but prior to that, all
of the phones that we were selling were of the analog description. The
analog technology was first introduced in '84 or '85 and gained very large
market share, but the prices for analog phones have now gone down to the
$75 level.
"Overnight, by introducing the CDMA phone, the sale of one phone
represents just about three times that of one analog phone. That is one of the
main components that accounts for the very large growth in sales of
Audiovox and particularly in our communications company. In fact, sales for
the first six months were about 87% ahead of last year and as we continue
to ramp up on our digital products and introduce additional new
technologies, we expect that trend to continue for at least the next two or
three years."
Contracts
"We live in an extraordinarily competitive environment where you are as
good as you are and as hard as you work, if you don't have the latest
product, technology or sharpest price, you can lose market share rather
quickly. That is why it is so important that we continue to introduce new
products and maintain a very high level of quality and customer service. In
fact, we have contracts with some of our carrier customers that will extend
to the end of the year and typically, we will negotiate a contract for a certain
product for the next six months for a fixed quantity at a fixed price.
However, we do not have contracts where we are the supplier of choice or
exclusive distributor of a product line for the next ten years."
Introducing new products
"There are two categories of new products including new products that are
improvements on existing models or variations of a new model that are
smaller, lighter or better as well as completely new product categories that
we have not had before. For example, this year in the consumer products
division, we will be introducing the MP3 radios next month and that is a
brand new product for us. In addition, we will be introducing a portable
navigation system for automobiles as well as a portable DVD product that
plays back pre-recorded disks.
"We continuously upgrade our existing product lines and introduce newer
models of both cellular phones and consumer products with improved
features, but really, they are just refinements or developments on existing
product lines. I would say that on average we introduce better than 100
products each year and much of that is because the technology in the
communications business is changing continuously. The products in the auto
sound market are much more stable and do not change as rapidly. In that
area, we have products like the mobile video, which is going very well for us
as it is very popular with the tremendous popularity of sports utility vehicles
in this country. The mobile video product is a drop down LCD TV screen
that is mounted in the ceiling of the car where you push a button and the
screen swings down.
"In addition we supply a center console EZ Fit Entertainment center that fits
between the front seats in minivans. These products enable you to play
rented movies so if you have children or take long trips in your vehicle where
the kids get bored, you can just pop in the cassette, the movie goes on and
you don't hear another sound. Actually, we were very happy to enjoy a very
strong relationship with the Nissan organization who is installing one of our
mobile video consoles in every Nissan Quest vehicle that is sold in this
country. In fact, we have received a lot of positive and favorable publicity as
a result of this relationship and it is a very nice business for us that helps us
expose the product line and get recognition for these products."
Inventory control
"The company has a very advanced and sophisticated MIS facility that was
just upgraded several months back with extensive new software that is
completely approved and ready to go for Y2K. In fact, we should not have
any problems at all with regard to Y2K in that we have spent a lot of money
to upgrade all of our data processing systems. With regard to inventory, we
maintain extensive inventory facilities in Norfolk, Virginia at the Givens
Warehouse and they do a fabulous job for us.
"We store our merchandise there, they ship and receive our orders and we
can guarantee delivery anywhere in the U.S. within three days, which of
course, helps us a lot. We also maintain public warehouse facilities in
Nevada that services our customers on the West Coast in the Los Angeles,
San Francisco and Seattle markets. Most of the rest of the country is
serviced from the Givens warehouse in Norfolk and the cellular company
maintains extensive stock in New York as well as LA so we can turn our
inventory pretty fast."
The Internet
"The Internet is probably the most exciting and dramatic development that
has taken place in our lifetimes and Audiovox has a web site today that is
used primarily for product information to our customers. In fact, we are now
in the process of redesigning and upgrading our web site and expect by the
fall to start offering a lot of services specifically aimed at giving better
customer service. Our customers will be able to access our web site and
order replacement products, parts and catalogs and will also be able to
download owners' manuals to see how things work.
"As you would expect, we get thousands of calls at our customer service
center each month from people that have purchased our products and have
misplaced the owner's manual. That customer may not remember how to
reset the clock on their car radio or how to program their cell phone.
Because of that, we spend a lot of time on the phone, first to identify the
model number of the product the customer has and then we have to send
them an owners' manual. That owners' manual has to be pulled out of stock,
addressed to the customer and mailed, and that is a costly proposition. That
is why we are going to have our service manuals on our web site so that the
consumer can identify the product he has purchased and go directly to that
service manual to either read about the operation of the product or
download the manual on his own computer. That is going to give much
better service to our customers as well as save us money.
"We also use the Internet to sell replacement parts and accessories so that if
someone lost the transmitter for a car security product, they can go to our
web site, identify the transmitter they need, put in their name and credit card
number and they will then receive shipment. Eventually, we will create an
Intranet for our distributors as well so that they will be able to come in and
enter their orders directly on our web site. They will be able to get pricing,
shipping information and check on the availability of products and of course,
that will make us much more efficient.
"I really feel that any major company which is not investing now in the
Internet and web site facilities is going to lose out in the future. In addition, all
of our companies are ISO 9000 rated and last year the automotive group
received a QS 9001 rating. Those are quality control programs which
guarantee that a certain level of efficiency and quality standards exist in the
company. In fact, those programs need to be in place when we are dealing
with companies such as Delco, General Motors and Bell Atlantic."
Acquisitions
"In the past 35 years since starting the company, 90% of our growth has
been internal. We have done some acquisitions, but they were limited or
directly tied to our business. For example, we had a distributor in Venezuela
whose capital was limited so we acquired that company, financed it and are
helping it to grow bigger. The original owners kept a small piece of the
action, and in fact, we have done the same thing in Malaysia. Today, our
financial situation is quite healthy and we have facilities where we can afford
to allocate certain sums for an acquisition, so we will begin to look at
opportunities.
"We may look to do acquisitions that will diversify our business, which may
be related to the consumer field or tie in with what we are doing or it is
possible that there would be an unrelated company we may start to look at
after the year 2000. However, our own growth is so strong, especially in the
communications business, that we have to be very careful to make sure we
retain enough of our financial facilities to fuel the tremendous growth that we
are now experiencing in the communications business. We cannot get
diverted into something that will require a lot of cash only to find out we
cannot support existing operations. Today, our biggest priority is continue to
fuel the growth of the communications company and the consumer
electronics group."
Innovations
"Audiovox has been an innovator pretty much from our earliest days. We
were the first company to market an in dash 8-track player nearly 30 years
ago. In communications, we were first with a slim line, lightweight cellular
telephone, first with voice activation, first with a one-touch memory key and
were the first to offer phones with an AAA key to give the consumer direct
access to the Automobile Club of America in case of an emergency.
Actually, we have done a lot of things like that over the years."
Focused
"It is very important to have a vision and focus of where you want to be and
continuously inspire and motivate your people to work with you to reach that
goal. In this enormously competitive economy in which we live, you cannot
afford to just be happy with where you are and instead have to constantly
look behind you to see who is catching up and keep running."
Most important decision
"In the last 18 months, I have instructed my management to make the
commitment to invest in our software and computer systems to improve our
efficiency, control our costs and at the same time, offer better service to our
customers. In addition, I have formed an executive task force to develop a
sophisticated Internet and Intranet program. Beyond operations, I have
allowed both our operating groups the support that they need to continue
exploring and diversifying into different product categories and businesses. In
the cellular company, we plan to continue to develop our product lines into
emerging technologies especially the new digital and PCS phones. In the
electronics product group, we will continue to look for niche products that
utilize our vast distribution network and capabilities. The last important
decision I made these last few months was to authorize the allocation of
additional funds toward public relations and advertising to help promote our
brand name."
Attracting potential investors
"Right now, Audiovox is positioned to capitalize tremendously on both the
domestic and world growth in the communications business. The demand for
cellular products is enormous and we have very strong relationships in this
country with all of the major service providers and access through them into
world markets as our product development creates new products that can
enable us to enter some of these markets. Our growth potential is strong, we
are very, very efficiently run and our overhead is very tightly controlled. In
addition, we do a large volume of business, enjoy a strong balance sheet,
have strong financial resources, excellent cash flow, great computer systems
and quality ratings.
"We are trying to do all of the right things to continue to grow and become a
major factor in the consumer electronics business after the millennium.
Particularly with our relationship with Toshiba and other first class
manufacturers throughout the world, we have access to the biggest
resources and the potential to enjoy very strong growth and to generate
substantial profits and a very strong return for our investors as we go along.
A little more than two months ago, our stock was trading at $6 a share, but
it recently hit a high of $16 and it is now between $12.50 and 13.
"Business continues to be strong, we are meeting our targets in our business
plan and our investors are enjoying good times with us. In addition, I own 25
to 26% of the stock of the corporation, so I have a very major stake in this
company, and my management team also has a significant position in the
company. Unlike other corporations where the CEO has a 1 to 2% holding
and makes decisions and takes actions that may favor management more
than the stockholders, we don't have that situation here. Whatever we do
here is the best thing for our shareholders since we own a large portion of
the stock ourselves and that gives us a lot of motivation."
Personal motivation
"My motivation over the years has been the fact that I had a vision and
dream, which many people thought were more like a fantasy. The other
motivation for me was the fact that I had to eat and my wife wanted to go
shopping so I had to make money! I am originally from the Middle East and
my father and grandfather were merchants so we were all traders buying,
selling, marketing and promoting and that is how we learned to make a
living.
"I always had the ambition to start my own company and that dream is what
has kept me going over the years. Honestly, I have to say that I have had a
lot of lucky breaks in that I have come in contact with a lot of very
wonderful people who trusted and believed in me, which was very important
because you can't make something like this happen by yourself. It has
always been my philosophy to honor my obligations to people and I have
tried to never let anybody down, but I have had a lot of help to get me
where I am today."
"I really feel that any major company which is not investing now in the
Internet and web site facilities is going to lose out in the future."
END
(Copyright 1999 Wall Street Corporate Reporter, Inc. No quotations from
the materials contained herein may be used in any media without attribution
to Wall Street Corporate Reporter, Inc. This material may not be copied or
resold in any media.)
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