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Connectors tie company into global profits. Its product may be mundane, but Molex's performance sparkles

By Richard L. WentworthStaff writer of The Christian Science Monitor / May 19, 1988



Boston

Electrical connectors aren't something people think about much, but these bits of equipment that join pieces of electronic cable and parts are the bread and butter of the Krehbiel family, which runs Molex Inc., the world's third-ranked maker of the connectors. Connectors may seem mundane, but the fact is, you couldn't watch television or drive a car without them. Connectors can also include telephone jacks, circuits for home entertainment equipment, and wiring and cables for computers.

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Molex supplies them for such things as cars from Ford, General Motors, and Chrysler; cordless telephones from AT&T; photocopiers from Xerox; and computers from Apple, as well as providing them to such electronics giants as Sony in Japan and Philips in the Netherlands.

Fortune magazine identifies Molex, headquartered in Lisle, Ill., as a midsize company headed toward its Fortune 500 list. But despite its prominence in the field, Molex's share of the world market is only 5 percent. The reason is, there are about 300 companies around the world that focus on this intensely competitive industry.

``There is a lot of room for mergers and acquisitions,'' says John Kerr, managing editor of Electronic Business magazine, published in Newton, Mass.

But if there is a connector shakeout in the offing, as analysts predict, the people at Molex appear prepared to weather the storm.

``Molex is very well positioned for it,'' says Gary Langbaum, vice-president for research at Chicago's Northern Trust Company bank. In fact, Mr. Langbaum adds, the company is ``perhaps the best situated in the industry.''

Molex itself has acquired only one company in its 50-year history and emphasizes slow, steady growth financed by company profits, says John Krehbiel Sr., its active, 81-year-old chairman. The company strives for 20 percent annual growth and 10 percent net profits - goals it has usually met. Molex had net sales last year of $387 million (an increase of 32 percent over 1986) and profits of $43 million (an increase of 11.2 percent over 1986). The Krehbiel family owns 49 percent of Molex's stock and plows profits back into the company rather than into dividends. The stock is sold on the over-the-counter market.

Langbaum praises the company's performance. ``They have very high operating results, very high margins, a very strong product line.''

``It's a very dynamic company,'' adds Charles Sloan, president of Sloan-Stewart Inc., a market-research firm. ``I see nothing but good things for them.''

One of Molex's strengths, analysts say, is that it has gone with the flow. Begun as a company that made toy guns and radiator handles, it reoriented toward connectors in the 1950s.

And as the electronics market shifted to the Far East and Europe, the company moved, too. Today, its sales are mostly abroad: 48 percent in the Far East, 16 percent in Europe. Foreign nationals run (or are in training to run) the operations in each country.

The heaviest concentration of Molex's foreign plants is in Asia: five in Japan, another in Taiwan, with still others sprouting up recently in India, South Korea, Singapore, and Malaysia.

``Really we followed our customer internationally,'' says Fred Krehbiel, who, as company president, runs the overseas operations. ``We have always stressed customer service.''

``We spend a lot of time with customers,'' adds Mr. Krehbiel's brother, John Jr., who is executive vice-president and is in charge of the American side of Molex. ``There's a strong orientation toward the people side of the business.''

American companies, he says, could improve their international trade position if they stopped complaining about trade restrictions and the strength of the dollar and began sending their best people abroad, researching all of the markets, and learning the countries' languages.

``We expect them to adjust to us. That's foolishness,'' Fred Krehbiel says of the American approach toward business in foreign countries.

Though he does not dismiss existing trade restrictions, he says a change in attitude would make a difference. ``It's a matter of mentality.''

His brother John agrees. ``The challenges are also opportunities. It depends on how you look at them.''