Spokane Journal of Business

Key Tronic readies for resurgence

Manufacturer is hiring again, boasts $70 million backlog of new business

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Key Tronic Corp., of Spokane, is gearing up to add hundreds of employees to its global work force in coming months as it settles firmly into its new role as a diversified contract engineering and manufacturing concern, and seeks to dive into a backlog of more than $70 million of new business.

Jack Oehlke, Key Tronics president and CEO, says the 2,100-employee company, which until a couple of years ago had been mostly a computer keyboard maker, could add as many as 500 to 600 workers by year-end, most of them at its plant in Juarez, Mexico, as it ramps up to handle customers needs. The company currently employs about 250 people in the Spokane area, and that number probably will rise slightly, he says.

Key Tronics burgeoning backlogup more than double from about $35 million a year agoand its rejuvenated hiring represent a promising start to Key Tronics new fiscal year, which began July 1, and are welcome developments to Key Tronic executives following a difficult, several-year-long transformation.

We see the end of the tunnel, Oehlke says. The opportunity is on our plate. Its really up to us to deliver.

To be sure, Key Tronic still has a tough road to travel. The company last month reported a $4.8 million loss for its latest quarter, which contributed to an overall $11.4 million loss for its 2001 fiscal year, following a $5.3 million loss in 2000.

Its sweeping transition from one market, customer base, and set of products to anotherobviously risky, yet critical in Key Tronic executives minds to the companys survivalwas slowed by a weakening global economy well before the Sept. 11 terrorist attacks in New York City and Washington, D.C.

Ron Klawitter, Key Tronics vice president of administration and its chief financial officer, says it also took longer than expected to convince some prospective customers that we could do something other than keyboards.

Furthermore, the companys stock price continues to wallow at a low ebbslightly above $2 a share as of earlier this week, which compares with a peak of more than $16 a share in the mid-1990s.

The 32-year-old company, however, now considers its transition complete, with about 80 percent of its revenue in the last quarter coming from the broad electronic manufacturing services (EMS) market, rather than from keyboard sales. The products it now is making range from miniature circuits for specialized medical devices to point-of-sale transaction printers like those used to print out customers retail and gas-pump receipts.

Were starting to see a lot more diversification for this company, which should translate into revenue growth, Klawitter says.

Some of the benefits of that diversification were evident in the last quarter, when Key Tronic began making consumer, specialty printer, and telecommunications products for six new EMS customers.

Oehlke and Klawitter say they expect the company to become profitable again in its current fiscal year, though they decline to be more specific about when.

Oehlke says the company has built a whole new base of customers and has established relationships with a number of manufacturers sales representatives who have EMS market experience to supplement the efforts of its in-house sales staff. It also has expanded its electronic circuit-board assembly capabilities, which it believes will lead to additional work in areas such as engineering and precision plastic molding, where it has considerable expertise. Ultimately, it hopes to get in on more projects in their early stages of development and land more contracts to design and build entire plastic-encased electronics products of all types.

For potential customers that want to launch new products, but lack the in-house skills to pull it off, I think they appreciate the ability of a company to handle that for them, Oehlke says. What that full design-build capability equates to, he asserts, is speed to the market.

Gaining market

Of the transition that Key Tronic now has completed, Oehlke says, I think the thing we feel good about is the market we chose. The keyboard market is increasing in unit volume, but declining in dollar volume, and now amounts to less than $1 billion a year in global sales, he and Klawitter say. By comparison, the EMS market currently is estimated to be generating $100 billion a year in revenue and is growing by 25 percent annually, they say.

Key Tronic earlier this year adopted a new trade name, KeyTronicEMS Co., to emphasize its focus on that market, and now is using that name in all of its sales materials.

The company has kept its headquarters in a two-story, 100,000-square-foot building at 4424 N. Sullivan, but sold the structure and some adjoining land for $6 million last December, and now occupies only the buildings lower floor. It also leases about 100,000 square feet of floor space in the nearby Spokane Business & Industrial Park, where it mostly develops tooling for injection-molding machines and also does some plastics molding work.

The companys largest production center is in Juarez, where it owns a 165,000-square-foot assembly-and-molding facility. However, it also operates a 150,000-square-foot manufacturing facility in Reynosa, Mexico; a 45,000-square-foot manufacturing facility in Las Cruces, N.M.; and a 36,000-square-foot assembly plant in Shanghai, China.

Klawitter says he expects EMS work to continue to grow as a percentage of Key Tronics overall revenue, but that the company also will continue to sell some keyboards under its own brand name.

Kim Crompton
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