SFE Technologies Struggles to Find Formula for Survival
Pummeled by the worst electronics industry recession ever, SFE Technologies is reshaping itself to try to turn its sagging fortunes around.
In a move to placate lenders and investors, the troubled San Fernando-based electronics concern last week disclosed tentative plans to sell plants in New Orleans, Tucson and West Germany--about 20% of the company’s manufacturing capacity--to Spectrum Control of Erie, Pa. The $25-million deal, which calls for Spectrum to pay $3 million in cash and to assume about $22 million in debt, is expected to be completed by the end of the month.
The announcement follows losses that totaled $14 million over the past seven quarters. SFE has slashed its worldwide employment over the past year to 1,500 from 2,600 and this summer slipped into technical default with its lenders. SFE’s stock, like other electronics issues, has fallen out of favor with investors, dropping from nearly $27 in early 1983 to close at $2.87 1/2 on Monday.
Valley Employees Not Affected
SFE’s asset sale, which is not expected to affect its 600-employee San Fernando operation, will eliminate three of the company’s seven operating units. The company’s restructuring is likely to continue--a subsidiary in North Carolina is up for sale and company officials are considering selling a division in suburban Kansas City.
Executives at SFE said the Spectrum deal is painful because it means getting rid of some businesses that were to have been the cornerstone for the company’s future. But the move was necessary, they argue, to strengthen the company’s balance sheet and ride out the industry slump.
“The intent is to get lean and mean and ready to go when things turn around,” said SFE President Alan D. Rubendall.
The company’s primary business is making what are known as multilayer ceramic capacitors. Its capacitors primarily serve as electrical gatekeepers in telecommunications and defense equipment, storing electrical impulses and discharging them to semiconductors. Without capacitors regulating the flow of electricity, semiconductors would burn up.
Has 10% of Market
SFE has about 10% of the U.S. ceramic capacitor market, which trade publications estimate fell from $567 million in 1984 to $504 million last year. Company officials said they believe SFE ranks third or fourth among domestic manufacturers.
Chief among SFE’s problems is the industry’s manufacturing overcapacity, which has spawned price wars that are trimming profit margins. In the past year, the average price for SFE’s capacitors dropped more than 20%, to 18.2 cents each.
The company also was hurt by the difficulties it had in changing its formula for ceramic materials to meet government job safety and air-pollution control regulations. The previous formula violated air-quality standards and contained suspected carcinogens, SFE executives said.
Jerome Jahn, the company’s vice president for finance, added that SFE lost substantial business that it has never made up as a result of the Jan. 1, 1984, breakup of AT & T, which once accounted for 45% of SFE’s business. Many of the new regional telephone companies took their business to other capacitor suppliers, he said.
On top of that, the SFE division in suburban Kansas City has been hurt by increased Japanese competition. The unit makes quartz crystal devices that control frequencies in auto ignition and fuel injection systems, television remote controls, touch-tone telephones and other electronics products.
Loss of $9.1 Million
As a result, SFE posted a $9.1-million loss in the nine months ended July 25, a widening of the $2.6-million loss reported for the same period last year. Sales were off 27.8% for the nine months to $32.3 million. In its fiscal year ended last Oct. 25, SFE lost $5 million on sales of $57 million.
SFE was founded in 1951 in a small building on Foothill Boulevard by Donald E. Rubendall, Alan Rubendall’s father. Four years later, the company moved into its current location in an industrial area on First Street. Rubendall, a native Iowan, and a partner who later sold his stake originally invested $5,000 each.
The company was known as San Fernando Electric until 1980, when it took on its current name. Company executives said they made the change because too many investors thought the company was an electric utility.
At age 73, Donald Rubendall still works daily and retains the title of chairman and chief executive. Alan, a 47-year-old, Stanford-educated industrial engineer, supervises most of the daily operations. The Rubendall family maintains control of SFE through its ownership of 25% of the company’s stock.
Upturn Seen for 1987
With the capacitor industry still weak but apparently stabilizing, SFE executives seem slightly optimistic about the coming year’s prospects. Industry analysts, however, say they do not think the market will improve until at least next year.
Company executives said the Spectrum deal will offset this year’s operating losses and bolster SFE’s net worth, which fell to $32.6 million at the end of the third quarter ended July 25 from $36.6 million three months earlier. That decline put SFE into technical default on industrial bond agreements it has in Arizona and North Carolina, although its payments always have been current.
SFE also fell into default on a working capital lending agreement with City National Bank. Jahn said SFE’s lenders support its plans to sell assets and that it will be out of technical default once the transaction is completed.
Reverses Ambitious Expansion
In selling assets, SFE is reversing what had been an ambitious program sparked by the optimism that was common amid the electronics industry’s high times in 1983 and early 1984.
The company, for example, opened its 100,000-square-foot plant in New Orleans in 1984 in the belief that demand for capacitors would continue to grow rapidly. The operation in West Germany that is being sold to Spectrum was acquired only last year, and SFE’s Polytronics subsidiary in Tucson, which makes plastic-based capacitors, is only one year old.
SFE executives said they might have retrenched earlier, except that periodically they, like others in the industry, were fooled by what turned out to be false signs of strength.
“You become somewhat philosophical about these sort of things,” Alan Rubendall said. “It’s a dynamic industry and things change, and you try to never sacrifice the whole for the parts. Part of this business is getting in and out of areas of whatever businesses that make the most sense at the time.”
