‘Low’ Technology Key Part of Firm’s Success : Electronics: Santa Clarita-based Taitron finds an unglamorous but lucrative niche in the competitive semiconductor market.

When compared to its mammoth competitors, Taitron Components Inc. is as minuscule as the electronic components it distributes.

The Santa Clarita-based firm focuses on an unglamorous niche in the market, selling simple electronic products known in industry parlance as discretes. These so-called low-tech components sell for an average of 2.6 cents apiece and are as small as a flattened peppercorn--but last year they made up a $3-billion market.

And attention to such a workaday product has helped 5-year-old Taitron stay afloat in the volatile, crowded semiconductor market.

The company made a profit of $1.7 million in 1994, up significantly from just $672,000 the previous year. Earnings for the first quarter of this year hit $765,000, more than Taitron made in all of 1993.

The company went public in April, selling 2.5 million shares. Chief financial officer David Turner said final figures are not yet available, but he estimates the company raised about for $11.4 million.

“It’s not really sexy,” said Mark Giudici, the director and principal analyst of semiconductor procurement service for Dataquest Inc. in San Jose. “But it’s double-digit growth.”

Giudici estimated the market would grow 10% in the next five years.

“They have a very simple business,” said Michael Murphy, editor of the California Technology Stock Letter based in Half Moon Bay. “They’ve chosen a weird little niche, signing up every discrete buyer they can and buying [the components] as dirt-cheap as they can.”

Discretes--which are formally called discrete semiconductors--are the basic electronic building blocks that can be found in cars, household appliances, telephones and computers.

They are packaged alone, like transistors or diodes, rather than integrated into a microchip or integrated circuit. Many of them have been around since the 1960s.

But being part of the low-tech market has its advantages, says Stewart Wang, the company’s president and chief executive officer.

“There are many people making lots of money on integrated circuits. [Taitron’s products] are overshadowed,” Wang said. “But they stay [around] forever.”

Wang plans to use the money from the stock offering to pay off $6 million in debt and increase inventory. Volume, he says, is the key to success with products like discretes, because customers often need them right away and it’s important to have significant numbers on hand.

Wang envisions branch offices in the eastern United States, and in Brazil. By the end of the year, he hopes to have 70 employees, up from the 50 full-time and six temporary workers the company has now.

The idea for Taitron came from Wang’s master’s thesis at Pepperdine University. The Taiwan native left his position as president of Westlake Village-based Diodes Inc. to pursue an MBA, and developed what became the business plan for Taitron in the course of studying for the degree.

“We started Taitron by accident,” Wang admits almost sheepishly. “When we started the business, no one knew if the strategy would work.”

The company’s share of the $20-billion market in electronics distribution has grown steadily. In 1993, it was 66th in the business, out of a total marketplace of 1,500 distributors, according to Electronic Business Buyer magazine. Last year, it ranked 57th among the top 100 distributors, according the magazine.

By comparison, Arrow Electronics Inc. of Melville, N. Y., reported a profit of $111.9 million in 1994. Arrow also distributes discretes, but places much of its emphasis on the more profitable integrated circuits, said Robin Gray, executive vice president of the National Electronic Distributors Assn. in Chicago.

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Wang’s decision to take the company public comes at a time when the market for discretes is uncharacteristically volatile, said Dataquest’s Giudici.

On one hand, demand for the tiny semiconductors has exploded along with sales of personal computers.

But the boom has led to fiercer competition, and over the past several years a number of companies have been consumed by larger rivals.

The volatility could pose a problem for Wang if the market turns around, Giudici said, and he is caught with too much inventory. “If the market slows down, you’ve got to have an alternative plan,” Giudici said. A warehouse full of components that nobody wants would amount to little more than “dead assets.”

It’s less likely, however, that discretes will soon become obsolete, Giudici said.

Unlike other electronic components, particularly those used in computers, discretes have a function so basic and simple that it tends not to change.

“The new and improved version [of a computer or other product] may come along,” Giudici said, “but there still will be discretes.”