Richey Electronics Lays Off 40 Employees
A product glut that has dampened the semiconductor industry all year is beginning to rock the broader electronics distribution business as well.
Richey Electronics, a major Garden Grove-based wholesaler of electronic interconnection devices, said Tuesday that it has laid off 40 employees and expects its third-quarter sales to fall as most of its computer and telecommunications products customers reduce their customary ordering volume. Profits will remain flat or even dip slightly from second-quarter levels, the company added.
The company, which says its medical, aerospace and consumer electronics businesses have not been affected, expects the downturn in orders from computer and telecommunications manufacturers to last through the end of the year.
Richey expects to save $1.5 million in payroll costs because of the layoffs, which left it with 1,050 employees nationwide.
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Industry analysts say the situation is painful but not unexpected. “It’s one of the normal bumps” in a business that seems rarely to travel in calm waters, said Glen Primak, a wholesale electronics analyst with Milwaukee brokerage Cleary Gull Reiland & McDevitt Inc.
“There’s still a bit of a glut from the semiconductor side . . . so manufacturers are cutting their supplies, which means they are ordering smaller quantities from distributors,” Primak said. “It’s pretty much industrywide.”
The situation presents opportunities as well as disruptions for profitable businesses like Richey, which said that the crunch is putting pressure on distribution businesses to consolidate in order to survive. “This has produced a number of interesting acquisition opportunities” for Richey, which has acquired six other distributors in the past 5 1/2 years and doesn’t intend to stop, said William C. Cacciatore, the company’s president and chief executive.
The semiconductor market flooded as chip producers, driven by several years of high demand and soaring prices, failed to foresee a leveling off of demand for computer and telecommunications products earlier this year.
Semiconductor supplies built up, prices fell and equipment manufacturers began cutting orders and reducing inventories. That now has begun affecting the products that companies like Richey distribute.
Its products are used to connect various semiconductor-based electronic devices--computers to printers, for instance.
“Our bookings were very stable through June in spite of what we kept hearing on the semiconductor side of the business,” said Richard Berger, Richey’s chief financial officer. “But in July we began seeing a severe cutback in our area of business.”
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The result, he said, will be a drop of about 10% in sales revenue from the $58.2 million booked in the second quarter--or about $10 million less than the $62 million analysts had expected Richey to post for the third quarter. Earnings, said Berger, will be “down slightly or flat.” Richey posted a second-quarter profit of $1.7 million, or 18 cents a share, and analysts had expected the firm to post earnings of about 21 cents a share in the third quarter.
The company has made two major acquisitions since the third quarter of 1995, more than doubling its sales and making quarter-to-quarter comparisons meaningless. Despite the weak third quarter, said Berger, sales should be 80% higher than a year ago and profits should 30% to 40% higher than the $900,000 reported then.
Trading in Richey stock was halted Tuesday in anticipation of the company’s announcement. On Friday, the last day of trading, the stock closed at $10 a share on the Nasdaq market, up 12.5 cents.
