While manufacturers in the capacitor space are specialised in one particular technology, Kemet is now positioning itself as a major player across the board. Although this allows you to create useful synergies and greater utilisation of your sales channels, each has different business cycles and application demands. Is there a risk of being a jack of all trades, but master of none?
That’s always a risk, but you have to remember that our competition tends to have other business interests, too, that make sure that they aren’t over-dependent on any one area: AVX has connector products for example, Vishay has active components, etc. We felt it was better to stay in our field of expertise, having a presence in different capacitor technologies. Of course the processes involved are very different, so the synergies are not so great there, but on the sales/marketing side there are many opportunities for cooperation.
The company releases thousands of new products each year and prides itself on being first to market with certain technological innovations. This must require a considerable R&D spend. How much of your revenue goes into this, and how is it broken up between tantalum, aluminium, ceramic and electrolytic devices?
The company ploughs roughly 5% of its sales revenue back into product development, which is a proportion that puts us ahead of most of our main competitors. For electrolytics and film components it is not so clear-cut as these are more often project-led: it is a lot less than in digital or analogue electronics components, but relative to our industry it is more than competitive.
What would you say where are the main technology drivers that Kemet has to deal with: lowering ESR (equivalent series resistance) levels, reducing footprint/profile measurements, increasing capacitance specs relative to component size?
It is all of them, that’s for sure. Customers want to have devices that can help their product designs in multiple ways simultaneously, and of course each industry will have a specific aspect that they will prioritise: in the computer sector it’s mainly ESR, in the portable consumer sector it’s size, in automotive it might be reliability, and so forth. As a general rule, ESR is probably the biggest driver that we are currently seeing, but we have to cover all these bases.
Kemet has already cut its workforce in North/Central America and relocated some of the production that had been taking place there to the Far East. Is it likely that similar things will happen with the European-based business operations you have acquired, or does the close proximity to key clients in areas like automotive and defence make this approach less advantageous?
We are looking first and foremost to have manufacturing facilities in close proximity to the OEMs we serve, whether that’s in the military, medical, automotive or consumer sectors. It’s not really a question of simply saving costs. Eastern Europe offers a way of putting factories that are still near to the customer base while having similar labour costs to the Far East; likewise Latin America can serve a similar purpose with respect to our North American customers.
Distribution contributes around half of your overall sales. With so many other manufacturers to compete with, how do you ensure that Kemet’s products get their share of attention and don’t get lost on the line card?
Yes, about 47% of Kemet’s sales revenue comes from our external distribution channels. TTI, Avnet, and Arrow are our main distribution partners. We have built close-working relationships with each of them over a long period and put a lot of effort into supporting their operations, training their FAEs, and so on. We look at them as an extension of our own sales force. Having the components on the shelf is another important factor: if the inventory is not available when required then the customers will be forced to go elsewhere.
Who are your main distribution partners in Europe?
As well as though the three global players already mentioned, we work with companies like Farnell, Richardson, and several smaller local distribution firms that cover specific countries. Europe is now our biggest sales region, representing around $400 million, so we value it very highly and make sure we have the right partners to support its continued growth.
Earlier this year Kemet introduced a new series of space-grade capacitor devices. Currently, how big a market is this application area for you, and can you mention some of the projects that the company has been involved in?
About 5% of our overall sales is in the space/avionics sector. We really can’t talk about specifics here as the customers don’t really appreciate the media attention. It's normally only afterwards that we can mention any involvement, but suffice to say, with anything that goes up there is a good chance we have some components in there.
You have also developed a series of tantalum/ceramic hybrid modules for high-capacitance/low-impedance applications. Do you see further opportunities to combine multiple technologies into your products?
I think there are further possibilities to do this. There are certain to be areas where the cost, performance and space benefits that these modules allow will be appreciated, although in some areas time-to-market pressures and short development schedules mean that utilising such hybrid solutions might not offer the degrees of freedom needed.
[Before October's stock market falls] Kemet’s stock price dipped somewhat in the first six months of 2008. What would you say were the major factors involved in this?
Our issues in the past six months have centered around rising energy and raw-material costs. Additionally, we have seen our integration of Arcotronics delayed by as much as six months due to labour issues in Italy, which have fortunately been recently resolved. These problems, along with falling ASPs in ceramics and yield issues in our tantalum business due to a recent move of some of our most complicated technologies to China, have resulted in a loss of profitability. We are working on these areas and believe we will see improvement in the near future.
The downturn is likely to put your products under extreme price pressure. What measures can be taken to keep margins high?
The pricing pressure is high, but the overall demand is not waning. There is an overcapacity in the MLCC, but tantalum, aluminum, etc are all fairly strong. We are now focusing our ceramics unit on building on our already developed business in this specialty area. Here we see strong margins and believe that this area holds opportunity for growth.
Though the company has expanded considerably in recent years, this has
pulled it into the red. Do you expect to be back into profitability within
the next two quarters?
I will not give a timeline as we do not provide forecasting. But, let me stress that we are focused on returning Kemet to profitability as soon as possible. Let me also make clear that we strongly believe that our film and electrolytic business group has a tremendous upside. We are excited about having the market share of the kind of capacitance that is critical to the emerging green technologies.
Company: Kemet
Established: 1919
Headquartered: Greenville, South Carolina, USA
Employees: 11,300
Business: Capacitor Devices
CEO: Per Olof Loof
Revenue: $850 million (CY 2007)
