'Industrial Manufacturing' Archive
News item: Novellus Systems agreed to pay $168,000 to an African-American assembly technician who claimed he was fired after he repeatedly complained to management about a Vietnamese-American co-worker. The co-worker played rap music on the factory floor and rapped along with the music’s lyrics, which included language that the African-American employee considered racially offensive. Management apparently took no action on the issue, which led to the US Equal Employment Opportunity Commission (EEOC) suing the semiconductor production equipment manufacturer last September for racial harassment.
The company settled the case without admitting any wrongdoing and agreed to amend its anti-harassment policy to prohibit the playing of music with offensive lyrics, with specific examples to be provided in the policy.
Seems pretty cut-and-dried for a case in employment law — a colorful example, you could say. What the news coverage doesn’t tell, and it’s unlikely that Novellus will either, is exactly how the company’s managers treated this case. On the face of it, the case indicates managerial indifference and possibly incompetence — failures that cost Novellus $168,000. That’s not much money for a company that last year posted net income of $213.7 million on sales of $1.57 billion. Still, I bet that $168K is more than the salary of the manager who told the unhappy employee to “Just ignore him” or “Get over it.” And I bet that manager didn’t inform his or her bosses of the problem until the situation escalated, when HR and legal executives had to respond to inquiries from EEOC investigators. I bet that manager is now an ex-manager of Novellus Systems, so the company saved that person’s salary toward paying the judgment. Of course, the whole episode cost Novellus a lot more than $168,000, factoring in the legal fees, distraction of management time, and extra work for HR. Maybe a few people got fired as a result. So, there’s a ripple effect of consequences.
I feel personally disappointed in Novellus, because I’ve covered the company since its founding in 1984 and interviewed its senior executives on many occasions. Brad Mattson was among the founders of Novellus, and he went on to establish Mattson Technology and other firms. Bob Graham convinced his employer at the time, Applied Materials, to buy Novellus in 1986; the deal was called off, however, as a corporate turf war broke out. When management decided to go with Applied’s internally developed deposition system over the Novellus design, Graham quit the company and joined Novellus as its president and CEO. He retired in 1996 and died in 1998; his achievements are annually commemorated by the Semiconductor Equipment and Materials International trade group with the Bob Graham Award, which goes to an executive who has shown distinctive marketing and sales acumen, something Graham had in abundance. Rick Hill, the current chairman and CEO of Novellus, is a tremendously talented executive whose experience was forged in the fires of Tektronix, the perpetually embattled instrument maker.
The resolution of this episode comes in an election year that features the first African-American presidential nominee of a major party. We’re going to have a national dialogue on the racist history of the US as a result, although many would prefer to look forward, rather than backward. Bigotry is being linguistically recast as “lower racial sensitivity,” a term that puts a genteel front on racial resentment and hatred. Maybe we should first lighten up on the language, which does carry emotional baggage. The comedian Mike Birbiglia jokes that only white people are allowed to call each other “crackers” — as in “Cracker, please!” or “Cracker what!?” A smile is a good place to start. Then, we can move on to the more important work of achieving mutual respect in the workplace, and everywhere else in the US.
LDK Solar, a manufacturer of silicon wafers for solar cells and modules, is a young company. It was incorporated in China in 2005, reincorporated in the Cayman Islands the next year, and went public on the New York Stock Exchange last June.
The company enjoyed one of those fast-track IPOs for overseas firms, filing its F-1 registration statement with the SEC May 11 and making its Big Board debut only three weeks later.
LDK Solar is now growing familiar with the ways of bare-knuckled, albeit highly regulated, capitalism. The freewheeling business practices in the People’s Republic of China don’t quite jibe with how business is done in the U.S. of A.
The company went public at $27 a share and its stock ran up to nearly $77 this summer, buoyed by the general market euphoria over solar power.
Then the stock market and its investors heard from a man named Charley Situ, and LDK’s stock plunged 26% in one day. The stock price has been bobbing around the upper 30s ever since.
An accountant based in Hong Kong, Mr. Situ had gone to work for LDK earlier this year to help shape up the company for its IPO. In September, he began raising the issue of apparent discrepancies in silicon inventories. Depending on who’s telling the story, Mr. Situ resigned or was fired soon after, but not before he alerted LDK’s auditor, KPMG, and the SEC about the inventory issues he had uncovered.
The company first said its management had looked into the inventory questions and found that Mr. Situ’s allegations “have no merit.” The story refused to die down, however, battering LDK’s stock and — more importantly — its reputation in the States.
Last week, LDK Solar disclosed that it had been contacted by the SEC regarding these accounting issues. It’s also been hit with several class-action shareholder lawsuits. Perhaps not coincidentally, the company said the two outside directors on its board’s audit committee will conduct an investigation, with the aid of an outside law firm and an accounting firm other than KPMG.
So, welcome to the US, LDK Solar, and we hope you enjoy your stay.
Illinois Tool Works (ITW) acquires companies like most folks buy groceries – that is, often. Last year it bought more than 50 companies, spending about $1.7B. During the 1990s ITW acquired about 100 companies.
The company may not meet the standard of empire-building by acquisition that Tyco International set in the 1990s, and I’m sure its management doesn’t want to emulate the disgraced Dennis Kozlowski in corporate malfeasance. Their model is more like General Electric — a smooth-running, well-managed, highly profitable enterprise. ITW doesn’t approach GE in size — the company posted 2006 sales of $14B, and it’s on track for $16B this year — but they’re working on it. Profit margins are consistently steady, at 7-12% in recent years.
The ITW acquisition model is to buy small companies, look for efficiencies in their operations, and make them as profitable as possible. A simple prescription, true, but not so simple to execute. Unlike other conglomerates that bought and sold businesses with equal fervor, like the old ITT or Gulf & Western, ITW borrows a page from Warren Buffett’s Berkshire Hathaway, buying and holding businesses for the long term. ITW divested its consumer products segment (which included fitness equipment) early in this century, but other than that, ITW has generally been a buyer for 95 years.
ITW’s businesses include Acme Distributor Sales (industrial packaging products), Click Commerce (supply chain management software), Foilmark (hot stamping foils and lamination products), Hobart (commercial food-service equipment), Instron (materials testing equipment), Speedline Technologies (electronics assembly equipment), Vulcan-Hart (restaurant kitchen equipment), Wilsonart International (countertop and flooring products), and Wynn Oil (automotive lubricants).
Illinois Tools Works — a company name that sounds prosaic, and a business model that sounds profitable.
With the Iowa Caucuses just around the corner, most presidential candidates are falling over themselves to prove their pro-ethanol bonafides to the corn growing voters of the Hawkeye State, a place where more than 75% of all gasoline sold is a 10% ethanol-blend. Ethanol producers dot the landscape of the Great Plains (Iowa alone has 28 ethanol refineries and 19 under construction or expansion), from corporate giants Archer Midland Daniels and Cargill to smaller cooperatives (such as Hawkeye Holdings, Little Sioux Corn Processors, and Northern Growers. This rural industrial boom has provided corn farmers with locally heavy consumption and a good price for their corn crops.
Organic fuel, less reliance on foreign oil, cleaner air, improved local economies, happy farmers. Who could object to that?
Lots of people. For instance:
- The poorer sections of Mexico — In January some 75,000 people took to the street to protest the up to 50% increase in tortilla prices brought on by the increasing use of corn for ethanol. With more than 20% of the US corn supply going to ethanol production, corn prices rapidly spiked.
- American consumers — The ones that eat steak and ice cream, anyway. The rise in corn prices has made steak très expensive and driven up the cost of ice cream and many other prepared foods that use corn.
- Environmentalists — It takes more energy than is used to grow and harvest the corn to distill it into ethanol. The production leads to a larger carbon footprint, not a smaller one.
- Pipeline companies — Pipeline transportation is far cheaper than using trucks, trains, or barges, but piping ethanol poses problems. Ethanol, with its higher solvent properties, can contaminate a mixed shipment of petroleum products and, as such, is not viable for pipeline transportation. Trucking becomes the alternative method of transportation, and trucks use diesel. More energy use, more foreign oil use, more pollution.
- Automakers — Some car makers believe that ethanol gums up the works. One reason that ethanol/petroleum blends have not gone beyond 10% ethanol in most states is the concern about ethanol’s effect on engine fuel systems — the floats, the gaskets, hoses, etc.
But when the presidential candidates come to close the deal (secure the votes of their constituents) at the Iowa Caucuses, don’t expect to hear the voices of ethanol naysayers. Corn and ethanol are good for Iowa’s farmers, and Iowa’s rural votes are good for politicians aspiring to become the next president.
I walk the tech beat at Hoover’s, covering semiconductors, test and measurement instruments, and all kinds of products that go into making the notebook computers, portable music players, and wireless phones you use daily.
Another facet of my portfolio, though, is industrial machinery: the metalworking equipment, power tools, and printing equipment found on factory floors and in big, dirty plants — quite the opposite of the antiseptic, quiet world of high technology. It’s my ying and my yang.
One firm that bridges these two worlds is Emerson Electric. The company has grown steadily over the years (from $14B in 1999 to $20B in 2006, with some hiccups in 2002-03) and consistently makes money, with net profit margins of 7-9% (except for 2002, a year of restructuring).
Emerson has a variety of businesses in its eight Emerson Brands segments. They include Astec Power (power supplies), ClosetMaid (storage products), Cooligy (electronics-cooling technology), Fisher Controls International (control valves and regulators), InterMetro Industries (cabinets, carts, and shelves), Liebert (cooling and power equipment), Ridgid (plumbing tools), and Therm-O-Disc (temperature sensors and controls).
As an industrial conglomerate, Emerson is in the second rank, behind behemoths like General Electric, Hitachi, and Siemens. Like those big ventures, Emerson is always in the hunt for companies and technologies to acquire (and making strategic divestitures, as well).
Emerson just agreed to buy Motorola’s Embedded Communications Computing business for $350M. The Motorola unit makes embedded computers for telecommunications networks and other applications. Earlier this year, Emerson acquired Decision Management International, which makes documentation software for FDA-regulated industries, and Stratos International, which makes electronic subsystems and components for communications networks.
Analysts look to Emerson to continue growing, through its existing operations and by acquisitions.