"As the leader of a company you have to be optimistic," explains Steve Kircher, CEO of Solar Power Inc. It helps to have a strong sales trajectory. His three-year-old Roseville, Calif.-based company, which manufactures solar panels and also designs and installs solar systems, saw a 13% year-over-year sales increase in November. Sales for all of 2009 should hit $65 million, and for 2010 analysts forecast bullish sales of $120 million. Part of the reason that 2010 will shine is that the system side of the business will ramp up as projects come back online. "The U.S. market is growing as stimulus money kicks in," explains Kircher.
"The U.S. market is growing as stimulus money kicks in."
What's the secret to his success? Kircher points to his business model of vertical integration, which allows for rapid revenue growth. Additionally he has received favorable financial arrangements from solar cell manufacturers as his business ramps up.
It's not just newer industries such as solar that are looking to 2010 with optimism. One-hundred-year-old C/G Electrodes LLC sees a bright future as well. Based in St. Mary's, Pa., it is the only U.S.-owned and operated global manufacturer of large-diameter UHP graphite electrodes used in the electric-arc furnace steel-making process.
While 2009 provided reasonably good pricing for C/G Electrodes, demand was low as steel companies used up their inventory of electrodes. "But 2010 looks to be 40% better than last year," says CEO David Jardini.
"2010 looks to be 40% better than last year."
For Emerson Process Management, a division of Emerson that manufactures products and provides technology for a variety of process industries, the recession hasn't lasted quite as long compared with other manufacturers. "The process industry came into the downturn at a later stage and for us it has only lasted 10 months. It has bottomed out and I see improvement in the second half of 2010," says President Steve Sonnenberg.
Looking at 2010, Sonnenberg sees larger projects moving once again, particularly in the oil sector, as a few factors converge simultaneously: increasing oil prices, decreasing steel prices and increasing labor availability.
To help ensure a strong recovery, the company made a strategic decision in 2009 to protect its technology. "Our thinking was that we needed to continue to roll out new products. This slower time gave us the opportunity to test new products," says Sonnenberg. The company also continued to invest in emerging markets, which required marketing and sales support personnel. So while there were layoffs in the company overall, jobs were added in some markets.
"This slower time gave us the opportunity to test new products."
Stimulus money also should factor into next year's recovery. "In 2010 we expect to experience growth from some of the industries we serve that would receive stimulus money. In the water and wastewater sectors, which we serve with control systems, funds will become available. We also see opportunities in the alternative fuels industry. For example, we are working with Range Fuels, which is converting wood chips into fuel, and Dynamic Fuels, a joint venture between Tyson Foods and Syntroleum, which is converting animal fats into premium diesel fuel," explains Sonnenberg. Range Fuels' Soperton, Ga., plant and Dynamic Fuels' Geismar, La., facility will be among the first commercial-scale second-generation biofuels plants to come online in 2010.
"Over the years we have not over-leveraged ourselves."
Supplier vulnerability is a cause for concern for Fred Merritt, CEO of Riverside Manufacturing. The company, which manufactures lighting, electrical and electro-mechanical products for harsh environments and military applications, says supplier solvency is an issue. The company has increased its safety stock, invested in additional tooling and is developing secondary supply sources.
For 2010, Merritt sees reductions in his defense business for the first six months, but then a pickup in business in the second half of the year. Based on his orders, his lag in revenue for the fourth quarter of 2009 won't pick up until third quarter of 2010.
To manage the cost side during this lag time, the company plans to relocate to a less expensive facility and outsource the production of its circuit boards to domestic sources.
However, the company also will break ground on a new R&D facility in 2010. "We were able to fund this facility due to our strong balance sheet. Over the years we have not over-leveraged ourselves," says Merritt. Next year also will see Riverside introduce a new product, an active touch-screen control system for emergency vehicles.
Tight Credit Concerns
"Lenders dont like surprises."
Kirschner says his clients view the first half of 2010 as difficult, but expect conditions to improve in the second half of the year. Hiring will be limited in the last half of 2010. Part of the reason for this sluggish recovery is that we are still in a period of unpredictability, says Kirschner. Orders are starting to come in but in smaller amounts than in the past. Blanket orders of the past are nonexistent. Customers are reducing inventories, and when they do order they are demanding a much quicker turnaround.
To capitalize on future opportunities, James Davis, president of Industrial Specialties Manufacturing Inc., put aside funds in 2009 to invest in marketing. His company, which manufactures miniature pneumatic, vacuum and fluid circuitry, found 2009 to be a year of contrasts. Business was solid in the beginning but it softened over the year, so he took corrective action in the spring, which resulted in a record October. Part of this action was to reduce his inventory to free up cash. The goal, which was a 20% reduction by January, was met.
"When we sensed that our customers were facing difficult times, we collaborated with them to help overcome obstacles."
Davis also beefed up the firm's online marketing. Through an online catalog and an increased Web presence, the company is making sure that it is front of mind. Its efforts have begun to pay off, as November brought the largest backlog of orders that the company has ever experienced. "Next year won't be a record year, but it will be a solid one across most of our markets," explains Davis.
Moog, an East Aurora, N.Y.-based global manufacturer of motion control systems for aerospace, wind energy, automotive and medical applications, leveraged its overall conservative practices and maintained a stable financial base in a year that saw a drop-off in sales. "I don't see a huge recovery in our core business as people are very cautious. While I expect the caution to remain during the upturn, I do think we will see improvement in the second half of 2010,"says Ashis Bhattacharya, who leads global marketing for Moog Industrial Group, a part of Moog Inc.
For 14 consecutive years prior to 2009, Moog's sales and earnings grew, and growth continued last year, though at a reduced rate. This strong financial position has allowed the company to internally finance five to six acquisitions in the past 18 months.
""We have seen trying times before so we just stay the course."
The 60-year-old company, which employs 8,000 people, takes a long view of business cycles. "We have seen trying times before so we just stay the course. We are also fortunate in that we have some customers who have worked with us for 30 years," Bhattacharya explains. This stability allows the company to continue its new product innovation, which includes providing the electric actuation solution that operates the newly installed retractable roof above Wimbledon's Centre Court.
Eaton Corp.'s strategy of diversification has helped it weather difficult business cycles, says Craig Arnold, vice chairman and COO for the company's Industrial Sector. While the company had to take measures in 2009 to cut costs, including a 15% reduction in its workforce, its strategy enables it to counter the downturn in some sectors with the various sales cycles in others. The company's diversification strategy has shifted its business to the faster-growing electrical, hydraulics and aerospace segments, which currently account for about three-quarters of Eaton's sales and profits. The vehicle group, which includes the automotive and truck businesses, constitutes the remaining portion of sales.
"The stimulus funding bill has been a huge disappointment to most businesspeople."
Eaton earns 55% of its revenue outside the United States. The Asia Pacific market is growing and the company invested in that region in the past year.
Two Views of the Stimulus
A bright spot in the United States for Eaton is the stimulus program. "We expect to see a billion dollars' worth of revenue from the stimulus program over the next couple of years. So far we have seen $100 million in orders and expect $500 million in each of the next two years," says Arnold.
The stimulus bill is not popular with everyone, though. "The stimulus funding bill has been a huge disappointment to most businesspeople," says Baiju Shah, CEO of Cleveland-based BioEnterprise. "There has been no impact on innovation or manufacturing resulting from stimulus dollars." BioEnterprise, a partnership of area hospitals and universities, has created 80 bioscience companies in the past six years.
The lack of funds is causing companies to look into reducing fixed costs and increasing productivity with the same or smaller staffs. Companies are using their own equity financing. Shah suggests the government could improve this situation by providing industrial manufacturers with special-purpose loans similar to what the defense industry uses when a base shuts down.
Medical manufacturers might not need this type of assistance as they are continuing to grow. "Companies that traditionally supplied the automotive industry are finding out the capabilities are the same for the medical industry, and they are building up their volumes in these areas. Skills that have been honed in the intensively competitive auto sector can be transferred to medical manufacturing," says Shah.
Agility will be the key to future success, according to Mark Goodburn, vice chair of KPMG LLP. He says the "challenge ahead for many companies is to ensure that all of the good work they have put into cost optimization will be sustainable as they shift back to a growth agenda."
"We feel the worst is over."
The current economic reality is just speeding up the realization that in order to compete and survive, manufactures cannot simply sell more physical products, says Fields. They have to find out what their customers want and how they can deliver that in a way that adds value and create services and intellectual property. "Companies need to think from an entrepreneurial perspective," he says. "They have to be innovative and get the heck out of their own buildings and engage the market on an enterprise level."