Sales: $50.9 million (fiscal 1999)
Stock Exchanges: NASDAQ
Ticker Symbol: AULT
NAIC: 335311 Power, Distribution, and Specialty Transformer Manufacturing; 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing
Ault Incorporated, the leading independent external power conversion manufacturer in North America, develops and sells standard, semi-custom, and custom products to original equipment manufacturers (OEMs) producing data communications, small computers and peripherals, telecommunications, and medical equipment. Beginning in late 1970, Ault created a market for its goods by tapping into the trend toward smaller and smaller equipment. Ault’s power supplies, transformers, and battery chargers change the voltages supplied by power companies to lower voltages needed to operate its customers products. Ault entered the year 2000 holding 12 percent of the $400 million external power conversion niche.
Slow Start-up: 1960s to Late 1970s
Joseph Ault, a contract engineer with Honeywell, created his own business in 1960. Luther T. Prince, Jr., an engineering supervisor interested in expanding his own horizons, signed on to serve as an advisor and board member for the custom power supply operation in 1961. Prince came on board full time as general manager the next year.
The start-up company began by building power supply units for a single customer, Control Data Corporation (CDC). The computer maker dropped the Ault-produced parts in 1966, but by that time the small manufacturer had lined up additional customers. Meanwhile, Prince and Ault found themselves at odds over the direction of the company: Prince believed Ault was allocating too much money for a “pet project,” according to an April 1982 article by Marc Hequet.
In 1967, with sales at $1.6 million and losses at $114,000, Ault’s board of directors ousted the company’s founder and put Prince in charge. A stipulation tied to the Small Business Administration (SBA) loan restricted Joseph Ault’s voting rights and therefore prevented him from stopping the move.
Prince, on the other hand, was in control but also in a bind. If he saved the company and paid back the loan, Ault, who held 70 percent of the stock, would be in a position to fire him. Prince sought buyers for the company, ones who would support his leadership in the future, but they failed to materialize. Consequently, Prince moved to buy controlling interest of the company himself.
No one other than Ault held more than five percent of the company—shares were spread among employees, former employees, and friends of Ault. Prince’s game plan was to buy enough of the founder’s stock to gain control; turn the business around; take the company public; and finally, sell off enough equity to pay off his debt. Given the company’s track record, the plan was a hard sell. Furthermore, Prince was an African-American, a fact which further complicated matters in the United States of the late 1960s.
Prince called on his community contacts to get the $100,000 he needed to gain 55 percent ownership. “He went to Philip M. Harder, Sr., then top lending officer with First National Bank of Minneapolis. Prince and Harder were active together in the Twin Cities Urban Coalition, a group trying to defuse racial tension,” wrote Hequet for Corporate Report Minnesota.
Harder got Prince in the door. Although other First National bankers, doubting Prince’s ability to turn the company around, opposed the loan, Harder pushed the deal through. “I enjoyed his courage,” he said in Black Enterprise magazine in 1982.”He really kept hammering away. I always found him absolutely straight to deal with. If there was trouble, he said so.”
Ault agreed to part with his business but negotiated to retain a product line he’d been developing. He went on to begin a new enterprise. As for Prince, he was headed down a path he had not anticipated while growing up in Fort Worth, Texas.
Prince’s early aspirations revolved around aviation, not business. When dreams of flying were sidetracked, he enrolled in Ohio State University. In 1946, the draft interrupted his college studies. After three years in the army, Prince entered the Massachusetts Institute of Technology (MIT), where he earned bachelor’s and master’s degrees in electric engineering. Minneapolis-based Honeywell recruited him in 1953; there, he designed missile and aircraft-flight control systems.
As head of Ault, Prince had to find a way to control a stream of red ink. The company’s downhill spiral continued over the next two years. Sales of $2.2 million produced losses of $48,000 in 1968. The losses skyrocketed to $382,000 the following fiscal year, as sales fell to $1.7 million. During the period, an $850,000 infusion from lenders and investors kept Ault Inc. aloft, but just barely.
Late in 1969, Prince asked his former employer and current customer, Honeywell, for a $350,000 advance on an outstanding order. The Honeywell cash paid the bills, and Prince appealed to plant workers for help. “He wanted production volume of $250,000 in November 1969, even though Ault had never done better than $200,000 in any month. But in November 1969, Ault production hit $290,000,” wrote Hequet.
Prince’s persuasive ability helped him survive another crisis, but the roller-coaster ride continued: in 1970, sales climbed to $3.1 million but were followed by decreased sales in 1971 and 1972. Sales peaked again at $3.3 million in 1974 before taking another skid as manufacturers began moving power supply production in-house. The 1974-75 recession further depressed sales, which bottomed out at $2.1 million in fiscal 1976.
Ault had been operating primarily as a custom producer of electrical power converters for data communications and telecommunications original equipment manufacturers (OEMs), a position which made the company particularly vulnerable. On the one hand, if a customer canceled an order, Ault could not just sell the special order parts to another buyer. On the other hand, the internally situated power supply units Ault produced required safeguards, ones which drove up the size, weight, and cost of the OEM’s final product. During tough economic times, manufacturers sought ways to cut costs.
A Move Outward: Early 1980s
Prince determined the company’s best bet was to begin making a standardized external power supply. Hequet wrote in Black Enterprise, “It all sounds logical in retrospect, but it was a desperation move at the time.‘that market didn’t exist,’ Prince says.’We created it.’”
The introduction of the Alternatives line in 1977 propelled company growth, and Luther Prince was inducted into the Minnesota Business Hall of Fame in November 1982, becoming the first African-American Minnesota businessman to receive the award. Ault’s sales had grown from $2 million to $7 million over a five-year period, and the number of employees jumped from 100 to 300. The company ranked among the top 100 black-controlled U.S. businesses.
Ault’s product line multiplied as well over the period, expanding to more than 100 products including: step-down transformers, uninterruptible power sources, line regulators, DC-regulated power supplies, and battery chargers. Ault counted among its customers electronics giants such as Western Electric, Texas Instruments, and IBM.
Ault made its initial public offering (IPO) in August 1983. According to an early 1984 Minnesota Business Journal article, the newly public company was experiencing rapid sales growth and strong net income, and also anticipated increased market share. William R. Hegeman saw Ault’s dependency on one company, Texas Instruments (TI), for one-third of its fiscal 1983 sales as a less promising sign for investors.
Significantly, the Ault IPO was driven in large part by a single contract, one to manufacture external power supplies for IBM’s new PC Jr. IBM diverted from the norm by designing a personal computer with an external power source. The move was calculated to make the machine lighter and smaller, and to run more coolly and safely. Additionally, the external power supply afforded IBM an easier way to adapt its machine to foreign voltage requirements. The Ault IPO funded part of the production.
Ault had expected the IBM PC Jr. contract to boost the bottom line over the next several years, instead IBM scrapped the poorly performing project after a year. The machine lacked the versatility and power required for business purposes and was unable to compete with the Macintosh. A TI home computer also failed in the market. Ault’s stock price took a beating.
Just as Ault was trying to regroup from the home computer fiasco, AT&T received a court order to divest its Bell Systems. The transition period resulted in lost contracts for Ault; Bell had been one its most consistent customers for several years. To add insult to injury, Taiwanese competitors were undercutting Ault’s U.S. market by selling similar products for 50 percent less.
The Ault Objective is the unifying vision for the company: Our objective is to be a world class corporation using a customer driven, team approach that focuses on the prevention of waste through continuous process improvement.
Changes Inside: Late 1980s to Early 1990s
Ault’s revenue went into a freefall: dropping from $17.5 million in fiscal 1984 to $10 million in 1986. Ault racked up nearly $2 million in losses for fiscal 1986 due primarily to costs related to the closing of the plant opened to build PC Jr. power supplies. Frederick M. Green succeeded Prince as president and CEO in 1985. (Prince, who had originally recruited Green from CDC, remained on the board of directors until 1993.)
The string of negative events, caused in part by Ault’s dependency on a few customers, led Green to strengthen the sales and marketing systems especially in key East and West Coast territories. The company also accelerated efforts to gain customers in Canada and Europe.
Concerned with the influx of cheaper foreign power supply products, Ault opened a plant in South Korea, in 1987, becoming the only U.S. external power supply maker with a wholly owned subsidiary in the Far East. Unfortunately, the newly renovated plant’s roof collapsed, resulting in delayed production and greatly increased expenses.
Ault revenues resumed an upward trend, reaching $15.7 million in fiscal 1988. About 20 percent of Ault’s revenue was generated by the Korean subsidiary, which concentrated on high-volume, low-margin production runs; the majority of engineering and design work remained in Minnesota. Enthusiasm over the revenue recovery was tempered by Korean production start-up problems which contributed to a loss for the year.
By 1989, Ault was producing 300 different products for more than 300 customers, mainly telecommunications, data communications, computers and peripherals, and medical equipment makers. The company had succeeded in broadening its customer base: Northern Telecom, its largest customer, generated just 7 percent of sales.
Even though the prospects for profitability looked brighter and order backlogs were growing during the first half of fiscal 1989, investors still shied away from Ault. Clint Morrison, analyst with investment firm Dain Bosworth, surmised they were put off by the memory of the PC Jr. debacle. Nora Leven, in an April 1989 Corporate Report Minnesota article, said Morrison was “unenthusiastic about the power supply industry in general” due to high labor needs and lack of proprietary products. Another analyst, Michael Sabbann of Piper, Jaffray & Hopwood, viewed the industry and Ault more positively, pointing to the size-conscious laptop computer, modem, and telecommunications equipment makers and their growing demand for external power supplies.
Green was determined to stay competitive. In 1991, Ault Inc. became one of the first U.S. power supply companies to achieve ISO 9002 status; they upgraded their quality certification to ISO 9001 two years later. In spite of Green’s efforts, the company continued to be buffeted by market volatility.
Ault produced a record $23.3 million in sales during fiscal 1992, but weakness in the electronics industry forced Ault to downsize its Korean subsidiary in 1993-94. When the market rebounded in fiscal 1995, Ault’s earnings—the first in two years—were somewhat diluted by costs related to rebuilding the Korean manufacturing infrastructure.
The successful introduction of new products during the year was a hopeful sign. They helped boost the year’s sales 51 percent to $27.1 million. Moreover, the Aultra line of low-cost transformers, manufactured under subcontracting arrangements in the People’s Republic of China since 1993, garnered 25 percent of total sales. North American electronics manufacturers had been going to Far East producers for similar products.
New Products Driving Sales: Late 1990s and Beyond
Ault recorded sales of $33.78 million in fiscal 1996, an increase of 25 percent over 1995, and produced another year of net earnings. Fifteen new products were introduced in 1996. When combined with the 13 from the previous year, Ault’s new product output was the greatest in the company’s 35-year history.
The effort expanded Ault’s range of products at both the upper and lower ends of the external power supply market. Basic transformers and linear power supplies complemented battery chargers/power supply combinations and positioned Ault as a single source supplier for a number of its customers. Ault claimed to be the largest U.S.-based independent maker of external power conversion products.
A secondary public offering, in December 1996, raised net proceeds of $10.6 million, used primarily to pay down debt and acquire equipment and a factory in the People’s Republic of China. Ault appeared on Business Week’s 100 “Hot Growth Companies” list, in May 1997, based on three-year sales, profits, and return on capital. In addition to increased sales and net income, Ault improved gross margins significantly in fiscal 1997 thanks in part to a shift in the sales mix toward Ault’s highest-margin products, switching power supplies and battery chargers.
Ault introduced its first switching power supply using its patented high-density technology during 1997, thus moving the company into the 50-watt range versus the 25-to-35 range of earlier technology and opening the way for new product applications, such as for printers, high-powered personal computers, and video conferencing. In all, Ault introduced 18 new product families in fiscal 1997.
- Joseph Ault forms company to build custom power supplies for computers and computer peripherals.
- Luther T. Prince, Jr., acquires controlling interest of company.
- Introduces standard line of external power supply products.
- Initial public stock offering.
- Opens subsidiary in Korea.
- Introduces line of low-cost transformers manufactured in China.
- Appears on Business Week’s 100 “Hot Growth Companies” list.
- Ault reaches $50 million in revenues.
The external power supply market had been growing at a rate of 12 percent annually. The segment produced 10 percent of the $16 billion generated by the power supply market as a whole. Merchant suppliers, such as Ault, were growing at a rate of 18 percent annually and produced $1 billion in revenues for the niche, according to a July 1997 Twin Cities Business Monthly article by Mark Hoonsbeen.
A slower than anticipated ramp-up time in the cable modem industry, resulting in lower than expected orders, hindered Ault’s performance in fiscal 1998. Yet, the company reported increased sales and solid operating income and earnings: “a reflection of our improved infrastructure and sales concentration in other market segments and other geographic areas,” Ault reported to shareholders.
The following year, sales rose 24 percent to a record $50.94 million. Operating income and net income also made strong gains, 38 percent and 51 percent, respectively. A significant portion of the sales growth was generated by cable modems and the growing ADSL modem market—ADSLs facilitate the convergence of voice, high-speed data, and video communications on a single broadband “pipeline.” Ault’s sales of external power supplies to major OEMs making digital cameras, new wireless phone systems, analog PC modems, industrial instrumentation, and business phone systems also grew in fiscal 1999.
Ault completed its first acquisition during the fiscal year: the operating assets of Maryland-based LZR Electronics’ power supply division. The unit produced a series of flexible platforms or subassemblies which could quickly be modified according to customers’ specifications. The acquisition, restructured as Ault Express, gave the company entry into the low-volume market niche.
During fiscal 2000, the company continued to benefit from the strong growth in the broadband modem market. Outside factors, such as the sharp rise in oil prices and the high volatility among technology stocks, had somewhat of a negative impact on the company’s numbers. But Ault Incorporated now had 40 years of experience under its belt and appeared to have eliminated the extreme ups and downs of its earlier years.
Ault Korea Corporation.
Exide Electronics Group, Inc.; ZEXEL U.S.A. Corp.; Tripplite; Advanced Energy Industries; Maxwell Technologies; Spectrolab; Acme Electric Corp.; International Components Corp.
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