Jaco Electronics, Inc.
Jaco Electronics, Inc.
Sales: $153.7 million (fiscal 1998)
Stock Exchanges: NASDAQ
Ticker Symbol: JACO
NAIC: 334112 Computer Storage Device Manufacturing; 42169 Other Electronic Parts & Equipment Wholesalers; 541512 Computer Systems Design Services
Jaco Electronics, Inc. is a marketer and distributor of electronic components and computer peripherals. The company distributes more than 60,000 items from stock, including semiconductors, capacitors, resistors, electromechanical devices, and computer subsystems, for use in manufacturing and assembling such electronic products as computers and data-transmission, telecommunications, and transportation equipment. It also manufactures printed circuit boards under contract and provides a variety of value-added services, including configuring computer systems and other components to customer specifications.
Prosperity, Then Overexpansion: 1961–82
Joel and Charles Girsky founded Jaco (an acronym for Joel and Charles Organization) in 1961 in a two-truck, 400-square-foot Brooklyn garage. The start-up capital of $13,000 came from the life insurance policy of their deceased father. While their competitors were handling a wide range of electronic components, the Girsky brothers decided to distribute only capacitors: small devices used in virtually all electronic equipment to store electric energy and release it in prescribed amounts at selected times.
Jaco, in 1968, established Semiconductors Concepts, Inc., a subsidiary for the distribution and sale of semiconductors, such as transistors and diodes, used to generate, control, or amplify electronic signals in a broad variety of electronic equipment. Also in 1968, Jaco expanded to the West Coast by opening a sales headquarters and warehouse in Chatsworth, California.
Jaco made its initial public offering in 1970, raising $1.2 million by selling common stock at $7.50 per share. Sales rose from $5.1 million in fiscal 1969 (the year ended June 30, 1969) to $8.9 million for fiscal 1971. Net income rose from $285,000 to $382,000 during the same period. The company now was based in Hauppauge, Long Island. By 1970 Jaco Electronics was the largest marketer of capacitors in the United States, and by 1972 the largest in the world. The ten-pound devices it distributed could be found on the desks of over 2,500 purchasing agents and managers of electronic equipment.
In 1972 Semiconductor Concepts, Inc., was marketing semiconductors; Jaco International Ltd., electronic components sold to foreign markets; and Rampart Components, Inc., electronic parts as an exclusive distributor under license from recognized manufacturers. Jaco’s customers included industrial giants such as DuPont, Boeing, Lockheed, General Electric, Burroughs, Honeywell, IBM, RCA, Control Data, Chrysler, Westinghouse, and Texas Instruments.
Jaco Electronics was highly valued by its customers for service. Its catalog of capacitors was often referred to as the “bible” of the electronics industry, with military and commercial specifications for more than 50,000 capacitors. A survey found that, without exception, clients interviewed said the company’s pricing was competitive and its inventory and delivery schedules superior to the competition. Jaco’s managers and personnel were especially praised for their willingness to troubleshoot and solve any problem that might arise in the normal course of operations. “Today isn’t soon enough” was the corporate slogan. When Jaco offered, in a trade paper, a free poster to respondents, more than 20,000 requests were received from around the world.
By the mid-1970s Jaco Electronics had greatly expanded its leased space in Hauppauge and Woodland Hills, California. It earned record net income of nearly $2 million on net sales of $29.5 million in the fiscal year ended June 30,1974. With the end of the Vietnam War, however, company revenue, highly dependent on military contracts, began to stagnate and the company lost money in fiscal years 1976,1977, and 1978. After making a profit on record revenues of $64.8 million in fiscal 1980, the company sustained losses in the next three years, having expanded at a time when the electronics industry was caught in a major recession. As a result, the company found itself flooded with inventory and saddled with enormous overhead.
Restructuring and Consolidation: 1982–90
Charles Girsky, who had moved to the West Coast to handle western operations while remaining president of the company, resigned at the end of 1982 to join Integrated Electronics, a firm that assumed control of Jaco’s California and Seattle-area divisions, which directed operations in 11 western states. As a result, Jaco’s revenues fell from $60.1 million in fiscal 1982 to $29.7 million in fiscal 1983, and in the latter year it sustained a loss of $4.9 million, which included a $1.6 million writedown for the sale of assets in the West. Financial problems also had forced the company to close operations in Boston; Clifton, New Jersey; and Irvine and San Jose, California, in 1982. Only the Hauppauge headquarters and the Dallas-area office now remained in existence. However, the sale of these assets allowed Jaco to remain solvent and provided the opportunity to consolidate its remaining operations.
An emphasis on cost-cutting enabled Jaco Electronics to operate profitably even though its revenues fell to $28 million in fiscal 1985. Two acquisitions of smaller distributors in the late 1980s and the opening of new satellite offices across the United States allowed the distributor to increase its market share. In 1988 it was representing more than 75 electronics manufacturers, selling through its own sales force and independent representatives to more than 8,000 customers. The company also profited by receiving most of its products from South Korea and Taiwan rather than from higher-priced Japanese manufacturers. In fiscal 1987 capacitors accounted for 49 percent of Jaco’s sales; semiconductors for 16 percent; electromechanical devices and motors for 26 percent; and other products for nine percent.
Jaco’s semiconductor product line at this time included integrated circuits (multiple combinations of electronic components), microprocessors, transistors, and diodes. Other products distributed, besides capacitors, were relays, fractional horsepower electric motors, and resistors. Jaco’s products were being used in computers, data-transmission, telecommunications, and transportation equipment, automatic controls, other receivers of electronic signals, aircraft, missiles, and a broad variety of other equipment. The company also was performing product assembly of fractional-horsepower electric motors, testing components for certain customers, and providing its customers with technical information about the performance characteristics of electronic components.
By the end of the 1980s, capacitors composed only 40 percent of Jaco’s sales. Semiconductors accounted for 35 percent in fiscal 1989, electromechanical devices and motors, 18 percent, and resistor products, seven percent. The company’s four largest suppliers—AVX, Globe Motors, Kemet, and Samsung—accounted for 53 percent of its sales. Jaco was the leading U.S. distributor of South Korean semiconductors for Samsung, Hyundai, and Goldstar. The company was the 19th largest distributor of electronics components in the nation, distributing more than 60,000 products from over 75 suppliers at prices ranging from $3 per thousand units to about $2,500 per component. Revenues reached nearly $80 million in fiscal 1990.
Jaco Electronics in the 1990s
Jaco Electronics entered the distribution of computer subsystems, including such items as disk and tape drives, floppy disks, and controllers, when it agreed in late 1989 to purchase Dallas-based Quality Components, Inc. for $2.35 million in cash. Quality, which also handled semiconductor lines and had locations in Texas, Oklahoma, North Carolina, and Georgia, listed an estimated $18 million in annual sales but was losing money, It continued as a subsidiary under the name Jaco/QC. In 1990 the parent company was representing more than 115 electronics manufacturers and selling to over 10,000 customers. Military components, which comprised 75 percent of Jaco’s sales in fiscal 1987, represented less than 12 percent of its sales in fiscal 1993.
After a sales dip in the recessionary fiscal 1991 and 1992 years (and a $1 million loss in the former year), Jaco Electronics resumed its growth, adding some product lines and expanding its sales force. One Wall Street investor noted with approval in 1993 that more than half of Jaco’s sales were coming from capacitors, electromechanical devices, and resistors, as opposed to semiconductors, which were prone to sudden surges and falls in demand.
Blending a full line of electronic components, semiconductors, sub-assemblies, and value-added services, Jaco will continue to offer a full-service solution to our customers needs. Jaco is committed to offering established and new technology introduction services to our customer base regardless of size; providing our customers with a high level of speed and efficiency to service their needs by utilizing a well-trained, professional resource team dedicated to service, technology and competitiveness; being the most valuable, viable and innovative partner to our customers and suppliers. Our message is to add value to our suppliers by increasing their market position through adding value to our customers.
Jaco’s revenues reached a record $167 million and its net income a record $3.9 million in fiscal 1996. Interviewed by Dennis Garabedian for Long Island Business News, Joel Girsky described his company’s resurgence in these words: “At the end of 1995 the market got fire hot, fire red. Everyone was buying components. Everybody was buying computers. Everyone was adding modems and with the cellular phone business—nobody thought it would end. Basic motivating factors were greed and fear. When you fear that you can’t get enough parts to build your equipment, you overbuy to make sure you always have enough. The balloon gets pumped up and up and up, and ultimately it bursts.”
Acquisitions were another factor in Jaco Electronics’ growth. In 1994 the company entered the contract manufacturing field by purchasing Vermont-based Nexus Custom Electronics, Inc., a producer of printed circuit boards. Jaco began distributing the complete component line of Vishay Intertechnology in 1995 when it added Dale and Sprague, Vishay’s two largest subsidiaries, to its roster of suppliers. During 1996–97 it acquired two more suppliers, QPS Electronics and Corona Electronics, Inc.
Despite this surge in business, Girsky pointed out in the Long Island Business News that Jaco Electronics—the 19th largest firm in its field—was dwarfed even on Long Island by Arrow Electronics, with about $7 billion in annual revenues, and Avent, with probably over $5 billion. Setting a goal of doubling sales volume every four years, Girsky indicated that further acquisitions were in the works, probably by paying cash to proprietors who were nearing retirement age. He said he preferred to pay in cash rather than stock because Jaco’s stock was trading at only $9 a share, below book value. In 1996 the company raised between $17 million and $20 million from a second public sale of stock, using part of the proceeds to reduce its debt to $7 million.
The cyclical nature of the electronics industry was underlined when Jaco Electronics’ sales volume fell in fiscal 1997 and 1998. Net income also fell both years, dropping to $1.2 million in 1998. Other electronics distributors were also suffering because of overcapacity and economic problems in East Asia. Shares of company stock were traded for as little as $2.25 in 1998. For future growth, Jaco was looking to expansion in its share of the rapidly growing market for flat-panel display units.
Of Jaco Electronics’ $153.7 million in sales in fiscal 1998, passive components, such as capacitors, resistors, and electromechanical devices, accounted for 52 percent, while active components, including semiconductors and computer subsystems, accounted for 48 percent. The company had distribution facilities in Hauppauge and Westlake Village, California, with the former accounting for about 81 percent of inventory in fiscal 1998. There were 14 sales offices. Kemet and Samsung were Jaco’s biggest suppliers, each responsible for more than ten percent of the firm’s net sales. In October 1998 Joel Girsky owned 15 percent of Jaco’s common stock, while Charles Girsky owned 2.4 percent.
Corona Electronics, Inc.; Diatel, Inc.; Jaco Electronics Canada, Inc.; Jaco Overseas, Inc.; Miostrom Inc.; Nexus Custom Electronics, Inc.; Quality Components, Inc.; RC Components, Inc.
Agovino, Theresa, “Savvy at Electronics Firm Begins to Put It in the Chips,” Crain’s New York Business, February 20, 1989, p. 19.
Bambrick, Richard, “Jaco to Divest Western Opns. in $5M-$6.5M Deal,” Electronic News, November 29, 1982, pp. 1, 16.
Elliott, Heidi, “As the Industry Goes, So Goes Jaco,” Electronic News, September 7, 1998, p. 48.
Ferguson, Bob, “Jaco Electronics Agrees to Buy Quality Components for $2.35M,” Electronic News, October 30, 1989, p. 38.
Garabedian, Dennis, “Ernst & Young Spotlight on LI’s Public Companies,” Long Island Business News, June 23, 1997, pp. 34 +.
Leff, I. Bernard, “Jaco Electronics, Inc.,” Wall Street Transcript, May 15, 1972, pp. 28,364–28,365.
Welling, Kathryn M., “Not Trendy,” Barron’s, November 29, 1993, pp. 26, 28.