Q. We know this from things like cell phones, for example.
A. Cell phones are a terrific example of an industry where the profits are made in a matter of weeks from the launch of a new product.
Q. But machinery is not on that same level of a cell phone, is it?
A. I think some of the same principles are at work. Because it's not difficult to copy the fundamental principle of an injection molding machine, robot or molds. The key is in constantly reinventing through innovation, through supply-chain development and the like, your ability to do it faster and better than the other guy.
There is always a better way. It's a matter of who finds it first, who gets it on the market, right, the first time. And that period of time in which you can capitalize on that differentiation until the idea, the value, is invariably lost to greater commoditization. So you have to constantly invent yourself. You have to be faster and more effective in doing it, I think will be the main message behind that.
If not, anybody who stands still today, will be commoditized tomorrow.
Q. One financial analyst says Husky, to restore a decent level of profitability, needs a more-dramatic outsourcing of production. You have said that Husky is cutting costs through global sourcing. That could be from China, where you're making small-tonnage machines and you've outsourced that work from Bolton. It could mean getting more components from China or India.
Here's the question: In today's machinery world, is outsourcing to low-cost countries inevitable?
A. I think what we believe is that, for critical components and for highly technical components, in-sourcing is actually the best solution.
Q. What do you mean by ``critical components''?
A. The core technologies that are the basis - technologies for molds and the production of components around them, the core technologies behind our metal molding systems. Any fundamental core technologies behind any of the products that we produce, it makes more sense in our mind to produce those products in-house.
Whether those are in molds and hot runners, or whether those are in machinery, these are best kept in-house. Because you're going to be driving technology development on a rapid basis, you're going to have to have great control of technology.
Q. How about ``noncritical'' components?
A. Part of the development of the platform was saying, what you want to be able to do is, look throughout the globe. And right now Asia, China, represents one of those opportunities - but that will move. We look at the globe and say, how do we look for the best value globally.
Anything that is a fundamental component of the platform, what I would call the platform components, is worthwhile shopping the globe. Looking for the lowest cost - the total cost, I mean, logistics and everything else included.
Q. How about some specific examples?
A. It's obvious that, for a sheet metal component, it's very difficult to add value to a machine gate, a barrel cover, a purge guard, by producing them in one centralized location. The technology's widely available for the production of those parts. Logistics costs are high in moving them around the globe. It makes more sense to source those components as local to the customer's point of use as possible.
The second category of components are major castings, it makes sense to consolidate casting purchases, casting manufacturing processes around a supplier who offers you the global best value - that might be a platen or a casting.
Q. You also say Husky is pushing higher-margin products. Obviously this is everybody's goal. Can we get some specifics?
A. When we talk higher-margin products, we talk primarily about how can we come up with systems solutions, or technologies that allow us to produce the parts for our customers at a lower total cost, whether that's driving productivity, cycle. Whether that's driving uptime. Whether that's driving the development of new technologies, like our metal molding technologies, or long-glass fibers that allow traditional composite structures to be replaced with a new technology, sort of a disruptive technology. I think those are the types of developments that have the potential to add greater value and as such, bring the company a greater reward.
Q. As to ``systems,'' a lot of people feel that is Husky's biggest strength. You have the Factory Planning Group. You make your own robots, hot runners and preform molds. It's more than just a machine.
A. Absolutely. Our strength is focusing on the customer's application first, and then supplying them with the equipment around that application.
A general-purpose machine with a general-purpose robot running a general-purpose mold is unlikely to be able to compete effectively against a system-build process where the machinery has been adapted and refined specifically to the application of PET preform molding, to use as an example.
What we've learned, over time, is that having the perspective from the mold, the hot runner, the machine, the robots, that we can basically drive better productivity per invested dollar by focusing more on that purpose-built vision.
Q. Since NPE is coming up, let's turn to North America. It looks like the U.S. injection press market has stabilized at 3,500-4,000 units a year. Do you agree with that?
A. Yes. We've seen it decrease from the 6,500 units or so we had in 2000 to the 3,500-4,000 level. We're not seeing it move dramatically in any direction. But it will stay at about that level.
Q. Nobody thinks it will return to the 6,000 level.
A. I don't really believe that. I think, in general, as you drive greater globalization, as you create productivity per unit, you also need fewer [presses].
Q. All-electric injection presses now represent 40 percent of the market, measured by units. Yet Husky still does not have one. Schad has pooh-poohed the all-electric. What do you think?
A. Well, I think most of the inroads in all-electric machines have been the small-tonnage segment of the market, a market that isn't a big part of Husky today. I think if you look at the midsize and larger machinery, the hybrid solutions that we've developed, we believe are the best blending of those technologies. If you look at energy efficiency, performance and the like, we believe that's the best balance now of available technologies.
Q. I'm sure Husky is always looking at all technology options.
A. Yes. It really depends on, in the race between hydraulic and electric technologies, who can offer the best technology and the greatest reliability at a reasonable price.
Q. So will we see a Husky all-electric?
A. Development of a small all-electric machine isn't a focus today. No.
Q. Multicomponent is getting lots of attention. Last year, you held a news conference at your technical center in Novi, Mich., to showcase a press with 3,500 tons of clamping force, molding automotive instrument panels, with a soft TPE outer layer. Lear Corp. bought the QTI machine. Does Husky have more plans for revolving-mold systems?
A. Yes, we are focused on these. Again, the goal is output per invested dollar. If you look at the drive by most of our companies to become more lean, improve their own internal efficiencies, reduce their inventories, it makes more sense that to drive processes inside the envelope of the injection molding system - do more with the same floor space and with re-use of the same invested capital.
Q. Automotive suppliers seem to be under a lot of stress lately, with bankruptcies and consolidation. And yet, machines are still getting sold. What's the impact on Husky?
A. Automotive is an important market for Husky. Yes, there has been some turmoil in the industry. In the short term, there have been some deferred purchases. On the other hand, there are new cars, there are new products. Units are holding up OK. So we see it more as an issue of the investments being deferred rather than being eliminated.
We think it's inevitable that people will use technology to find a niche within the market space, so that's where we're really investing our money is in development of these new technologies. Examples include our Thixomolding presses for making lightweight magnesium parts, long-glass-fiber parts and QTI.
Q. High resin prices continue to be the big story for processors. Has this hurt press sales at Husky?
A. We haven't seen any significant impact to our orders based on the cost of resin. What we have seen is customers countering that by investing in more-productive systems and retooling to reduce the amount of resin that they use in their components. We're not aware of, today, any materials that look like they're going to replace plastics as the material of choice for many applications, so we don't see a disruptive technology coming in.
Q. In this environment, are machinery companies able to invest in the necessary research and development?
A. I don't think Husky would ever stop investing in R&D. If we stopped investing in innovation and in technology, we would be no more. That is core to what's made us a successful company, so we will not stop investing in any way in R&D. Matter of fact, I would say that we're investing more in the development of new technology right now than we have in many, many years.
Q. In financial documents, Husky talks about excess machinery capacity. Schad has long predicted a major consolidation, but that hasn't really happened. Is this a serious issue right now?
A. There is overcapacity. I think everybody accepts that's a reality. Given an emerging new competitive base coming from Asia and other parts of the world, there will continue to exist a general overcapacity on a global basis.
On the other hand, a lot of what's happening in these emerging markets is presenting us with new opportunities. There's a new economy; there's a middle class; there's a high level of consumption, whether that's in packaging goods, whether that's electronics or cars. So what we're starting to see is essentially in the mature markets, yes, it may be more difficult, and one would expect a difficult time. But we're also seeing the emergence of new markets, which are driving the demand.
Q. You've been very active in China. Do you plan to expand into India?
A. India is a rapidly developing market for electronics and other items. And yes, we would have some plans to enter India in the near term.
Q. Manufacturing in India?
A. I guess it's still to be defined at this point, but it's likely to include some form of sales and service and some manufacturing.
Q. Has Husky made a decision yet on resuming large-press assembly in North America? Schad talked about this at the K 2004 show. I see in your annual report you're making presses up to 1,000 tons in Bolton now. Do you think you'll go larger there?
A. As we focus on globalizing the supply chain of our machinery business, we have plans to more efficiently bring those products to North America, but they may be a little less traditional than others might do. It is a tremendous burden to bring a heavy machine from Luxembourg to North America. Whether we have to supply the entire machine here for North America, or we would bring in some level of pretested subassemblies, bring those together close to our customers for final assembly.
Q. Sounds like it could be interesting. The U.S. market for large-tonnage machines is pretty strong.
A. Again, the vision that we have is: How do we take the part from the point of manufacture, to the customer's point of use, in the most-direct, least-costly, fastest way? That's more the mantra that we're working towards.