Molex Incorporated Business Information, Profile, and History

Company Perspectives:

Molex Mission: Our mission is to be the preferred supplier of interconnection systems to the global electronics industry and grow market share through superior people, performance, and innovation.

History of Molex Incorporated

The second largest electronic connector company in the world (behind Tyco International Ltd.), Molex Incorporated manufactures electronic, electrical, and fiber-optic interconnection products and systems, switches, and application tooling. Through 54 plants in 19 countries, Molex manufactures more than 100,000 products sold primarily to manufacturers involved in the computer, office equipment, telecommunications, home appliance/home entertainment, and automotive industries. In the early 2000s, the company derived more than 60 percent of its revenues from products manufactured and sold outside the United States.

Early History: The Founding Krehbiel Family and a Plastic Material Called Molex

The history of Molex is, in large part, the story of the Krehbiel family, who had emigrated from their native Switzerland to Germany and then relocated again to the United States in the 1820s, in pursuit of a country that would honor the pacifist ideals set forth by their Mennonite religion. They settled in Newton, Kansas, where the patriarch of the family, John Jacob Krehbiel, built a wagon- and carriage-making business and became one of the founders and chairman of Bethel College. His son, Frederick Augustus Krehbiel, would become the first of four generations of Krehbiels who would be responsible for creating and building one of the largest electronic connector companies in the world.

After growing up in Newton, Frederick Krehbiel attended Chicago's Armour Institute and then Cornell University. He moved back to Chicago, where he took a job with the Arnold Engineering Company before establishing his own business, Krehbiel Engineering. By the turn of the century, he had designed and built power plants for several large cities, including Cincinnati and Kansas City, earning, through the course of his work, the esteem of his peers and clients. His reputation grew as the years passed by, elevating Krehbiel to a position of prominence in his field and drawing the attention of federal officials, who, as the United States prepared to enter World War I, desperately required the skills he possessed.

The U.S. government asked Krehbiel to design a refinishing plant to generate toluol, a byproduct of coal that was intrinsic to the production of TNT. Previously, the government had purchased TNT from Germany, but now, as the country prepared to battle its supplier, it found itself without the production facilities required to meet its mounting needs. Krehbiel complied with the government's request, and a refinishing plant was designed and constructed in Terra Haute, Indiana, that immediately began processing coal to meet the nation's demand for TNT. It was while observing his plant in action that Krehbiel first began to develop ideas about the product that would eventually give Molex Incorporated its name and launch the Krehbiel family toward tremendous success.

Like many others who worked near the refinishing plant, Krehbiel observed piles of coal tar pitch, a waste product left over after the coal was refined and heated to produce the toluol vapors. Giant piles of the black waste material surrounded the plant, and Krehbiel made a note of it. Several years later in Canada, while helping to build superstructures of asbestos mines, Krehbiel noticed an equally worthless material gathered in giant piles: the fine, little strands of asbestos known as asbestos tailings. Krehbiel realized that if he used the coal tar pitch as a binder and the asbestos tailings as a filler, then combined them with limestone, which would serve as a reinforcing agent, he could create a new material--a plastic--that could be produced at a nominal cost. He dubbed the new material Molex, a low-cost product with good moisture resistance and properties that made it an excellent electrical insulator. The name was derived by taking "mol" from the substance's molded state and adding on "ex," which Krehbiel felt was a modern sound. In 1938, Krehbiel, then in his late 60s, and his son Edwin formed a new company, Molex Products Company, naming it after the product he had created and basing it in Brookfield, Illinois. They began using Molex as a material to make flowerpots.

Seven years earlier, another son of Frederick Krehbiel, John Krehbiel, had started his own business, the J.H. Krehbiel Company. John Krehbiel, then 26 years old, had created the company to fulfill a contract he had been awarded to manufacture fireproofing material for Commonwealth Edison stipulating that Edison would purchase 100,000 bags of the compound per year. Krehbiel borrowed the money to build a plant expressly for producing the material, then set out to satisfy the annual quota of the contract. But the Great Depression, then reaching its greatest intensity, curtailed Edison's anticipated rate of consumption, and it took the company three years instead of one to use the first 100,000 bags of the fireproofing material. Forced to diversify into another business to offset the financial loss resulting from Edison's reduced fireproofing needs, John Krehbiel began manufacturing insulating material for underground and overhead high voltage cable, selling the material to various utility companies such as Commonwealth Edison, Public Service of North Indiana, Cleveland Electric Company, and Philadelphia Electric Company.

Because of this diversification, John Krehbiel was able to save his company from financial ruin and keep it growing. He next started another company, Illinois Manufacturing Chemists. His partners were his Hinsdale neighbors, the Regnery family. They produced nitrocellulose, an explosive made by treating cotton, a form of cellulose, with a mixture of nitric and sulfuric acids. Nitrocellulose was a highly flammable product, and it demonstrated its volatility on two separate occasions, blowing up the Illinois Manufacturing Chemists' factory twice in a five-year span. By the time the nitrocellulose factory exploded the second time, Frederick Krehbiel was urging John to assume a more active role in the family business, and John Krehbiel joined the company in 1940.

With the outbreak of World War II, the U.S. War Production Board placed all established molding materials on restricted lists, forbidding their use in the manufacture of products deemed nonessential to the war effort and limiting their use for commercial purposes according to a government priority system. Virtually unknown, Molex appeared on no such lists, enabling the Krehbiels--Frederick, John, and Edwin--to use their patented material to manufacture whatever they wished. They worked first with the government to try to establish a use for the material in the military, but it was not of interest to the government. The potential uses for Molex were virtually unknown to the Krehbiels as well, leaving the three partners with a material and no obvious market in which to sell it. Since none of the established plastics were available for the production of nonessential consumer products, the Krehbiels moved in that direction, attempting to fill the void created by the restriction of Bakelite, polystyrene, and other plastic substances on which manufacturers had relied before the war.

During this time, Molex began manufacturing toys. For those familiar with the Krehbiel family, the decision to manufacture toys represented an incongruous leap from the generating stations designed by Frederick Krehbiel and the nitrocellulose and electrical insulating material manufactured by John Krehbiel. Initially, Molex made toy submarines and toy pistols, then began making salt dispensers for the Morton Salt Co. and clock casings for Hanson Manufacturing Co. These projects generated enough income for the fledgling company and the new plastic to survive the war years and also gave the Krehbiels the opportunity to explore the potential applications for Molex plastic. An important alteration was made in the production of Molex immediately after the war, when the limestone used to reinforce the material was replaced by fiberglass. The substitution of fiberglass greatly improved the product's strength and flexibility, and when Bakelite and polystyrene were taken off the government's restricted list and once again became available, they proved no match for the malleability and low cost of Molex, still essentially fabricated from scrap materials.

Shifting to Connectors After World War II

John Krehbiel by this time had assumed control of the company, as his brother Edwin, trained as an artist, preferred to spend his time designing the molds and equipment required to manufacture the products. His father, then nearing his 80s, was easing into retirement. The former manufacturer of electrical insulating material and nitrocellulose decided that Molex was best suited for electrical insulation, a pivotal decision that steered the company and the plastic toward the appliance market. The first product tooled and marketed with Molex was a molded terminal block for General Electric's Hotpoint range. Other similar products followed, manufactured for companies such as Maytag, Whirlpool, and Westinghouse. The decision to enter the appliance market proved sound, giving Molex its first viable, vast market.

Nevertheless, possessing a wide range of talents and interests, the Krehbiels frequently shifted the focus of their company. Shortly after marketing Molex as an electrical insulator and entering the appliance market, John Krehbiel steered the company in a new direction, realizing, through his contacts with appliance manufacturers, that a more lucrative future lay in the production of connectors used to link electronic components. The move propelled the company into the consumer electronics industry and dramatically transformed Molex from a materials company into a connector company, a decision that signaled the end of Molex, the material, and engendered the rebirth of Molex, the company. The shift occurred in 1960, when Molex launched its first nylon plug and receptacle line.

Molex began manufacturing pin and socket connectors, designed by John Krehbiel, to link electronic components in color television sets, a new product during the 1950s that, like the market in which it was sold, was headed toward enormous growth. By manufacturing connectors for companies such as Zenith, RCA, and Magnavox, Molex realized rapid growth, generating $1.06 million in annual sales in 1962, the first year the company eclipsed the $1 million mark. It had taken nearly a quarter of a century for Molex to reach the $1 million plateau, and now, with the exponential expansion of the consumer electronics industry fueling its growth, the company surpassed the $2 million mark three years later, garnering $2.4 million in 1965 and adding another million dollars to its sales volume the following year. Meantime, Molex moved its corporate headquarters from Brookfield to Downers Grove, Illinois, in 1964.

Although John Krehbiel was delighted with Molex's growth, his brother Edwin, a 40 percent owner of the company, was not. Edwin Krehbiel had no desire to build Molex into a larger company and already felt swamped by the number of projects in which the company was involved, as his brother continued to canvass manufacturers in the electronics industry and broaden Molex's scope. In 1967, Edwin Krehbiel wanted to retire and began looking for investors to purchase his stake in Molex. One year later, he found some interested investors, a group of businessmen backed by A.G. Becker, a Chicago investment banking firm. John Krehbiel, however, was staunchly opposed to selling the company. With Edwin and John each owning 40 percent of the company, the deciding vote was cast by Marie Manette. She voted not to sell. Edwin went ahead and sold his share and retired. Manette had worked with Fred Krehbiel as his secretary after graduating from high school. She remained at the Krehbiel Engineering Co. and then moved to Molex as treasurer, retiring after a combined 50 years of service. Upon her death, she willed most of her stock to John Krehbiel's sons John, Jr., and Frederick II to ensure continued family control.

Going Public and Expanding Overseas in the 1970s

A.G. Becker held its share in Molex until 1972, when it was instrumental in Molex becoming a public company. Molex was taken public by William Blair & Co. At the same time, the company incorporated as Molex Incorporated and shifted its headquarters to Lisle, Illinois. In the intervening six years, developments had occurred that positioned Molex for even greater growth than the pace recorded during the early and mid-1960s. John H. Krehbiel, Jr., joined the company in 1959, and his brother Fred joined in 1965.

John, Jr., had begun as pricing manager and then moved on to the position of sales manager. Looking for a place for his younger son, John Krehbiel, Sr., suggested that Fred explore potential business opportunities for Molex overseas. The decision to send Frederick Krehbiel II overseas represented more of a solution to the uncertainty of the young graduate's future position within the company than a strategic decision to expand overseas. Nevertheless, its ramifications on the future of Molex were significant.

In 1967 Frederick Krehbiel was given $25,000, from which he was expected to draw his salary, and was charged with expanding Molex's business overseas as head of the newly formed international division. That year, he went to Japan and approached potential customers of Molex connectors, fortuitously entering the Japanese electronics industry at a time of rapid growth. Krehbiel encountered a country that was producing a tremendous number of electronic products, particularly television sets, which eventually would set the standard worldwide. Initially, he received several small orders from Matsushita Company and some orders from Europe, reporting a grand total of $54,000 in his first year of overseas business. With considerable advice from an outside consultant, Ed Frume, Fred continued to build on the modest beginning. The focus on local supply in Japan, however, demanded that Molex manufacture its products in Japan, where Japanese manufacturers could monitor the production of Molex connectors. Accordingly, the company's first plant outside the United States was constructed in Yamato City, Japan, opening in 1970. By the end of the year, Molex realized $776,000 in international sales, compared with the $8.9 million generated domestically.

During the early 1970s, the U.S. home entertainment industry started to experience strong competition from Japan, and, seeing this, John H. Krehbiel, Jr., determined that the U.S. company needed to find applications other than home entertainment and appliances. He saw the rapid gains in business machines and the emergence of computers and worked to build a position for Molex in these markets. This resulted in Molex, by the early 1990s, selling far more to these markets than to its customers in its traditional areas.

During this period, sales generated from international business continued to grow rapidly. An additional overseas plant was constructed in Ireland in 1971, paving the way for the prodigious geographic expansion that would take place during the decade. As Molex grew, a distinctive style of overseas management emerged, a style that developed in large part from the company's unconventional direction of expansion. Typically, when a U.S. company began to establish operations outside the country's borders, it first went to Canada, then to Europe, and then, perhaps, to Asia. Molex, however, selected Japan as its initial proving ground, and this trial-by-fire in the world's most challenging market taught the company a great deal about how to meet the needs of demanding customers. Fred Krehbiel and others in the company's international division learned the merits of "being local" and adjusting to the culture of the region in order to meet the needs of the local customer, a lesson they would employ in expansion throughout Europe, South America, and Asia. Meanwhile, John Krehbiel, Jr., was named president of the company in 1975.

1980s and 1990s: Growing Revenues Past $1 Billion

By 1979, domestic sales at Molex totaled $44.7 million, while its international sales reached $53.4 million, representing the first year the company's business overseas surpassed the total recorded domestically. The following year, Molex was the tenth largest connector company in the world, its growth fueled by the company's international expansion and its moving into the fast-growing computer, computer peripheral, and business equipment markets. The 1980s would witness the rise of personal computers, and Molex would share in the billions of dollars garnered by the computer industry during the decade through the production of connectors used to link the electronic components of personal computers, as well as connectors for peripheral devices such as terminals, printers, and modems. Driven by the nearly insatiable demand for electronic connectors by computer and other electronics manufacturers during the decade, Molex prospered, recording $253 million in sales by 1985. Fred Krehbiel was named CEO of the company in 1988, with his father remaining chairman.

By 1991, Molex had become a genuine multinational company, a global company that was beating its competition by virtue of its early and aggressive expansion overseas and by sustaining the entrepreneurial spirit that originally had engendered its creation. Molex continued to expand its markets, moving into automotive electronics, telecommunications, and other markets such as instrumentation and medical electronics. From 1989 through 1994, Molex invested $750 million on developing new products, broadening existing product lines, and increasing global plant capacity.

By the early 1990s, Molex was the second largest connector company in the world, ranking behind AMP Incorporated, based in Harrisburg, Pennsylvania. With more than 40 manufacturing facilities operating in 19 countries, Molex derived 71 percent of its revenues from products manufactured and sold outside the United States. Nearly half the company's total sales volume was generated by its manufacturing and sales offices in the Far East, the fastest growing economic sector in the world during the early 1990s. By this time, the third generation of Krehbiels was fully in charge of the company; when John Krehbiel, Sr., died in 1993, Fred Krehbiel took on the additional duty of chairman. Following a December 1993 secondary stock offering, completed to pay taxes on John, Sr.'s estate, John, Jr., Fred, and John, Jr.'s son Pete maintained control of 46 percent of the company's voting stock. In 1987 Pete Krehbiel had become the first of the fourth generation of Krehbiels to work full-time at the company. Although nowhere near a top management position, Pete joined Molex's board of directors following his grandfather's death, while working as an engineering manager.

Molex reached a milestone during the fiscal year ending in June 1995, when revenues increased 24 percent over the preceding year and surpassed the $1 billion mark for the first time. Net income was a record $124 million. The company's emphasis on the computer, telecommunications, and automotive markets was clearly paying off. Most of the growth continued to come from outside the United States. From 1984 through 1994, domestic sales increased 147 percent, from $116.7 million to $288.7 million, but international sales surged from $135.5 million to $675.4 million, a jump of nearly 400 percent. In addition, Molex, a company that traditionally shied away from growth through acquisition, did complete one purchase in 1995, a deal for Mod-Tap W. Corp., a maker of connectors and systems for data and voice communications.

During the second half of the 1990s, Molex continued its successful strategy of heavy investment in research and development and capital projects, driving sales to $1.71 billion by 1999 and net income to $178 million. The company's geographic diversity enabled it to thrive through Japan's prolonged period of economic stagnation and the fallout from the financial crisis that erupted in east Asia in 1997. Despite the trend toward consolidation that featured mergers between major connector manufacturers as well as the acquisition of AMP by Tyco International Ltd. in early 1999, Molex remained on the sidelines. The company did not want to make deals just for the sake of growth, but instead sought opportunities where particular product lines or technologies could be expanded. A prime example of this was Molex's June 1999 purchase of Cardell Corporation for $129 million. Cardell was located in Auburn Hills, Michigan, near the heart of the automotive industry, and manufactured automotive terminals and connectors. The firm had sales of about $100 million during 1998. The addition of Cardell both broadened Molex's line of automotive connectors and expanded its customer base with the addition of the top U.S. automakers.

New Leadership and a Major Downturn in the New Millennium

In a historic development for Molex, in July 1999 J. Joseph King became the first person outside the Krehbiel family to serve as company president. King, a 24-year company veteran, had previously served as executive vice-president. At the same time, John Krehbiel, Jr., joined his brother as co-chairman and co-CEO. Strong growth in the telecommunications and automotive sectors aided in bumping up revenues 29.5 percent in fiscal 2000 to $2.22 billion; net income jumped 25 percent, reaching $222.5 million. In March 2000 Molex acquired the Beau Interconnect Division of Axsys Technologies Inc. for $32.5 million. The acquired business specialized in electronic interconnect devices for industrial markets, a sector that Molex had not penetrated to any great degree.

Molex confidently announced its most ambitious expansion in history in late 2000. Plans were made to spend $375 million in capital to open a half-dozen new factories in South Korea, China, Slovakia, and Mexico. By the middle of the following year, however, the company was hit hard by the strong downturn in the computer, telecommunications, and consumer markets, and cutting costs took center stage. Having already laid off 1,000 temporary workers earlier in the year, Molex announced in June 2001 the elimination of 1,500 permanent and temporary jobs, or 8 percent of the workforce, and the closure of three plants. Workforce-wide salary cuts also were instituted. During the fourth quarter of fiscal 2001, profits fell 83 percent, contributing to a 9 percent decline in profits for the full year. Revenues for the year increased just 7 percent. Upon completion of fiscal 2001, King was named vice-chairman and CEO, Martin P. Slark was promoted from executive vice-president to president and COO, and the two Krehbiel brothers remained co-chairmen.

During the next fiscal year, market conditions deteriorated further, and the company suffered through what King called "the worst year in Molex's 64-year history." A further workforce reduction of 800 was announced in October 2001, and the capital expenditure budget was slashed by more than 50 percent. Research and development expenditures, however, were reduced only modestly because executives did not want to harm new product development efforts. Revenues for the year declined 28 percent, to $1.71 billion, while net income slid 63 percent, to $76.5 million. Despite all the negatives, Molex remained in excellent financial shape: At the end of fiscal 2002, the firm had a very light long-term debt load of $14.2 million, and was cash-strong, with more than $300 million on hand. A possible turnaround began in the first quarter of fiscal 2003, when a 9 percent increase in revenues was achieved--following five straight quarters of declining year-over-year sales. With many connector companies continuing to struggle, Molex appeared to be in a strong position to snap up some of its wounded competitors if it elected to adopt a more aggressive posture toward acquisitions.

Principal Subsidiaries: Molex S.A. de C.V. (Mexico); Molex Industrial Ventures Inc.; Cardell Corporation; Molex Connector Corp.; Molex Caribe Inc.; Molex International, Inc.; Ulti-Mate, Inc.; Molex Brazil Ltda.; Molex Electronics Ltd. (Canada); Dongguan Molex South-China Connector Co. Ltd.; Dongguan Molex Interconnect Co Ltd. (China); Molex (Shanghai) Co., Ltd. (China); Molex Interconnect (Shanghai) Co., Ltd. (China); Molex Switch SA (France); Molex Holding GmbH (Germany); Molex Slovakia Management, s.r.o. (Germany); Molex Elektronik GmbH (Germany); Molex Services GmbH (Germany); Molex GmbH (Germany; 93.33%); Molex Polska Management SP z.o.o. (Poland); Lightmaze AG (Germany; 70%); Molex Slovakia A.S.; Molex Hong Kong/China Ltd.; Molex (India) Ltd. (93.5%); Molex Mafatlal Micron Private Limited (India; 51%); Molex Italia S.p.A. (Italy); Zetronic S.p.A. (Italy); Molex-Japan Co., Ltd.; Molex (Dalian) Co. Ltd. (China); Molex (Malaysia) Sdn. Bhd.; Molex de Mexico S.A. de C.V.; Molex B.V. (Netherlands); Molex European Distribution Center B.V. (Netherlands); Molex Interconnect AG (MIAG) (Netherlands); Molex Deutschland GmbH (Germany); Moltech (Poland; 98%); Molex Far East-South Management Pte. Ltd. (Singapore); Molex Singapore Pte. Ltd.; Molex Korea Co., Ltd.; Molex Svenska A.B. (Sweden); Molex Ireland Ltd.; Modular Automation (Molex) Ltd. (Ireland); Molex Taiwan Ltd.; Molex (Thailand) Ltd. (95.27%); Molex Electronics Ltd. (U.K.); Molex Premise Networks, Inc.; Molex Premise Networks Americas, Inc.; Molex Premise Networks SARL (France); Molex Premise Networks Limited (U.K.); Molex Premise Networks South Pacific, Inc.; Molex Premise Networks Pty Ltd (Australia); Mod-Tap GmbH (Germany); Molex Premise Networks Japan, Inc.; Molex Premise Networks Thailand, Inc.; MPN EE sp z.o.o (Poland); Molex Premise Networks sp z.o.o. (Poland); Molex Premise Networks Asia Limited (Hong Kong).

Principal Competitors: Tyco International Ltd.; Framatome Connectors International; ITT Industries, Inc.; Amphenol Corporation; Thomas & Betts Corporation; Minnesota Mining & Manufacturing Company; Methode Electronics, Inc.

Chronology

• Key Dates:
• 1938: Frederick August Krehbiel and his son Edwin found Molex Products Company.
• Late 1940s:Krehbiel's son, John H. Krehbiel, Sr., assumes control of the company, shifts focus to electrical connectors, initially concentrating on the appliance market.
• 1960: Company launches its first nylon plug and receptacle line.
• 1965: Frederick Krehbiel II, a son of John, Sr., joins the company.
• 1967: Fred Krehbiel begins exploring overseas growth opportunities as head of the newly formed international division.
• 1970: The first overseas plant is opened in Japan.
• 1972: The company goes public and is incorporated as Molex Incorporated.
• 1975: John Krehbiel, Jr., is named president of the company.
• 1988: Fred Krehbiel takes over as CEO.
• 1993: John, Sr., dies; Fred is named chairman and CEO; John, Jr., remains president.
• 1995: Revenues surpass the $1 billion mark for the first time.
• 1999: Cardell Corporation, maker of automotive connectors, is acquired; J. Joseph King becomes the first person outside the Krehbiel family to serve as company president; John, Jr., joins his brother as cochairman and co-CEO.
• 2001: King is named vice-chairman and CEO; the Krehbiel brothers remain co-chairmen.
• 2002: Deteriorating market conditions lead to a 28 percent drop in revenues and a 62 percent slide in profits.