Audiovox Corporation Business Information, Profile, and History

Company Perspectives:

Our Mission: To provide the highest quality products and unparalleled customer service. To ensure sales support that meets and exceeds our customers' expectations. To be a responsible member of the communities in which we conduct business. To encourage employee growth and participation through open communication. To produce maximum returns for our shareholder's and our company's growth.

History of Audiovox Corporation

Audiovox Corporation is an international leader in the marketing of cellular telephones, consumer electronics, auto sound, vehicle security, and mobile video systems. The company markets its products under its own brands and private labels through a distribution network that includes Bell operating companies. International sales are also handled through several joint ventures. Audiovox purchases most of its products from sources in Asia, Europe, and the United States. One supplier, Japanese-based TALK Corporation, is 31 percent-owned by Audiovox.

From Car Radios to Cell Phones: 1965-95

John J. Shalam, the son of an Egyptian textile merchant, immigrated to New York City with his family in 1948. He founded Audiovox as an import trading company in 1960. In 1965 Shalam found that the 2,000 car radios he was forced to dispose of when a deal to sell them fell through were so popular that he began doing business exclusively in auto sound. By 1982 Audiovox was one of the top three companies in the custom auto sound industry, according to Shalam, selling radios and sound systems both to car dealers and retail customers. The company also had a Protector division providing aftermarket products ranging from paint sealants to car burglar alarms. Cellular mobile telephones were added in 1984. Company sales grew from $157.88 million in fiscal 1985 (the year ended November 30, 1985) to $203.83 million in fiscal 1986. Net income increased from $2.73 million to $3.45 million during this period.

Audiovox became a public corporation in 1987, raising $37.62 million by selling about one-sixth of its Class B common stock at $16 a share in its initial offering. Shalam retained control over a majority of the shares. Although the company had been carrying mobile cell phones for only three years, they accounted for almost half of its income in 1987. Audiovox held the largest market share of this product, with approximately 20 percent of the total cellular market, and was selling them to seven regional Bell operating companies, as well as other telephone companies, distributors, and mass merchandisers in the United States and Canada, including two joint ventures. Audiovox was also selling, installing, and servicing cell phones through its 16 Quintex retail locations.

Automotive sound equipment was still the largest sector of Audiovox's business in 1987. These products included radios (including stereo cassette radios), compact disc players, speakers, amplifiers, and antennas, marketed through five product divisions to car dealers, mass merchandisers, catalogue showrooms, and audio specialists. A wide variety of automotive accessories included security systems, radar detectors, cruise controls, video cassette players, and chemical protection treatments. Audiovox was also selling cordless telephones. Shintom Co., Ltd., an Asian company in which Audiovox held an interest, was supplying Audiovox with about one-third of its products, but the majority of its cell phones were coming from Toshiba Corporation. Toshiba subsequently replaced Shintom as Audiovox's leading supplier. Sales were being made under such registered trademarks as Audiovox, Hi-Comp, SPS, and Protector as well as private labels.

In 1989 Audiovox introduced a $399 wireless home security system with remote dialing. The following year it added facsimile machines, and in 1991 it marketed what supplier Toshiba called the world's smallest portable telephone. But this was a recessionary period in the national economy, and Audiovox lost money in fiscal years 1989-91, including $14.7 million in the last year alone. In 1993 Audiovox sold part of its 50 percent share in CellStar Corp., operator of the retail chain National Auto Cellular, for $27.5 million. Audiovox was also seeking to improve its balance sheet by adding to its export sales volume, which came to about $10 million in 1993. The following year Audiovox took a 30 percent interest in a new Japanese company, TALK Corporation, established to market and distribute cellular phones, electronic pagers, videocassette recorders, and other products for Audiovox, Shintom, and Rainbowstar Co. Also in 1994, Audiovox formed a Malaysian joint venture and opened a subsidiary in Singapore.

Exploiting the Cell Phone Boom in the Late 1990s

Although now far behind Motorola Inc., Audiovox was still the second largest distributor of cellular phones in the United States, with 14 percent of a domestic market that continued to climb. By 1997, it had also fallen behind Ericsson Inc. and Nokia Inc., though retaining 11 percent of the handset market. By this time cellular phones accounted for 70 percent of the company's sales. To stay abreast of the competition Audiovox cut prices, which contributed to a net loss in fiscal 1995 and 1996, following record net income of $26.2 million in 1994. The company shut down 90 of 120 unprofitable retail outlets in 1995.

In 1998 Audiovox introduced Pursuit Vehicle Trak, a system designed to allow motorists without even a mobile phone to communicate with an emergency help center. It automatically monitored a car whenever it moved more than 1,000 feet from where it had been parked and could slow down and shut off the car if it had been stolen. Other systems features would start the car, warm the engine, and unlock the doors. Also that year, Audiovox introduced a cellular phone using a built-in global positioning satellite (GPS) service to pinpoint a caller's location.

The cellular industry was moving from analog to digital phones during 1998-99. The digital ones offered clearer reception and added features such as caller ID. Audiovox came out with a digital phone using a CDMA chip in 1998 and TDMA and GSM models in 1999. The company offered wireless carriers special marketing packages, including providing warranty repairs. 'They're relatively quick to respond to the changing dynamics of the industry and to us as a customer,' a United States Cellular executive told Pradnya Joshi of Newsday in 1998. Digital sales outstripped analog sales worldwide for the first time in 1999.

Audiovox's sales nearly doubled in 1999 as its new line of digital phones became available in the United States, and its net income rose from $2.97 million to a record $27.25 million.

The company was expecting even better results in 2000 because of the recent introduction of TDMA and GSM sets, which served, respectively, as the standard in Latin America and Europe and Asia. Audiovox's international cellular phone sales as a percentage of its overall sales had dropped from 20 percent in 1996 to 13 percent in 1998 partly because it did not have a GSM model to compete in Europe.

With a full digital line in place, Audiovox was projecting sales of 5.3 million handsets in 1999 and 7.1 million in 2000. During 1999 it moved from fifth to third place among handset suppliers in North America, according to a survey. For 2000, the company was planning to add such features as Internet access and other interactive technologies. It was also planning tri-mode products combining digital and analog technologies. It moved from the American to the NASDAQ exchange in early 2000 and completed a secondary offering of stock, raising $97.5 million after deducting expenses.

Audiovox in 1999

Audiovox was divided in 1999 into a Wireless Group and an Electronics Group. The Wireless Group, acting through Audiovox Communications Corp., a 95 percent-owned subsidiary, was selling handsets and accessories. It raised its sales 110 percent in 1999 and accounted for 80 percent of company revenue. Digital products grew to 56 percent of the unit's sales, compared to 19 percent in 1998. The group also was selling a complete line of accessories, including batteries, hands-free kits, battery eliminators, cases, and hands-free earphones.

The Wireless Group was operating about 20 subscriber facilities under the names Quintex or American Radio and was licensing the trade names Audiovox, Quintex, and American Radio to five retail outlets in the United States. Its five largest wireless customers were Bell Atlantic Mobile, AirTouch Communications Inc., PrimeCo Personal Communications LP, MCI Worldcom, and United States Cellular Corporation. Acting through Audiovox Communications, it was also operating several retail locations under the Quintex name. Although not engaged in manufacturing, the company was working closely with both customers and suppliers in the design, development, and testing of its products.

The Electronics Group consisted of two major categories: mobile electronics and consumer electronics. The former included auto sound products, such as radios, speakers, amplifiers, and DC changers, and mobile video products, including console mobile entertainment systems, videocassette players, game options, automotive security and remote start systems, and automotive power accessories. The latter included home and portable stereos, two-way radios, LCD televisions, and MP-3 Internet music player/recorders. These products were being marketed under the Audiovox brand name and several other company-owned trade names, including Prestige, Pursuit, and Rampage.

The Electronics Group's customers included a variety of mass merchants, chain stores, specialty retailers, distributors, new car dealers, and subsidiaries of auto manufacturers. Its five biggest customers in 1999 were Gulf States Toyota, Kmart Corporation, Southeast Toyota, Alkon International, and Costco. Sales of Audiovox's Malaysian and Venezuelan subsidiaries fell under the Electronics Group. TALK Corporation continued to be the joint venture that held distribution rights for products manufactured by Shintom Ltd., with Audiovox holding exclusive distribution rights on all its wireless personal communications products for most of the world. Audiovox Specialized Applications, a joint venture formed in 1997, was responsible for distributing products for van, RV, and other specialized vehicles. Also formed in 1997, Bliss-Tel Company, Ltd. distributed wireless products and accessories in Thailand.

Audiovox was leasing 33 facilities in 11 states and a Canadian province in 1999. It also owned and leased facilities in Malaysia and Venezuela. Company headquarters remained in an industrial park in Hauppauge, Long Island. Shalam was still president and chief executive officer of Audiovox. The company's long-term debt was $122.8 million at the end of fiscal 1999. Shalom owned 20.7 percent of the company's Class A shares in February 2000.

Principal Subsidiaries: Audiovox Canada Limited (Canada); Audiovox Communications Corp. (95%); Audiovox Communications (Malaysia) Sdn. Bhd.; Audiovox Holding Corp.; Audiovox Holdings (M) Sdn. Bhd.; Audiovox Venezuela C.A. (Venezuela); Quintex Mobile Communications Corp.

Principal Operating Units: Electronics Group; Wireless Group.

Principal Competitors: Nokia Inc.; CellStar Corp.; Ericsson Inc.; Motorola Inc.; Motor Sound Corp.

Chronology

• Key Dates:

• 1960: Audiovox is founded as an import trading company.
• 1965: Audiovox begins dealing exclusively in auto sound systems.
• 1984: Audiovox begins selling cellular telephones.
• 1989: The company introduces a wireless home security system.
• 1997: Cellular phones account for 70 percent of revenue.
• 1999: Audiovox markets a full line of cell phones.