Key Tronic Corporation (Nasdaq: KTCC) is a leader in electronic manufacturing services (EMS). The Company provides engineering services, materials management, world-class manufacturing and assembly services, in-house testing and worldwide distribution from its facilities in the United States, Mexico and China. 

Key Tronic’s core strengths include innovative design and engineering expertise in electronics, mechanical engineering and precision plastics combined with high-quality, low-cost production and assembly on a global basis.  Its customers comprise some of the leading original equipment manufacturers. 

For the second quarter of fiscal 2012, Key Tronic reported total revenue of $84.5 million, up 38% from $61.0 million in the same period of fiscal 2011.  For the first six months of fiscal 2012, total revenue was $154.2 million, up 24% from $124.4 million in the same period of fiscal 2011.

Net income for the second quarter of fiscal 2012 was $3.2 million or $0.30 per diluted share, up 83% from $1.7 million or $0.17 per diluted share for the same period of fiscal 2011.  Net income per diluted share for the second quarter of fiscal 2012 included $0.11 for research and development tax credits. For the first six months of fiscal 2012, net income was $4.4 million or $0.42 per diluted share, up 27% from $3.5 million or $0.33 per diluted share for the same period of fiscal 2011.

For the second quarter of fiscal 2012, gross margin was 8% and operating margin was 3%, compared to 9% and 3%, respectively, in the same period of fiscal 2011.  In the third  quarter, the Company expects to see its gross margin increase to around 9%.

Pursuing the EMS Market

Key Tronic’s strategic goal is to become a leader in the EMS market. The long-term industry trends towards outsourced manufacturing continue to be very positive. According to a recent report in Manufacturing Market Insider, the EMS market  is expected to grow at approximately12% annually in coming years.

Growing Product Portfolio

Key Tronic's ability to offer an exceptional range of capabilities, competitive pricing, global logistics and responsive customer service continues to help it win new business.  With many of its current customers, Key Tronic is involved with a number of different programs. Some programs represent small annual revenue streams and some have multi-million-dollar potential.    In general, the Company cannot discuss any specifics of these programs because of signed confidentiality agreements with its customers.

Key Tronic plans to continue to aggressively pursue new EMS business in a wide range of industries, expanding its portfolio of EMS customers.  Key Tronic's current customer programs include consumer electronics and plastics, specialty printers and sub-assemblies, household products, gaming devices, telecommunication satellite units, multimedia touch panels, digital control panels, computer accessories, medical devices, exercise equipment, educational toys, industrial tools, networking equipment, scientific instruments, security surveillance devices, military electronics, electric motor controllers, innovative display devices, fire safety devices, mobile device accessories, aerospace, solar power controllers, energy monitors  and other engineered devices.                  

Product and Process Engineering

Staffed with engineers from a variety of disciplines, Key Tronic has exceptional design and engineering capabilities. The Company helps its clients improve both the product design and production process engineering in order to lower costs and increase quality. While the development cycle for EMS projects can often take 12 to 18 months, the customer absorbs much of the product development costs.

Low Cost/High-Quality Manufacturing

World leaders in a variety of industries recognize Key Tronic’s unique capabilities.  What sets Key Tronic apart is its innovative design and engineering expertise combined with high-quality, low-cost production and assembly.  The Company can offer expertise in specialized manufacturing, precision plastic molding and tooling, liquid injection molding, electronic and electro-mechanical design and assembly, and liquid crystal display technologies.   

By outsourcing their manufacturing to Key Tronic, current customers are accessing deep manufacturing expertise and capacity, thereby reducing their capital investment while gaining production volume flexibility plus assurance of quality.  Key Tronic’s state-of-the-art facilities are ISO 9001:2008, ISO 13485 and FDA certified.  

During fiscal 2010, the Company has continued to invest in the long term strength of its business by adding square footage in its world-class facilities in Mexico and China, and by increasing the efficiency of its supply chain and new product introduction processes.  These improvements have increased the speed at which Key Tronic can transfer new programs into its facilities, while helping control inventories both during and after the transfers.

Worldwide Capabilities

Key Tronic offers its customers worldwide procurement, distribution and logistics.  The Company has continued to expand the core capabilities of its facilities in both Mexico and China.  Key Tronic also operates facilities in Washington State and Texas.

This combination of facilities enables the Company to offer exceptional service levels, remain very cost competitive and give its customers tremendous logistical and material procurement flexibility.  Having world-class manufacturing sites in three geographic areas allows customers to choose from a menu of attributes and optimize their supply chain.  They increasingly recognize the value of Key Tronic’s strong centralized management approach to inventory, IP, production control and engineering, which has been honed and refined over decades of operating offshore facilities.  As OEMs have struggled with IP control, assurance of supply issues and product launch delays with stand alone and independent foreign sites, Key Tronic’s centralized approach has been a clear competitive advantage in many of our recent program wins.                                 

In the case of many programs, Key Tronic is providing design services in Spokane, building prototypes in Spokane, ramping production in both China and Mexico, cross supplying parts for production from China, Spokane and Mexico, and controlling the production, planning and delivery from Spokane.  This type of seamless blending of the advantages of each locale is not readily available to Key Tronic’s customers from its tier-three competitors. The value of this blend is becoming more of a competitive advantage as the marketplace gains experience in outsourcing.