YFC-Boneagle Diversifies Into More Profitable Lines

YFC-Boneagle Electric Co. has established a firm position in the local area network (LAN) cable and related-parts business, recording revenues from that business alone of NT$1.1 billion (US$33 million at NT$33:US$1) last year. But its chairman, Andrew Yeh, is not satisfied, and is now speeding up efforts to transform the company and boost its revenues even higher.

YFC-Boneagle was set up in 1983, and for eight years concentrated on making power cable and wire. Then, in 1991, it decided to diversify into LAN cable because of increasingly intense competition in the making of copper electric wire. In that first year its LAN-cable sales amounted to just NT$19 million (US$580,000), but the figure has since grown rapidly.

In addition to producing ever-increasing revenues, Yeh comments, "LAN cable is much more profitable than electric cable, because although both are made of copper the former is much more complicated to produce."

The decision to diversify was made because the familiar copper material was used in the making of LAN cable, and there was no competition in Taiwan. But these factors were at the same time disadvantageous, Yeh recalls: "We didn't have any model in Taiwan to follow, and the production machines were very costly."

The latter difficulty was overcome by the company developing the needed machines itself. In the process it lured many specialists, including General Manager Grow Lin, from other organizations. Soon the results began to show, and two usable machines were readied. "We spent only about NT$1 million (US$30,000) on those machines," Yeh reports. At that time, a similar British-made machine could cost as much as NT$10 million (US$300,000)."



The British Advantage



He concedes, however, that his machines were not as efficient as British models in terms of production volume, nor as precise in extruding perfectly round wires. And precise roundness, the chairman notes, "determines the quality of signals transmitted through the wires. Also, at that time our machines could extrude only 30 meters of wire a minute, compared with an average of 45 meters for the British machines."

Nevertheless, the self-made machines helped YFC-Boneagle turn a profit by keeping production costs down. (Yeh boasts that his was the only company that was able to make LAN cable and the machines for producing it at the same time.) When the firm took in revenues of NT$200 million (US$6 million) in 1997, however, it spent NT$20 million (US$600,000) on British machines in order to boost production efficiency and precision. These advanced machines made the company more competitive and now, its chairman claims, "We're recognized as the No. 1 supplier of LAN cable and associated components in Southeast Asia, in terms of both quality and quantity."

Half of the firm's LAN cable is shipped to Europe, 30% to the United States, and 20% to other countries. Seventy percent of the total, Yeh says, is sold under the "YFC-Boneagle" brand, competing with such big names as Alcatel and Lucent.

The company has added numerous efficient machines to the production lines in its Taiwanese and mainland Chinese factories over the past few years. One of these is a skin-physical foaming extruder, which has an Internet connection that allows customers all over the world to acquire real-time information about the production of the items they have ordered. There is also new testing equipment that can test 600MHz products. Today, all of this equipment can extrude two kilometers of wire per minute, and thread eight wires into one cable with a diameter of 0.5mm.

"With this advanced equipment and our know-how, we're in an unassailable position and we can give our customers a 15-year guarantee," Yeh says.



Out of the Crowd



As a result of these advantages, YFC-Boneagle has emerged as a prominent new player among the crowd of formidable rivals. Yeh attributes his success to two main factors: the promotion of its own brand and the targeting of the profitable European market from the very beginning, and the offering of relatively inexpensive prices. "The American market is huge in size," the chairman comments, "but profits there are too thin because of the intense competition."

Success with LAN cables inspired the company to enter into production of optical-communications components, and in 2000 it licensed optical-transceiver module technology from the Opto-Electronics & Systems Laboratories of the government-backed Industrial Technology Research Institute. This year, optical-subassembly (OSA) and small form factor (SFF) optical transceiver modules for household use are expected to add NT$20 million (US$300,000) to the company's revenues, and its modules for company use are expected to bring in double that amount.

Yeh believes that the demand for broadband networks that depend on copper cable will remain high, despite the rise of wireless products. He notes that 86 million households worldwide were connected to the Internet via broadband networks last year, and that the number is rising—so fast, in fact, that the demand has outstripped his capacity. This soaring demand is expected to help boost the company's overall revenues by 25% this year, to NT$2 billion (US$60 million).

One cloud on the horizon is the rising cost of copper, which has necessitated hikes in product prices.

Thanks to its high quality, the company has won UL, ETL, and 3P approval for its CAT.5, CAT.6, and CAT.7 LAN cables. (It was the first in Asia to gain 3P approval.) Its power cables have UL approval in the U.S. and CSA certification in Canada, as well as approval in more than 10 European countries including Germany, Holland, Denmark, Switzerland, Norway, and Finland.



Going Into Optoelectronics



Yeh recently expanded his optoelectronics business to include laser disk (LD) and light-emitting diode (LED) packaging and testing services. To do this, he has installed a 400-square-meter clean room.

The chairman predicts that his optoelectronics business will chalk up around NT$150 million (US$4.5 million) in revenues this year.

Product diversification goes on. The company recently recruited specialists in medical equipment and set them to developing radiation-therapy devices. Mini models have already been rolled out for use on animals and in laboratories.

All of the equipment that the company makes will soon be placed on an electronic marketplace in the U.S., planned by its own e-commerce retailer, during the next quarter. "Operating distribution channels can be much more profitable than running factories," Yeh explains. "So we'll be outsourcing 70% of the products on the marketplace from other manufacturers, so that we won't have to invest in new production facilities." This business is forecast to boost YFC-Boneagle's total revenues by 20% to 25% in each of the next few years, up from an annual growth of 15% in the past.

In addition to manufacturing its cable products at its own factories in Taiwan and Guangdong, the company has opened outlets in Shanghai, Beijing, Hong Kong, New York, and Singapore.

To head up its growing number of business units, Yeh has appointed professional managers instead of using his own family members. "This keeps the company running more efficiently and professionally," he comments, "and is the best guarantee of profit for our shareholders." The company went public on the Taiwan stock exchange early last year.