Northwest Arkansas Democrat-Gazette
Expiring lease puts Keytronic in a bind
Plant wants to remain in Arkansas; options few
FAYETTEVILLE — Electronic-component maker Keytronic EMS is in a bit of a jam.
In 2014, as part of a nearly $47 million deal, Keytronic acquired CDR Manufacturing Inc., which did business as Ayrshire Electronics. Ayrshire’s business and its workers in Fayetteville were part of that acquisition. The building they worked in on Beechwood Avenue was not.
Now, three years later, Keytronic’s lease is nearly up, leaving the company’s fate in Fayetteville uncertain. Company executives make it clear they don’t want to leave the city but they’re facing a dizzying array of options and a lot of uncertainty.
Craig Green, senior vice president of business development for Keytronic Eastern Division, and two of his colleagues, recently explained the company’s dilemma over coffee near the company’s Fayetteville plant.
The building’s ownership is looking to sell. Keytronic isn’t interested in owning the building. If no buyer is found, the current owners and Keytronic might not be able to reach a new lease agreement.
If the building is sold, the new owner will likely have ideas on how to use the space, might not be interested in leasing to Keytronic at all, or might not be able to strike a lease deal agreeable to both parties. On top of that, Keytronic would like to expand its operation which would mean renovation at its current site or the company might choose a whole new location all together.
“We’d like to maintain and expand in Arkansas but we’re in kind of a tough spot,” Green said. “So, we are looking at contingency plans. We’ve going to have to make some decisions and rather quickly.”
Green said the company has been in touch with the city of Fayetteville and the Arkansas Economic Development Commission seeking possible incentives to help with relocation efforts and searched for a possible new location for the plant, but a workable solution hasn’t been
● found.
“We’re willing to talk to anybody about this,” Green said.
Publicly traded Keytronic is based in Spokane Valley, Wash. The company is known for the computer keyboards it makes but it also builds a wide variety of electronic components for third parties, provides engineering services, assembly services and inhouse testing. In the United States, it has factory operations in Fayetteville, Spokane, Wash., Corinth, Miss., and Oakdale, Minn., and also has plants in Mexico and China. The company employs more than 5,000 globally according to its website.
At the Fayetteville facility, Keytronic employs more than 220 workers. The operation is a stand-alone factory, not dependent on any other Keytronic sites, and it employs a variety of workers, from technicians and engineers to bookkeepers and purchasing managers. Factory workers are paid an average of $12.20 an hour, according to Keytronic. Salaried employees’ wages aren’t figured into this amount.
Steve Clark, president and chief executive of the Fayetteville Chamber of Commerce, called Keytronic a legacy employer and a jewel among the many businesses that call the city home, noting it’s employees are highly skilled. He said in the past the city has worked with the company to address any problems it might have, but finding a new location with an inexpensive lease inside the city is a difficult proposition.
“Our toolkit is missing the tools we need,” Clark said.
The Arkansas Economic Development Commission declined to comment about any possible talks with Keytronic because of the sensitive nature of such interactions. Keytronic officials said they recently visited commission representatives in Little Rock but no solution had been reached.
Clark said the city and the state are limited in what they can do as far as incentives, noting they could be facing potential competition from Mississippi, the home of Keytronic’s largest operation in the United States. In March, Keytronic said it would invest $500,000 in its Corinth, Miss., plant to expand its manufacturing capabilities. The move will create 75 full-time jobs, the company said at the time. The plant employs about 400 workers.
Keytronic’s Green said Mississippi has proved willing to work with the company in the past and has provided good incentives but the hope is to keep the Fayetteville operation close to where it is today.
“We prefer to stay in Fayetteville or be somewhere close by,” Green said.
A new location would have to be large enough, be modern and meet the company’s needs as an electronics manufacturer. And it would have to be in Fayetteville or nearby so Keytronic could keep its skilled workforce intact.
“Our people are here and they’re good people,” said Gary Lehren, vice president and general manager of the Fayetteville site.
Mervin Jebaraj, interim director of the university’s Center for Business and Economic Research, said a company like Keytronic has a lot of factors to consider when it is faced with a situation like this. He noted employee retention and training are important considerations in a company’s bottom line but attractive incentives can’t be ignored. In the end, he said, a business is obligated to make the best choice for its shareholders.
For its fourth quarter of 2017, Keytronic booked revenue of $118.5 million and a profit of $1.3 million or 12 cents per share. For the company’s fiscal year 2017, Keytronic saw revenue of $467.8 million and a profit of $5.6 million or 51 cents per share. Company management said revenue and profit margins were hit by a reduction in demand from longstanding customers which hadn’t yet been offset by new customers and new business gained during the year.
Keytronic shares traded at about $7 last week on the Nasdaq exchange. Shares have traded as low as $6.69 and as high as $8.20 over the past year.
Clark, the president of the Fayetteville Chamber of Commerce said local officials are willing to do whatever they can to help Keytronic remain in the area.
“We want them here,” he said. “And we’re proud to have them here.”
Keytronic’s Green said the company wants to keep its Arkansas location but the clock is ticking and the company would need to arrive at a solution soon.
“We’re at D-Day,” he said.