Two manufacturing problems cut into first-quarter earnings for electronics supplier Visteon Corp., and the company is working to put them in its rearview mirror.
Plant problems take toll on Visteon
Visteon CEO Sachin Lawande laid bare the "operational challenges" to explain the company's financial performance setback.
One, he said, was the learning curve in launching a tricky product that Visteon says is promising but hard to make — a vehicle information screen with a curved center.
The second chal-lenge was also complex, in a different way. Visteon encountered "inefficiencies" in moving operations from a factory in Reynosa, Mexico, to a new plant in the same industrial park.
Lawande, speaking last month on a conference call with analysts and investors, was unsparing in describing the plant problems in Mexico.
"Fundamentally, this is a case of poor plant shop floor management, and we have already replaced the management team at the plant," he said.
The Reynosa problems knocked $3 million off the company's quarterly gross margin, representing sales revenue minus cost of sales. To put that in perspective, the company's total gross margin was $66 million for the first quarter, a 49 percent decline from a year earlier, and a painful misstep when profits are growing thin for many around the industry. Visteon net income fell 78 percent to $14 million for the quarter.
Lawande expressed exasperation with the Mexico plant project.
"Two years ago, we relocated our other plant in Mexico into a brand-new facility and we did that flawlessly," he said. "So this is not something that we do not understand how to do."
The Reynosa factory makes instrument clusters, displays and infotainment and telematics products for global vehicle manufacturers, the company said. To keep up with customer orders dur-ing the transition, the plant incurred premium freight charges and higher labor costs, Lawande said.
Visteon said the move is now complete. But according to the supplier's first-quarter results presentation, resolving any remaining financial effects could linger into the second quarter.
Getting the bugs out of its curved- display manufacturing could take until the third quarter, however, the company said. Lawande said the supplier industry is learning to make curved displays. A problem area in the technology occurs in the bending of the glass cover lens for the display, using hot forming.
Problems with the curved-display product line reduced Visteon's gross margin by about $7 million in the first quarter, the company said.
To explain the scale of the challenge, Lawande said the company's "first-pass yield" — meaning the percentage of "good" parts that make it through on the factory's first try — is running about 50 to 55 percent. Visteon expected to raise that level to 70 percent.
Without disclosing its automaker customers for the product, Visteon said it has a curved display launching in a vehicle in North America, and has contracts to supply curved displays to "several" automakers, including new production that will come online in 2020 and in 2022.
Curved displays will become a "core competency" for Visteon, Lawande vowed. Ultimately, the company intends to have the capability to produce curved displays in other global markets.
Visteon's manufacturing and engineering footprint is primarily in Mexico, Bulgaria, Portugal, Germany, India and China.
"We have time to fix these issues," Lawande said, "so as not to get into similar issues going forward."
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