When you hear Sharp Electronics Corp. President and CEO Doug Albregts talk about Foxconn’s investment in the company, he sounds like a kid who has just been handed the keys to the candy store. And why not? He now has the technology, manufacturing prowess and financial wherewithal to fully execute the company’s vision for its future.
That is good news for Sharp’s dealer channel partners. ENX recently spoke with Albregts about Sharp’s smart office strategy and how he plans to leverage Foxconn’s resources. He also spoke about the importance of the channel and how he will ensure that dealers will benefit from Sharp’s success.
Tell us a little about your professional background. What attracted you to Sharp?
ALBREGTS: I started in consumer products with a company called Little Golden Books. I was in sales and marketing roles, which eventually led me to the technology industry in the 90s. Tech companies wanted sales and marketing experience because most people who were selling and marketing those technology products at the time were engineers.
Doug Albregts, Sharp Electronics Corp. President and CEO
I went to NEC, one of the leading display companies, and worked there for 13 years, which culminated in me being the senior vice president of sales and marketing operations. I had moved to the East Coast and done stints at Samsung and then American Express before I ended up at Sharp.
I was very familiar with the Sharp brand while working for a different Japanese company. I was attracted to the position because I had spent much of my career in display and other technologies, outside of the document imaging space. When I looked at document imaging, I saw that many tech companies don’t have the gross margins that this industry has. The healthy margins at Sharp provided flexibility and the ability to drive different strategies.
Sharp was a leader in many areas. It was first for things like security, and it led the way with OSA (Open Systems Architecture). There was opportunity to evolve the products and more easily integrate software and other things into these products. Sharp was a perfect fit.
What has Foxconn’s investment in Sharp meant in terms of product development and market strategy?
ALBREGTS: Foxconn is one of the largest technology companies in the world. Foxconn is part of building products for the best technology brand names out there. The company is also an innovator. When it made a 66 percent investment in Sharp, we knew we would have access to a bevy of technologies that we didn’t have access to before.
A key area where Foxconn will help Sharp is the smart office. We already had displays. We already had copiers. We were launching cloud portal type products, and we had other software. What we didn’t have was the technology to bring all of that together.
Case in point, we will shortly introduce a water machine that makes water out of humidity. The fancy part of the package is that it comes with tablet integrated into the product that will connect to the internet and allow us to remotely access the product. It will have a service component. That’s part of the smart office.
For the smart office, we will consider any product that is connected to a network in the office with the ability to communicate back and forth. We are able to drive information from a copier to a display to a water machine to whatever might be in the office. We know as long as we can provide a smart office, there will be less of a threat that we will lose the copier business. The more connected we are in that office, the better chance we have to renew all those products.
How do you see the concept of the smart office benefitting Sharp’s dealer channel?
ALBREGTS: Some will be more willing than others to embrace it. Sixty-five percent of our revenue is driven through the channel. That’s an extreme commitment. It’s mostly flipped the other way with most of our competitors.
The litmus test for those partners who want to engage with us is this: how much do they want to diversify? How much do they want to change their business and grow with us? A lot of them seem to want to do that because they don’t see the longevity of just staying copier- or document-imaging only. They know they have to diversify their business.
We want to be the go-to partner to help them do that. Our whole goal is centered around facilitation. For example, we moved our entire back end, logistics and credit to Tech Data. It gives dealers a single place and portal to integrate third-party products. It will also allow Foxconn to deliver its other technologies and products, on one invoice to a location, to help diversify our dealers’ offerings.
Will Foxconn’s considerable manufacturing assets help Sharp in terms of costs or product capabilities?
ALBREGTS: Yes. Foxconn is north of $150 billion in revenue. Sharp is in the high $20 billion range. The company will bring scale, and it is looking very closely at how we manufacture products today and how we can drive a lower cost without sacrificing quality. What’s best is that Foxconn is looking at how we can put more features and technology into the product.
We don’t have a competitive A4 product. Foxconn will change the whole market dynamic by giving us the ability to enter into A4 and lower-end A3 categories, where we didn’t have competing products. We are looking at other product categories and enhancements that I can’t get further into detail on—things that we didn’t have a few years ago. We think Foxconn will provide us with a tremendous advantage. The question is not running into it too quickly and making sure we’re doing all this right.
Have you seen dealer pushback from moving to the Tech Data portal or the Foxconn acquisition?
ALBREGTS: Whenever you move almost 400 dealers to change anything, it’s never going to be perfectly smooth. It was a little bit rocky to start. We had some shipping problems, moving people over to the new credit arrangement, those types of things. But our damaged shipment rates, for instance, have been cut in half. We’re now shipping out of five locations instead of two. We used to have many out-of-region shipments, but now that’s been improved by having inventory in five locations.
In addition, it took on average about seven to thirteen days to get our product. Now most places in the country are getting it between one and three days. Most dealers’ credit lines have actually been raised as a result of Tech Data doing credit. Tech has over 20,000 partners that it provides credit to. Tech Data’s exposure and risk is much more minimized than ours.
The move to Tech Data now is very well received. Dealers go to one portal. They have access to third-party products, which they couldn’t have accessed before on the same invoice. As an example, if they want to buy Tech Data’s mobile telephony platform and sell subscriptions to that, they can do that through the third-party portal. It has turned out to be a tremendous asset.
The Foxconn investment has brought a sense of relief, because the financial cloud hanging over our head due to Sharp Corp.’s financial difficulties was turned into a big plus quickly. We’ve only heard good things, and we’ve been able to show our dealer advisory council roadmaps of new products that are coming out. They see this as a tremendous opportunity to get access to products and software to do integration that they never had access to before. We want to be a better, an irresistible partner. Foxconn’s reputation only emphasizes that.
What are you focusing on to keep Sharp competitive in the coming years?
ALBREGTS: Filling out the product line. To have a smart office, you’ve got to have a product line that gives flexibility to that office. It’s not a one-size-fits-all. We found that in the display category. One of the first areas where Foxconn helped us is building out our display portfolio. Now we have a good, better, best strategy around displays. We have interactive, wireless whiteboards that connect to the cloud. You can annotate on these whiteboards and send the information to a copier. You can move it to other interactive display devices that might be on the desktop.
We want to make sure that we have product to fill all the categories. Candidly, in the copier space we haven’t done a good job of addressing all those categories for our dealer base. You can quickly move yourself out of a bid if you don’t have competitive products that fit in every single category. We’ll enable more options in all categories in the smart office space.
What changes are you making to your channel partner program or what additional resources are you providing to help support the smart office strategy?
ALBREGTS: We’re going to get very, very simple and easy to understand. Dealers need to know what’s available to them to help grow their business and easily understand what their net margin is on copier purchases. I don’t think manufacturers do a very good job of that.
You’re going to see us also provide more investment money up front in our programs. Too much of the onus is put on the dealer to perform and get something in return for that performance, as opposed to an up-front investment. That’s how we’re going to tailor a lot of our programs.
Another thing is that we will incorporate all those products I talked about into our programs and make them available to order off of the Tech Data portal, along with all of the third-party products, which will be included into our programs in some form or another.
We want to drive the ability to grow with Sharp. No matter what product in our portfolio they sell, we’ve got to put our dealers in a position to succeed. Today, our programs are a little too complicated to do that effectively. Our goal is to become number three in the document space and number one in the commercial display market. To get there, we have to invest more, diversify and grow our opportunities.
What do you see as your biggest opportunity and biggest challenge for 2017?
ALBREGTS: It’s around the smart office. I keep coming back to that because for us it is the space to be. The biggest challenge is, number one, doing it correctly right out of the gate. That’s harder when you have a lot of resources at your disposal and a lot of options and opportunities. Picking the right path is essential in determining our success.
Second, if you look at the Q3 and Q4 IDC document imaging unit sales, they are not very good. We’ve seen a significant decline in the market. One of the biggest challenges is keeping profitability as you keep unit volume up. We’ve made a conscious effort to be competitive but not ride the price down with the downward spiral we are seeing in the market. That’s how we’ve been able to grow our overall profitability. If unit volume continues to decline, we’ll need to upscale the pace of diversifying our business. Otherwise, it could be a very challenging year.
If Sharp’s strategy is focused on the smart office, what market trends do you see driving demand for the diversified product line you envision?
ALBREGTS: The biggest misconception this industry has is that you can’t make money—or revenue will decline—if page output drops or you sell less copiers. We’ve seen the opposite where companies are doing an effective job of managing information. Even though print might decline, dealers that are managing information flow, information security and access to information are making more money with less print.
Those dealers can move information from device to device and wrap a service contract around that. They can install a wireless whiteboard and pull up information from the cloud and email the file or send it directly to someone’s mobile device instead of printing it out. People are willing to pay for services that help them do those things seamlessly, and they are willing to pay a lot for it.
Print is still important, but we see information flow driving demand. For instance, we know a company that manages the entire ecosystem around HIPAA-compliant forms. Those forms change a lot. Hospitals and clinics would have to print hundreds of thousands or millions of pages, and then the form would change and they’d have to reprint them all. This company did a great job of using software to manage changes in these forms. That contributed to less print, but it drove revenues up an excessive amount.
What is your most important task as a CEO?
ALBREGTS: The most important task is to align a best-in-class team and put them in a position to succeed. You’ve got to put an organization in a position to succeed, and that’s usually about having the right culture. Culture is having the right people, having the right approach to the market, being consistent, and being ethical in all those things. You’ve got to set the tone from my job.
The biggest challenge for me is making sure we have the right people, and that we’re giving them the tools to succeed. When you’re having success, it’s really fun to watch. When you’re not, there’s a lot of soul-searching going on.
