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COMPANY PROFILE

With A Priority On Making Profits For All His Partners, Stephen Wang’s
Phonic

Has Emerged As A Growing Force In The Audio Market. But He’s Just Getting Started.

Now completing its 25th year, Taiwan-based Phonic Corporation has passed through a series of distinct evolutionary phases: small OEM supplier building simple DJ mixers; thriving contract manufacturer producing audio products for customers like Yamaha; full-line audio supplier selling Phonic branded products in over 100 countries. Founder Stephen Wang views this corporate progression as a logical by-product of his ambition, and the increasing skills of his staff.  However, he is not one to spend much time pondering past accomplishments. Flush with the proceeds of a successful public stock offering on the Taipei Exchange, he is already charting Phonic’s continuing transformation into a cutting-edge R&D company that pushes the boundaries of audio technology. There is no shortage of Asian entrepreneurs with outsized plans. However, what sets Wang apart is his proven skill in transforming lofty goals into tangible accomplishments. If past performance is any guide, the odds are that his latest plans will soon become a reality. 

Although Phonic is a relatively new brand in the U.S. market—the Florida-based Phonic America Corp. distribution arm was established less than two years ago—the company is already a formidable presence in the global audio market. A 200,000-square- foot plant in Shenzhen, China, staffed by 800, produces a complete line of mixers, powered mixers, power amplifiers, and loudspeaker enclosures. A plant opened last year in the Ningbo province of China is hard at work manufacturing a broad array of rack- mounted signal processors. Both factories are certified to the ISO:9001 standard. In Taipei a growing international engineering team, headed by Michael Swynnerton, an expert in wireless technology is launching an aggressive new product drive. Wang believes that this combination of cost-effective Chinese manufacturing and world-class R&D will translate into years of consistent sales growth for Phonic. “We have a strong foundation,” he declares. 

The story behind this strong foundation is one of diligent effort and relentless planning. An engineer by training, Wang has spent the past 25 years consistently improving his company and systematically upgrading people, production facilities, and product designs in much the same way a designer would refine a product. Although the process has been gradual, the results have been dramatic. Phonic Corporation today bears little resemblance to the business that was launched in a small workshop in Taipei 25 years ago. 

After completing engineering training and receiving an MBA from Oklahoma University, Wang went to work for a contract television manufacturer in Taipei. New Year’s bonuses are a longstanding tradition in China, and in 1977 Wang’s boss decided to reward his excellent work with a particularly generous lump sum of three months salary. Although Wang was grateful for the generosity of his employer, and to this day speaks reverently of his former boss, he quickly took the bonus money and went into business for himself. A friend from Belgium told him that there was a strong market for DJ mixers throughout Europe, and Wang immediately sensed an opportunity: DJ mixers were simple products, well suited for a fledgling manufacturer, and the market was fragmented without any dominant competitors. Within weeks, Phonic Corporation was in business shipping its first DI mixers to Europe. 

Wang concedes that his first product was hardly a paragon of quality. Sliders, pots, and other audio components were hard to come by in Taipei in the 1970s, so he had to improvise. “The first sliders we had were so rough, it practically took a hammer to move them,” he recalls. Nevertheless, the Phonic mixer functioned, and with a price 80 percent less than any European-made competitors, it soon found a market. He estimates that within ten years, Phonic was manufacturing 90 percent of the world’s DI mixers. “In those days every country had its own brand of DJ mixer. France had the BST brand, Germany had Monaco, Italy had Tempa,” recalls Wang. “I built them all.” 

Although his DI mixer business prospered, Wang grew concerned about pinning the future of his growing company on such a narrow product offering. “What if kids lose interest in DJ music?” he worried. To diversify, in 1987 he produced several large mixer prototypes to showcase Phonic’s manufacturing prowess and began soliciting contract manufacturing. His timing was perfect. The yen had just had an enormous run-up, making it nearly impossible for Yamaha to compete in the global market’ with Japanese-made audio products. Soon Phonic was building small mixers, powered mixers, and power amps that were sold worldwide under the Yamaha brand. The pact with Yamaha immediately boosted Phonic’s credibility, enabling the company to land OEM contracts with a host of other leading audio companies, including Electro-Voice, Dynacord, and Phillips. 

By the early ‘90s, Wang had achieved his goal of moving beyond DJ mixers: Phonic had become an important OEM audio manufacturer with a lengthy customer list. However, he still worried. “The OEM business is very volatile,” he explains. “You depend entirely on other companies, and you can’t control your future.” In 1995 he took the next logical step by launching the Phonic audio brand. “I decided that if we intended to keep growing, we had to take control with our own brand and become a marketing company.” 

With a limited R&D effort, Phonic’s initial line consisted of what Wang readily admits were “me-too” products: mixers, power amps, and powered mixers that were based on the industry’s most popular designs. While the products may have been short on innovation, they boasted impeccable quality and a compelling price, and they were well received. Eighteen months after the initial introduction, Phonic audio gear was represented by some of the world’s top music and audio distributors. From the day the Phonic line was introduced, the company’s OEM business has steadily declined, to the current level of less than 15 percent of total sales. Wang envisions a point in the not too distant future when all of the company’s business will be under the Phonic brand. 

A careful student of the market, Wang divides audio products into two broad categories: the “me-too” group, which include staple items like mixers, power amps, and speaker enclosures; and the “complex technology” group, which includes distinctive products that stand apart from the competition by virtue of unique features. His goal is to incorporate more “complex technology” products in the Phonic line with each passing year. To this end, he has invested heavily in an R&D department at corporate headquarters in Taipei. 

Phonic’s 37 engineers come from Russia, the U.S., the U.K., Malaysia, Australia, China, and Taiwan. English has become the most efficient in the world. the common language of the department, and even Wang does much of his communication in English because “I can’t answer email in Chinese,” he jokes. Despite such diverse backgrounds, Phonic engineers have managed to find common purpose in creating distinctive new audio products. The results of this multi-cultural R&D effort are most evident in an expanding line of DSP products. Over the past 12 months the company has augmented its line of analog rack mounted EQs and crossovers with over a dozen new digital effects, ranging from an innovative feedback eliminator to several high-feature multi-effects units. One of the company’s most successful “complex technology products” is the PAA2 palm-sized audio analyzer. Not much larger than a cell phone, the unit contains a 31-band real-time spectrum analyzer, a built-in calibrated measurement microphone, and a sound pressure level meter. With the PAA2, precise audio measurements are available to virtually everyone— garage bands, church musicians, and corporate a-v personnel, for less than $500. 

Wang sees complex technology products, like the PAA2, as providing the profits and profile that will power Phonic to a higher level. He explains, “Me-too products will be our bread and butter for a long time. But with these types of products, prices will drop continuously as more companies enter the market and more factories in China spring up. There will always be someone who can sell for less than we can. However, if we develop complex technology products, they will provide us with added profits and give our brand the kind of prestige that allows us to charge a premium for our me-too products.”  

Wang is reluctant to outline the specifics of the 25 new “complex technology” products currently under development at Phonic. However, he says they incorporate new applications of wireless technology that will have a dramatic impact on the industry. 

Phonic opened its first factory in Shenzhen China in 1994 and a second in Ningbo last year. The two factories are the basis of one of the world’s most efficient audio manufacturing operations. To quantify this efficiency, Wang says that the monthly payroll expense for 800 employees at the Shenzhen plant was about half that of a former Phonic plant in Taipei that employed only 100. However, he says that the advantage of Chinese manufacturing operations can’t be measured in dollars alone. “As Taiwan has gotten more prosperous, there is less of a work ethic and it’s harder to motivate people,” he says. “The son of a rich man thinks money comes naturally. The son of a poor man doesn’t want to stay poor so he’s willing to work hard. This is where China is right now. They don’t want to be poor anymore and they work. They are very easy to motivate.” 

If a Chinese manufacturing base provides the efficiency that will keep Phonic’s competitive edge, Wang says a Taiwan headquarters provides a unique advantage on the R&D front. As the undisputed center of personal computer manufacturing, Taiwan is home to hundreds of companies building key components like screens, interfaces, hard drives, and microprocessors, not to mention thousands of top notch computer engineers. With the convergence of audio and computer technology, Wang says that proximity to these people and companies is a major asset. “We have people and suppliers that we can turn to, to help us develop new products,” he explains. “And, when you’re around so many people who are focused on developing computers, you get very interesting new product ideas.”

From the time he shipped his first DI mixer to the present, Wang says that the most successful deals of his career have been those where all parties profit. “Very early, I realized that if my partner makes money first, I will eventually make money too,” he says. “At Phonic we want to see our distributors and dealers prosper because it take profits to build a market.” Volumes have been written about the cultural divide that separates Asia from the West. But Wang’s concept of mutual profitability is something that has been readily adapted to the U.S. market. 

At Phonic America, Ken Fuente, executive vice-president says that the product line’s profit potential is one of the primary factors that has allowed him to dramatically expand the dealer network over the past year. “When we make a presentation to a dealer for the first time, we go through the company history and product line, item by item,” he explains. “They always respond positively. But when we bring out the price list and show them the kind of margins they can make with our MAP pricing, we really get their attention.” 

There is no shortage of audio manufacturers, and when asked what differentiates Phonic, Fuente relies on the testimonials of his customers. “A large dealer in the Southeast summed it up best,” he relates. “He called to tell me why they were so enthusiastic about the Phonic line and he laid out three reasons: First, the customers were thrilled with the product value they received for the money. Second, after putting the products through a battery of technical tests, they liked the fact that it performed well and was extremely roadworthy. Third, they were excited to be making a good profit margin on every sale.” 

In addition to a generous profit margin, Phonic is striving to offer dealers the best overall service in the industry. Early in 2004 the company will open a second product warehouse in Salt Lake City to speed deliveries and cut freight costs for the West Coast. In addition, by mid-year Phonic will have established a coast-to-coast network of authorized service centers. 

The first challenge at Phonic America was to establish a network of retail distribution. Having personally made 150 dealer visits over the past year, Fuente and his team of 12 independent rep firms have largely addressed that issue. What he finds particularly gratifying is that sales with dealers trend up with each passing month. “Dealers in their initial orders tend to buy some of our small mixers and lower-priced power p.a. systems,” he relates. “But after a few months, as they gain confidence in the quality of the product, they start ordering our larger-format mixers and other high-end products.” 

The most recent step in Phonic’s evolutionary climb has been a public stock offering. Although many public music and audio companies have stumbled, Wang makes a compelling case for why going public is a positive development for Phonic. In the early days of the company, he explains, one of his biggest challenges was simply attracting qualified people. “There were no other audio companies in Taiwan, people didn’t understand our business, and were hesitant to work for us,” he says. However, with a listing on the Taipei Exchange he says Phonic’s higher profile will make it easier to recruit topflight talent for the engineering department. The higher profile will also facilitate forming joint ventures. From his days working in the OEM market, Wang says the first thing a potential partner wants to know is “whether you’re a credible company.” He adds, “a public listing gives us credibility.” Finally, the public listing gives the company easier access to capital to finance future expansion. 

While public ownership will no doubt benefit Phonic, the most immediate reason the company is likely to flourish can be traced to Wang’s leadership. Like a skilled juggler, he has managed to balance profitability, product development, and personnel issues to create a thriving business. Although competing in a global market is a high stakes game, Wang obviously relishes the challenge. A set of golf clubs stands in the corner of his Taipei office. When asked if he plays, he replies, “Not really. This company takes all my time,” which should be a comfort to Phonic’s shareholders and business partners around the world. For more information, visit Phonic on the web at: www.phonic.com or call: 800-430-7222  

The preceding article was first published in the February 2004 issue of The Music Trades

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