Mcintosh insidetrack5 schematic

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When D& M Holding s, the Parent Compa ny of ...

... Denon and Marantz, announce d its intention on March 11 to
acquire McIntosh from Clarion Corporation ... there were
clear indic ations that they are buyi ng a company on the upswing.
For one thing, fiscal year 2002 (which ended 3/31/03) marked
the second time since Clarion had acquired M cIntosh in the
summer of 1990 that the company achieved profitability on
worldwide sales, th at year , of $25 milli on. The only othe r period
where McIntosh was profitable during the nearly 13 years under
Clarion ownership was in fiscal 2000, when strong sales of the
special edition 50-year anniversary amplifiers had lifted world­wide revenues to $24 million.

McIntosh’s improvement was also reflected in the results of the
i.t. survey reported in Dec. ‘02/Jan. ‘03, where the company
finished first in sales performance in the Electronics Group, with
52% of participating McIntosh dealers reporting increases in
their McIntosh sales for calendar year 2002, and only 6%
reporting decreases. McIntosh was also one of the most
improved companies year over year on every one of the 10 core
parameters the survey me asures, with particularly spectacular
improve ments in JIT Order Management, Ease of Doing

Business, Appropriate Assortment, and Prompt Resolution of
Service, Return, Repair Issues. In fact, McIntosh finished in the

top 5 among 29 electronics companies on 6 parameters and
placed 5th Overall. These results are now further supported by
in-depth telephone interviews of 13 McIntosh dealers in late
March, during which most of these dealers characterized 2002 as
an “excellent,” sometimes even a “recor d” year with McIntosh
(more about the reasons for this a little bit later on).

fit greatly from access to core technologies for the home side and
the ability to take advantag e of the group ’s purchasing power.

HOW MCINTOSH FITS INTO D&M HOLDINGS

In an interview with i.t. on April 3, Merle Gilmore, the chair-
man of D&M Holdings, stated that “specialty AV and home

theater, including the CEDIA dimension, is a very attractive
market segment with growth potential and good profitabilit y for
both the manufacturers and the distribution channel.” D&M

Holdings, said Gilmore, is putti ng toget her a port foli o of comple­mentary brands, keep the sales, marketing and product manage­ment aspects entirely separate, “but bui ld an industrial company
behind the brands.” The industrial company will be made up of
technology capabiliti es, purchasing, logistics, and some level of
core manufacturing capacity. Each brand, Gilmore str essed, can

When asked about how they viewed the change in McIntosh’s
ownership, most of the d ealers said they felt positive, based on
published information they had read, a nd based on what they had
either heard or exp erienced with regard to how D& M Holdings
has handled Denon and Marantz thus far. Under the Clarion
ownership M cInto sh entered ca r aud io. T oda y, total car audio
sales are split 40% domestic/60% export, and McIntosh intends
to stay in this business. For home audio, the split is exactly
reversed: 60% is domestic and 40% is export sales. As part of
D&M Holdings now, dealers believe, McIntosh stands to bene-

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McIntosh President Charlie Randall at the Binghamton factory

“take those core technologies and utilize them in that brand’s
own unique way.”

Gilmore also discussed how the proper distribution can
contribute to the success of each brand and to the success of the
holding company overall. In terms of product positioning, he
pointed out, Denon and Marantz are relatively close to each
other, “therefore it is important to us that we have distribution
differ enti ati on,” which is achieved in this case because Denon
focuses predominantly on regional specialist chains, while
Marantz mostly targets the owner operated independent

specialist retail channel. ... In the case of McIntosh and Marantz,

the distribution channel (if not always the specific accounts) is
the same which, from the point of view of the holding company
is ok, since there is differentiation of product positioning (with
Marantz positioned below McIntosh). The holding company, in
other words, can maximi ze its object ives with both brands in the
same channel when the brands have different product

positioning. ...

As subsidiaries o f a public com pany Denon, M arantz and ...
McIntosh will, of course, be measured on the achievement of
certain numerical goals. But equally important, said Gilmore,
are strategic goals, suc h as tho se aimed at “str engthening the

brand, strengthening the strategic positi oning of the brand, and
strengthening the relationship with channel partners and end
users.”

VISITING AN AMERICAN I CON

Given all these developments, the timing seemed perfect for
accepting McIntosh President Charlie Randall’s standing

invitation to come see the factory. ... My first impression: Set

back from the road stands a relatively old building with the
distinctive McIntosh name over the door. As you enter and walk
beyond the reception area, you first see the honeycomb of
administration cubicles - accounting, marketing, etc. - with the
executive offices and conference room along one side wall.
Beyond that you step into a totally different world: that of a busy
and, intermittently, very noisy 45,000 sq.ft. factory. Production
lines are set up by product in dedicated cells, explained Randall
... With only two more working days to go, the production board
showed approx. 1/3 of the products to be built done, ... another
approx. 1/3 showed single digit, with the remaining approx. 1/3
requiring low to mid-double digit numbers of units still to be
built. For March that came to some 1,400 units built and tested,
said Randall, adding that the monthly average is ty pically ar ound
1,200, with the factory able to do 2,200/month or 100 unit s a day
in a 22 day month, at full capacity. McIntosh builds approx. 25
days of inventory of everything in home electronics, plus 2
months worth of car audio equipment, Randall said.

We all have cert ain preconceived notions about brands , bas ed on
our exposure to them. As it does for many people in the
industry, the name McIntosh, in my mind, evokes concepts such

as tradition, quality, craftsmanship. ... My very first “aha

reaction” happened as I ob served people ope rating machine ry:
Next to huge programmable CNC precision presses, next to a
programmab le (and very expensive) “water laser” from Ingersoll
Rand that does precis ion gl ass cut tin g, us ing an i ncredibl y for ce­ful water jet and ground -up garnet, stand positively ancient

looking - but perfectly functional - presses from Dreis & Krump
and a winding machine that has been in service “since Day
One.” (Given that McIntosh was founded in 1949 and has
occupied the Binghamton facility since 1951, that make s this
particular piece of machinery over 50 years old). Who services
the old equ ipment, I asked. “W e do,” was the answer. Clearly,
caring about product quality at McIntosh encompasses an
intimate knowledge of the too ls used to build the products, be
those tools old or new.

I also saw that most everything - cabinets excepted - is mad e in
house, from metal housings that move along a convoluted
conveyor system to be washed, dried, painted and then oven­baked - to extrem ely intricate looking semiconductor boards, to
the silk screening on the glass panels. And all along the way
product is inspected and QC-ed - at the level of the part and
again at the level of the finished product.

But I really knew that I could be nowhere else but at McIntosh
when I entered the Service Department and saw two rows of
equipme nt, anywh ere from 20 to 30+ years old , according to
Service Manager Jo h n Me ssemer, which their owners are insist-
ing on having fixed and b rought up to full functionality. Appa­rently, there are lots of consumers who’d rather keep their vin­tage McIntoshes than trade up to the newer version (and yet in
this case they can have their proverbial cake and eat it, too, be­cause old and new equipment will work flawlessly together).
Some 80% of repairs done at McIntosh are on out of warran ty
units, and depending on those units’ ages, this can take 3-4
weeks, “but we want to improve that,” Randall said. In-war-
ranty repair is usually handled within 7 working days, he added.

Many companies try to foster pride and te am spirit through the
wearing of team colors or a team “uniform.” Not so at
McIntosh. People here seem to be too Y anke e-individ ualistic
for that. But compliment an employee on the exacting
craftsmanship of a piece of equipment and you’ll hear, “Yes, we
are proud of it.” Th ere’s no ques tion that there is great lo yalty
to the company. In fact, in some cases first and second
generation members of a family are working here, and it’s not
because there are no other options for them, Randall noted. The
area has a number of high tech emp loyers. McInto sh curr ently
employs 150 peo ple at the Bing hamton facility, of wh om 68
(45%) work in production. Twenty-seven (18%) are in
engineering, while the remaining 55 are employed in sales,
service, warehousing, maintenance, quality assurance and
production engineering.

Toward the end of the tour I cau ght up with Chief Eng ineer
Larry Fish, who is set to retire this June. He reminisced about
hiring Charlie Randall back in 1985 straight o ut of co llege - in
fact, into a col lege /wor k study program - and setting him to work
designing and building test equipment . After tha t came work on
amplifiers, and a lot of traveling with Fish. “I always felt,” Fish
said, “that Charlie had a heck of a future ahead of him.” In
April 2001 Randall was made McIntosh president - the 6
president (including interim holders of the office) since Ron
Fone left in 1995. “What was your No. 1 priority as you started
in the position,” I asked him. “R estorin g de aler co nfide nce ,”
he replied. The revolving door at the top notwithstanding,
McIntosh always had a strong internal foundation, Randall felt,

th