GIVEN a sterling resume in the first part of his career, Yancey Hai could be heading a big bank or financial services firm now. "But I don't want to run a bank," says the reserved 66-year-old with a laugh. "It's not as interesting as running an electronics company."
As chairman of Delta Electronics, Mr Hai is overseeing the transformation of the Taiwanese power systems manufacturer, which is diversifying as its bread-and-butter business of making switches and converters to power personal computers (PC) declines.
His decisions affect the rice bowls of Delta's 70,000 employees around the world and the future of its revenue streams, which were at NT$190.6 billion (S$8.3 billion) in 2014.
To move ahead, Delta is making higher-margin components for industrial automation, as well as components for smartphones and tablets. From supplying parts for robots like motor drives and servor motors, Delta is now making the assembly robots themselves, known as Scara robots. It is also expanding into supplying power components for telcos, such as for use in base stations.
At the end of last year, it announced an acquisition of Norwegian firm Eltek, the Number 2 player in the world in the field.
Wearables is another potential new area for growth. To gain an edge in making the very small parts required, Delta already has an in-house automation department that can produce the machines to make those components. Delta is also moving into the healthcare diagnostics space. It currently makes glucose and pulse meters.
There is an opportunity in healthcare because of the world's ageing population, and also because today's healthcare industry is not technologically driven, Mr Hai says.
Among the firm's latest investments were in Singapore early this year, when it opened a life sciences and diagnostics lab venture at Biopolis, partnering the Institute of Bioengineering and Nanotechnology (IBN) at government agency A*Star. Delta's investment will be a few million US dollars, Mr Hai says. It aims to make faster and smaller kits to detect infectious diseases.
"If you have a very serious disease, you want to know as soon as possible so the doctors can give you a shot of antibiotics," Mr Hai says. The Delta-IBN Life Science and Diagnostics Lab will start by developing a device that tests for a parasite that infects many dogs known as babesia.
"IBN has very good diagnostics, technology, we are pretty good at designing, manufacturing these devices. All medical devices companies eventually have to find somebody to make devices for them. We're a manufacturer, we have a lot of experience in manufacturing and procurement already," Mr Hai says.
Any significant revenue growth could only come 10 years later, he adds. The glucose meter Delta makes, for example, is a relatively simple device but getting approval took years. Other healthcare products are being planned but none are mature yet, he says.
As he stays abreast of the latest changes in engineering and technology, Mr Hai finds satisfaction in his work. "There's a lot of innovation. You're making something useful. At banks, I got turned off when they decided to launch all these derivative products," he says. This was in the 1980s, when equity-linked bonds started taking off.
"To use a Chinese word, it's very xu (empty), no substance, just doing all this financial engineering," he says. Mr Hai worked at Citi, JP Morgan, Lehman Brothers and GE Capital. His jobs spanned corporate banking, investment banking and consumer banking. In 1999, he left GE Capital right before the tech bubble. "I got to know (Delta's) founder and ex-chairman (Bruce) Cheng.
We talked a lot. When currencies were fluctuating, he asked me for some ideas, I gave him some ideas, so it happens the exchange rate went in the right way, he's very happy," he says with a laugh.
"I was in the financial industry for a very long time, and wanted to go into the electronics business to see what's happening there. I asked Mr Cheng, how about that. He said, our pond is too small, you're a big fish. I said, that's fine, I'll see what I can do."
Mr Hai began his first years at Delta doing strategic planning, instituting longer-term strategy meetings beyond just budget processes. Discussions centred on expanding the business and into the region, as well as new product development.
He also began the practice of monthly management meetings to evaluate the profitability of different products based on metrics like revenue, costs, gross and operating margins. Senior managers not only see their own scorecard but also other people's scorecards.
The process allowed Delta to cut products like PC monitors, and eventually TVs. The accountability given by the scorecard system also made long-term investors happy.
Mr Hai took over as CEO in 2004, and stepped down to become chairman in 2012. From end-May 2004 to end-April 2015, Delta's stock price has returned 426 per cent, or compounded annual returns of 16 per cent a year, 21 per cent a year including reinvested dividends. The secret to success is to have a good scorecard, Mr Hai says.
"It means the management is putting in a lot of effort. Also you have to deliver. I personally spend a lot of time with investors."
Mr Hai flies to Singapore almost every year to meet fund managers, including Singapore sovereign wealth fund GIC Pte Ltd, which has a 1.73 per cent stake in the company. That stake is currently valued at around S$300 million.
Delta has changed quite a bit through the years, he says. "In the past it was always tech, tech, tech, what kind of tech do you have, you put it into a product, and then try to sell. Now, we start to get marketing information first. For example, this infectious disease detector, you need to go to vets, hospitals, talk to doctors, see what they want, be one step ahead.
Now it's more outside looking," he says.
Research and diversification
Delta benchmarks itself against larger companies like German conglomerate Siemens. Other competitors include Swiss conglomerate ABB, Japanese robotics firm Yaskawa and conglomerate Mitsubishi. It also competes against other manufacturers.
In order to stay ahead, Delta spends 6 per cent of its revenues on research and development (R&D), which is larger than some of its competitors, Mr Hai says. "Some country manufacturers, their margin is 3-4 per cent. So there's no way they can spend 5-6 per cent. Only in new products can you command higher margins.
If it's a mature product, competition is everywhere, so margins will be depressed," he says.
R&D expenditure is allocated both on a group level and on a product level, depending on market circumstances. For example, the market for notebook adapters is flattening or declining, Mr Hai says. As a result, some R&D expenses can be reallocated to power supply components for medical equipment.
The adapter business, which has been a cash cow, is a mature market and the only way to improve on the product is to "squeeze" processes, Mr Hai says.
"For example in the past, for one assembly line, we had 80 operators. Now we're using some automatic machines, and also improve the process, now some lines only have 40 people. We make things simpler so it is easier to do in assembly. Instead of 100 steps, we only use 50 steps, and less components as well," he said.
Delta's core business since its founding in 1971 is power electronics, which includes embedded components that regulate electric currents, mobile power supplies like adapters, fans and thermal management, and electronic components for information and communication technology equipment.
"Power is not a sexy industry but it's a must. For every device, you need to have power," Mr Hai says. Today, the segment comprises about 56 per cent of its revenue, down from 64 per cent in 2010.
A fast-growing area has been its smart green life segment, boosted by sales in networking equipment like switches and routers. The segment takes up about a fifth of Delta.
The remaining fifth of revenue is contributed by the business segment Mr Hai foresees growing the fastest: the energy management segment. This is mainly due to the acquisition of Eltek, the telco power equipment supplier. Each telco network can have hundreds to thousands of base stations, which form a network of antennas to transmit radio frequency waves.
"A lot of countries are still building up their 4G infrastructure," he says.
In energy management, Delta also makes components for industrial automation. These include servo motors used in manufacturing to control position and speed, temperature controllers and pressure sensors. Applications can be in packaging machines, lifts and food manufacturing.
Therein lies opportunity for diversification into higher value-added products. Gross margins for industrial automation products are close to 40 per cent, double the 20 per cent for power supply products, Mr Hai notes.
"It's a long life-cycle product. Reliability is very important, unlike IT products. Say your iPad, you're going to throw it away in three years or five. But for industrial automation products, it's going to last 15-20 years. so we charge a premium."
China is a major market for Delta. It sells half of its industrial automation products there. The bad news is how the domestic economy, particularly the real estate market where woodcutting and glasscutting machines are used, is slowing down. The good news, says Mr Hai, is how China's pollution is so severe that there is scope for products to increase factory efficiency.
Delta is seeing more orders from water treatment plants, he notes.
"For example, we have sold programmable logic controllers to the wastewater treatment plants. They need to have a process to clean wastewater. You need to have a motor to make the water flow. But the hard part is, this machine for water control is under the water," he says.
The company has a competitive advantage in selling industrial automation products in China because of the distribution network it has painstakingly built up over 20 years, he says.
"If our competition wants to get into this market, it's going to take them at least 10 years to set up a decent distribution network. There are no short cuts. You (need to) have distributors in each city and offices in China. We have branches in 50 Chinese cities to manage distributors."
Meanwhile, the depreciation of the Japanese yen has not causing Delta's Japanese competitors to lower their prices, he says. "Japanese companies were not making money for a long time, so it's time for them to make some money. Two, it is easy to lower the price but hard for you to raise prices again. So they're very cautious."
Future of manufacturing
One term bandied around in the manufacturing world is "smart manufacturing" or "industry 4.0" - how factories around the world will move towards information technology and Internet-enabled manufacturing, allowing them to save costs, have flexible processes, and make customisable products.
Mr Hai believes the revolution is coming sooner or later.
"Robots, for us, it's just one single robot arm. The idea is to have all these robot arms connected, with communication proctocols, so the machine knows exactly what is happening before that. If they need to make a certain adjustment, they will make their own on the spot," he says.
Mr Hai foresees that China's workers, who are getting more expensive, will continue to be replaced by machines.
Delta is already replacing workers there with machines made by its own automation department. "Traditionally at the end of a assembly line, you usually have four girls with a magnifying glass to see whether the PC board is OK. But after 30 minutes your eyes are getting blurred. There are thousands of components on a PC board.
"So now we're using an automatic optical machine. It's very fast. You go there, take a picture, compare with the picture with the perfect sample, if a component is not right, they will tell you immediately. And machines don't get tired," he says.
Displaced workers can move on to higher value-added roles. There will be a lot of low level engineers to make the adjustments required to robots, and operators will become more skilled, he says.
Mr Hai foresees himself getting replaced. He said: "I'm too old, I should retire soon. Now, the market, technologies are changing so fast. So we need to have younger people to replace me."
After retirement, he plans to read more and watch more documentaries. "My dream is to go to a film festival. I'd like to go to a documentary film festival and watch movies from morning till afternoon," he says.
He strongly recommends The Imitation Game, a recent movie about the cracking of Germany's Enigma code during the Second World War. "From this movie you can see how you are going to manage a genius. They're wired differently," he says.
"You need to give them a lot of space so they can do their own things, and try to be tolerant."
Yet integrity remains the most important quality in business, he says.
"There's no compromise. Even if you're a genius, even if you're very good in business, if people don't have integrity we cannot use them."
Chairman, Delta Electronics, 66
1949 - Born in Taiwan
1978 - MA in International Business Management, University of Texas at Dallas 1978 Begins career in Citi corporate banking. Will go on to key positions at JP Morgan, Lehman Brothers and GE Capital Taiwan, where he was country manager.
1999 - Joins Delta Electronics as vice-president, global strategic planning
2004 - Vice-chairman and CEO, Delta Electronics
2012 - Chairman, Delta Electronics
2010 - China Business Leader of the Year Award, CNBC Asia Pacific and the China Business Network; Asia Innovator of the Year, CNBC Asia Business Leaders Awards
2013 - Asia Talent Management Award, CNBC 12th Asia Business Leaders Awards; Best CEO award, Greater China, IR Magazine