F&P grows its own technology

By Yoke Har Lee

Sir Woolf Fisher, co-founder of Fisher & Paykel Industries (F&P), had pies baked daily on the premises of the company because he couldn't buy a decent pie in the 1960s.

This philosophy still permeates very much in F&P - it makes its own machinery for production because it knows how best to do so.

F&P writes its own software for the electronics that forms the "brain" of a wide range of its whiteware.

Its plastic injection moulding machinery, made outside, is the largest in New Zealand. But because changing the die for the injection mould was such a big operation, F&P made its own die, reducing the change-over time to 18 minutes from eight hours.

F&P also makes it own production line for manufacturing the variable speed motor for its washing machines.

In a nutshell, F&P functions very much like a one-stop shop for a whole range of expertise - all done inhouse. This strategy has served the company well. Every bit of know-how is precious for competitive reasons.

According to case study done on F&P by Victoria University's Dr Sally Davenport, F&P has spent more than $2 million over the past 10 years on intellectual property protection. "F&P owns at least 20 base patents for its leading-edge technology and more than 200 individual patents around the world," Dr Davenport said.

Its latest washing machine, the Intuitive, for instance, has 23 patents to its name and nine pending. Most F&P products have such patents built around its technology to protect itself.

Intuitive is the latest range of F&P's Smart Drive range of washing machines, replacing Gentle Annie.

Gentle Annie was already ahead of its time when it was launched, working on a motor first developed by General Electric. The day the machine was launched, F&P was already onto its next generation of washers, resulting in the Smart Drive technology after five years of research and development.

It is a fair assumption that F&P is already on to its new generation washing machines, which could include built-in automatic detergent and fabric softening dispensers, or other facilities modern households dream about.

The "electronic brain" of F&P's washing machines is bound to get bigger as it becomes more intelligent. When the first electronics gadgetry was used in the washing machines, it took only 2000 bytes of memory. Intuitive's "brain" has 42,000 bytes.

The whiteware part of F&P's business is the biggest revenue churner. But earnings from whiteware trading was only 4.35 per cent as a percentage of revenue compared to healthcare's earnings, at 34 per cent.

Keeping whiteware profits healthy will remain F&P's biggest challenge. Hence, the latest Quantum project, aimed at capturing high-end appliance shoppers.

But F&P has not been able to make quantum leaps into the international markets it is serving.

The first of F&P's Quantum product is its much-celebrated DishDrawer which took 10 years and $34 million. F&P has spent nearly two years trying to sell the DishDrawer into the US market.

Chief executive of F&P Gary Paykel admitted that it has taken the company longer than anticipated to gain a toehold in the US market, an annual market for over 10 million units of washing machines and dishwashers.

"It has been slower than we thought originally - because of the price. The DishDrawer is priced at $US1,699. The typical dishwasher sells for $US499. We are asking a lot but the feedback we are getting from the dealers is, don't change that price. They are starting to sell at that price."

This year, in its annual results, F&P actually put a forecast on how many DishDrawer it expects to sell in the US, reflecting confidence in its US foray.

It expects to sell 20,000 DishDrawers and 12,000 Smart Drives for the year as monthly sales increase.

The F&P name is also getting a bit more recognition now. "A year ago, we had so much difficulty in even getting the dealers to know who we were. Fisher and who - they would ask. But as far as stocking products are concerned, we are getting calls all the time now from people wanting to stock the F&P line of products. That's a very big change from a year ago."

For the Quantum trick to work, F&P would have to succeed in competing with the range of European imports for cookware, ovens and other appliances.

The top-of-the-line cooktop cum oven is to retail at between $6000 and $7000, depending on specifications.

Mr Paykel said: "Quantum is also about competing headon with the European imports; like it or not, customers have a perception the Europeans products are prestigious - like BMWs, for instance. We need to go out and take that head-on."

Whether F&P decides to take on the Europeans at their home turf remains to be seen. Mr Paykel thinks that within a year or so, the DishDrawer might make it to Europe. The Europeans, however, require a water softener in their dishwashing machines, he said.

Despite its recent emphasis on higher-priced products, F&P still wants to be all things to everyone.

"In whiteware, we will compete in every segment. We need to compete in every segment to keep the volumes up," Mr Paykel said.

He disagreed with some analysts view that it has not been good at getting products to market.

"Some of our local dealers are getting two stock turns per week. That is about 60-70 stock turns per year. If anybody can beat that, I would like to know how. We have the odd hiccups, sure - with refrigeration we screwed up badly but that happens from time to time, though rarely."

Instead of merely putting on a new door style which would have required some basic changes to the front cabinet of the fridge, F&P had to reengineer the whole front cabinet of the fridge, an exercise technical director Julian Williams described recently as one of those problems in engineering that turned out to be far more difficult to solve than thought.

The cost of this mistake was disclosed recently by F&P -- $8 million in lost pre-tax profit opportunity.

Despite its internationalisation, F&P has no ambitions to be an international household name, Mr Paykel said. "We can't be. But we will target our markets carefully when we choose to go."

Dr Davenport said F&P's move to go international has been successful. "They have always ensured that their products were tailor-made for the market. They have also spent time building their distribution [in the US], after the experience with GE which didn't work out," Dr Davenport said.

Growth is to be found in Australia, Mr Paykel said, adding that parts of Asia would also be interesting.

But he maintains that there is no such thing as a homogeneous Asian market. "There is a very good market in Hong Kong but different to the market in Singapore and different to the market in Thailand or Taiwan."

China is out of the radar screen for the time being. "It is too big. We have had a lot of offers for joint ventures. We stayed clear of them because we don't know the market. We don't understand them. We have seen what happened to other whiteware companies that have gone to China and it has been a disaster for them."