Down for a while, but Despatch again shines bright

  • Article by: NEAL ST. ANTHONY , Star Tribune
  • Updated: April 14, 2008 - 10:42 AM

The Minnesota manufacturer went from product-focused to market-focused, emphasizing clean-tech and its overseas sales.

Patrick Peyton, CEO of Despatch Industries, was on the phone from Shanghai this week, describing the transformation of his century-old company that started out making heaters for streetcars and commercial kitchen ovens.

Five years ago, Despatch was battling the technology bust as revenue slid from a peak of $75 million in 2000. The company was selling fewer high-test curing ovens for the pharmaceutical and semiconductor industries. Despatch had sold its flagship northeast Minneapolis operations center, shuttered a California plant, frozen pay and consolidated into its newer, larger Lakeville facility.

"We hit the downturn of 2001-03 like every other capital equipment manufacturer," Peyton said. "But we invested in time with our customers. ... We found out what they wanted, and we helped them design a technology road map for when they were ready to invest.

"And that led us from being a product-focused to a market-focused company in the 'clean-tech' and the solar business. And this business is fantastic."

Exports have gone from 10 percent to about 75 percent of revenue, primarily to China, where solar heating modules are assembled, and to Germany, another big player in the solar power business. Sales have grown 26 percent annually since 2004.

Despatch has increased employment by a third, to more than 300 people, and this year will sell more than $100 million worth of thermal-processing products to the solar energy industry, primarily photovoltaic cell manufacturers and the carbon-fiber industry, which makes ultra-strong and lightweight next-generation aircraft and vehicle components.

The company also will continue to serve the semiconductor and medical industries.

"We produce a [solar cell] firing furnace and we have the No. 1 worldwide share, a key process step in the manufacture of solar cells," Peyton said. "We have sold 80 firing furnaces in Europe and 135 in China [since 2005]."

Customers include Q Cells and Conergy, both of Germany, and China-based Trina and Jingao.

"These are the top solar cell manufacturers who make the most efficient cells," Peyton said. "Ninety-five percent of all the solar cells produced in China are being exported. They haven't even begun using alternative energy in China. When the Chinese government starts getting behind solar, and it will for pollution and efficiency reasons ... well, the growth of the solar market over the next three years will make the last three seem anemic."

Similarly, new and refurbished aircraft plants around the globe are making next-generation airliners out of carbon-fiber composites, which are stronger and lighter than aluminum skins, making them much more fuel-efficient.

"We're doing business with eight of the top 10 carbon-fiber manufacturers in the world, installing equipment in Spain, Taiwan, Japan and North America," Peyton said. "We're in the perfect storm of solar and carbon-fiber business that's going nuts."

Lighter airplanes means less fuel and fewer emissions.

The base cost of a Despatch solar cell cooker ranges from $250,000 to $1.2 million. A carbon-fiber oxidation oven runs $8 million to $10 million.

This week, Despatch hired a veteran industrialist and director of trade development at the Minnesota Trade Office as director of global sales operations. Matthew Abbott, who held sales management positions in the medical-technology industry before joining state government in 2001, came to know Despatch as it expanded internationally and participated in a state-sponsored trade mission to China in 2005.

These are tough times in the Minnesota economy, particularly in financial services, real estate and retail. It's good to see a fast-growing manufacturer prosper through global markets, in green technology.

And exports of manufactured goods are a bright spot in an otherwise bleak Minnesota economy lately.

Minnesota's manufactured exports reached a record $4.3 billion in the fourth quarter of 2007 -- 14.5 percent ahead of the same period a year earlier, according to the most recent data from the state Department of Employment and Economic Development (DEED). The state outpaced the U.S. export market, which expanded 12.1 percent in the quarter. Germany and China are two of Minnesota's top five export destinations. The five-year devaluation of the dollar has lessened America's buying power but has made U.S. products more attractive to foreign buyers. That's been good for Despatch. Peyton says he's content to manufacture everything in high-cost Minnesota.

"We may have to put a test facility outside the country, but I will not move manufacturing out of Lakeville and Minnesota," Peyton said. "And we have about a dozen contract-manufacturing partners in Minnesota who have added dozens of jobs for us. I can't match the work ethic and the quality in our factory or that of our Minnesota partners. We're fortunate. It's the best in the world.

"My role is to ensure that the employees can innovate and not be punished for mistakes. I mean we are constantly bending the laws of physics. You need people to keep trying. ... Outside the U.S., you don't see the innovative gene."

Peyton might get some arguments there. But he's put his money where his mouth is.

In November, the veteran CEO and insurance broker Jim Hays and several other minority partners paid an unspecified sum to buy Despatch from the Christianson family that hired Peyton and had owned the company since 1971.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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