Telect Inc., once the Spokane areas technology darlingwith skyrocketing revenue and rapid employee growthhas put its nearly 200,000-square-foot headquarters and manufacturing plant here up for lease, saying it no longer needs such a large facility.


The 22-year-old maker of telecommunications equipment has seen its revenues grow 7 percent so far this year, its first sustained growth since the tech industry crashed in 2001, leaving it a fraction of its former size. It also this week announced that it had agreed to acquire a California company that will add as many as 100 employees and 25 percent more revenue. But as Telect claws its way back, the bulk of its manufacturing operations now will be in Mexico, Poland, and now Texas, not here, says company President and CEO Wayne Williams.


Weve changed our model so much, says Williams. Its given us clarity on what our needs are.


Telects sprawling Liberty Lake complex, located at the southwest corner of Appleway Avenue and Molter Road, is owned by a separate company controlled by Williams parents, Telect co-founders Bill and Judi Williams. It was built in stages beginning in 1989, each expansion spurred by soaring production growth at the company. The brick-faade building now is being marketed for lease by Baldwin Corporate Real Estate, of Coeur dAlene, at an asking price of $12 per square foot.


The building, Williams says, is worth well north of $20 million, and eventually could be sold if the right opportunity came along.


Williams says the decision to market the building for lease doesnt mean Telect plans to leave the Spokane area. Rather, he says, the company could end up subleasing a portion of the facility from another occupant, or might build a much smaller facility elsewhere in the area. Though most of the privately held companys manufacturing now is being done outside the country, Spokane is home, he says.


Currently, Telect is using just 45 percent of the building, which includes both office and manufacturing space. The company houses its administration, research and development, and some of its sales staff there, as well as limited manufacturingmostly final assembly and testing of gear that contract manufacturers here make for Telect, Williams says.


Over the past two years, Telect has shifted much of its manufacturing operations to its plants in Guadalajara, Mexico, and Wroclaw, Poland, but even those two operations have shrunk some as a result of the telecommunications industry bust.


At the peak of the telecom boom, Telect employed more than 2,300 people, about half of whom were based at Liberty Lake. Its annual revenues shot up as high as $265 million in 2000, more than double what they were two years earlier.


During that time of phenomenal growth, the real estate company that Bill and Judi Williams own, Jubilation Inc., bought the 80,000-square-foot former Accra-Fab Inc. building just to the south for future Telect growth. It also built a 52,000-square-foot building nearby in 2000, which the telecom equipment maker occupied for some time. Those two buildings now are occupied by other users, and eventually also could be sold by Jubilation, Williams says.


Today, Telect employs 624 people worldwide, including just 180 in Liberty Lake. Its revenues last year were about $62 million.


Labor costs are the main reason Telect likely wont grow its manufacturing operations here much as the telecom market recovers, Williams says.


If a company is manufacturing here with (at least) 10 percent of its costs in labor, its impossible to make money unless you are in a specialized business, he says. Even if the company is in a specialized market, it will make money only until operations in foreign markets learn how to do the same thing, he adds.


One of the pressures that companies like Telect face in deciding where to manufacture is significant price competition on its products, as fewerand more cautiousbuyers demand more from vendors. Weve seen a 25 to 35 percent price erosion since 2000, he says.


Still, Williams says, it would be wrong to assume that Telects huge drop in local employees was all about outsourcing jobs to other countries. Of the about 800 manufacturing jobs lost at Liberty Lake, only about 150 were directly related to moving production outside the U.S., he says. The rest were simply due to a precipitous drop in demand for Telects products as the telecom market crashed.


In fact, even as Telect shifted manufacturing from Liberty Lake, its employee numbers in Mexico and Poland also have fallen. The companys plant in Poland employed 270 when Telect bought the operation in 2000. Today it employs 85, although much of that drop was due to putting Western manufacturing efficiencies in place in a plant that formerly operated in a Communist-block culture, Williams says. Telect sold off one of the buildings at that complex earlier this year.


In Mexico, Telect currently employs 335 people, down from 900 at its peak.


The company also closed its manufacturing facility in Sao Paulo, Brazil.


Earlier this week, however, Telect announced that it had agreed to acquire the assets of privately held Hendry Telephone Products, a Santa Barbara, Calif.-based maker of telecom-network gear, for an undisclosed price. Telect said it will keep Hendrys plant in Plano, Texas, but will close its operation in Santa Barbara.


Williams says its unclear how many of Hendrys roughly 150 employees will end up at Telect. The California company, which also has suffered in the telecom slump, already had notified its employees in Santa Barbara that it would close that facility. Williams guesses that Telect will end up with between 75 and 100 Hendry employees, mostly in Plano, though maybe five to 10 positions will move to Liberty Lake.


Sales growth


Despite the realization that Telect wont be an employment juggernaut here in the future, the companys revenues are growing again and it even hired a couple of engineers recently, Williams says.


Weve had a good run this year, he says. Sales are up 7 percent through August.


Demand for Telects products, mostly connectivity and power-management equipment used by telecommunications companies, is growing again, but mostly in Latin America and Europe, rather than domestically. Infrastructure needs for wireless and high-speed Internet DSL lines especially are surging in Latin America, Williams says.


He says domestic sales during the past couple of months were softer than expected, but that softness was more than made up for by international sales growth. That trend, he says, is typical of what other manufacturers are seeing as well.


There remains a hesitancy among U.S. buyers, Williams says. Were hesitant, too.


He says the U.S. market might be waiting to invest in new equipment until it sees the results of such changes as the merger between Cingular and AT&T Wireless, and more consolidations could come.


He says the market for the U.S. land-line infrastructure is predicted to be up next year, while demand from the wireless industry is expected to be flat or down. All that could change quickly, however, if one company gets aggressive, he says.


For that reason, Williams declines to predict what Telects sales might be in the coming year, other than to say, Ill be happy with flat to up (not counting the Hendry acquisition). Theres a joke around here that flat is good.


Such dark humor follows three years of declining revenues at Telect, as well as most of the rest of the industry in which it competes. Everybody has seen a 60 to 70 percent decline in sales since 2000, he says.


Still, there is some optimism in the air at Telect. Williams says the company has had more profitable months this year than nonprofitable ones, and it has remained cash-flow positive throughout the downturn.


Telect had predicted that sales this year would grow 5 percent to 7 percent, and it looks now like theyll end up growing between 7 percent and 10 percent, he says.


Also, though these days its never for sure that expected revenues will be realized, since struggling customers often are quick to cancel orders, Weve got some projects that are pretty sizable going into next year, says Williams.


Productivity is up, but were working harder to get a buck of revenue, he says.


Since last spring, Williams, has taken on the additional role of heading Telects sales and marketing department, following the resignation of Tim Szymanowski, who held that job through much of the companys big growth phase in the late 1990s.