Reflections on the last nosedive

Technitrol Inc., a Trevose manufacturer of components for electronics and other electrical equipment, has had a volatile ride.

The company, whose founders helped develop the world's first electronic computer at the University of Pennsylvania, soared and crashed with the tech bubble.

This year, the company's shares hit a low of $1.29 in February, as the bottom fell out of global demand for products made by Technitrol's customers, who include Sony Ericsson, Cisco, and Siemens.

Chief executive officer James M. Papada III has seen it all. We asked him to reflect on the most recent economic cycles Technitrol has endured.

Question: How do you think this downturn compares with the last one, which was extraordinarily rough for companies like Technitrol?

Answer: I don't think that the final chapter is written yet. We know with certainty by looking at the historical facts what happened ultimately with respect to the tech wreck in 2001. . . .

If you remember back in that period, the markets began to collapse in the fourth quarter of 2000 and continued to collapse until the end of 2001. The bottom of the market was pretty much reached at that point. So that took five quarters to get there. Then the markets stayed there for all of 2002, all of 2003, and a little bit of 2004. So once the bottom was reached in that particular cycle, we stayed at the bottom for roughly 8 to 10 quarters.

So if you use that as your historical guide and if you conclude that the bottom of the market is reached at about now or let's say the middle of the year, then you would say that it may very well be that nothing much happens for 8 to 10 quarters from there, which would put any meaningful recovery sometime out into 2011. . . .

Now, after you pick yourself up off the floor and say, gee, that's not so good, then you start to say, OK, so what's the same now or what's different now from what it was like back then?

This downturn was entered with significantly more rational inventory levels. . . . We didn't have these huge imbalances that we had last time where people might have a 10-year supply of inventory, so they don't need us forever. . . .

Q: What do you see as the differences in the economies in Europe, the United States, and China?

A: The Europeans were in a state of complete denial up until the middle of the first quarter. As we came through the fourth quarter 2008, we recognized that there were serious problems on the horizon. We began to take steps necessary to address those problems once they became really known. . . . Our American customers and our Chinese customers pretty much had the same recognition, with some exceptions.

The European customers were oblivious to the whole thing. They said there might be trouble on the horizon, but it's not our trouble. . . . Then, one day, our European customers woke up and said: "Wow, this is a serious problem for us, too." And just turned the switch off. . . . I can tell you that we have downsized in China by probably around 40 percent . . . over the last three months. . . . In the second quarter of last year, we couldn't find an employee. . . . We couldn't buy one. We couldn't bribe one. We just couldn't hire anybody. . . . By the end of the year, the unemployment in our area of China was skyrocketing.

And we had lines of people standing in front of our buildings looking for jobs.

Q: What about this country?

A: . . . Certainly for part of the fourth quarter and the first quarter, the situation was pretty dramatic in terms of demand. Although I will say this: If you look at now the statistics on sales in the first quarter, it is surprising how well certain consumer markets have held up.

Q: Like what?

A: Well, you look at things like netbook sales, which are taking the world by storm. GPS devices. Some of the smartphones that are being sold. You look at Nokia's projections for the rest of the year for cell phones.

Q: What do you think of the U.S. government's handling of the economy?

A: . . . I think that the government had to do something. You can argue about whether it was too much if you're a Republican, or too little if you're Paul Krugman [winner of '08 Nobel for economics]. But I don't think you can argue that the government should have done nothing other than sort of watch everything just self-destruct.

Age: 60.

Lives: Wynnewood.

Hometown: Hazleton, Pa.

Education: University of Scranton and Villanova University School of Law.

Family: Wife, Susan, a retired social worker, and three grown daughters.

Hobbies: Golf, squash, and fly-fishing.EndText