2005 - Molex

the technology industry to help drive innovation and promote industry standards that will yield innovative
and improved products for customers.
Molex incurred total research and development costs of $134 million in fiscal 2005, $119 million in
fiscal 2004 and $117 million in fiscal 2003. The Company believes this investment, typically at 5% or more
of net revenue, is among the highest level relative to the largest participants in the industry and helps it
achieve a competitive advantage.
Molex strives to provide customers with the most advanced interconnection products through
intellectual property development and participation in industry standards committees. Molex engineers are
active in approximately 45 such committees, helping give the Company a voice in shaping the technologies of
the future. In fiscal 2005, Molex commercialized approximately 384 new products and received 775 product
patents.
Molex performs a majority of its design and development of connector products in the U.S. and
Japan, but has additional product development capabilities in various locations, including China, Germany,
India, Ireland, Korea, Malaysia and Singapore.
Manufacturing
Molex’s core manufacturing expertise includes molding, stamping, plating and assembly operations.
The Company utilizes state of the art plastic injection molding machines and metal stamping and forming
presses. Molex has created new processes to meet the ongoing challenge of manufacturing smaller and
smaller connectors. The Company has also developed proprietary plated plastic technology, which provides
excellent shielding performance while eliminating secondary manufacturing processes in applications such as
mobile phone antennas.
The Company also has expertise in printed circuit card and harness assembly for its integrated
products operations, which build devices that leverage Molex connector content. Because integrated products
require labor-intensive assembly, each Molex region operates at least one low-cost manufacturing center,
whether in China, India, Malaysia, Mexico, Poland, Slovakia or Thailand.
Molex continually looks for ways to reduce its manufacturing costs as it increases capacity, resulting
in a trend of fewer but larger factories. The Company achieved economies of scale and higher capacity
utilization while continuing to assure on time delivery. Molex has consolidated certain plants and expanded
others, with the result that the average Molex factory is 25% larger and generally manufactures a wider range
of products than five years ago.
Raw Materials
The principal raw materials that Molex purchases for the manufacture of its products include plastic
resins for molding, metal alloys (primarily copper based) for stamping and gold and palladium salts for use in
the plating process. The Company also purchases molded and stamped components and connector
assemblies. Most materials and components used in the Company’s products are available from several
sources. To achieve economies of scale, Molex concentrates purchases from a limited number of suppliers,
and therefore in the short term may be dependent upon certain suppliers to meet performance and quality
specifications and delivery schedules. Molex anticipates that its raw material expenditures as a percentage of
sales may increase due to growth in Molex’s integrated products business and increases in certain commodity
costs.
Backlog and Seasonality
The backlog of unfilled orders at June 30, 2005 was approximately $259.5 million, a 22% decline
compared with backlog of $332.6 million at June 30, 2004. The decrease in backlog was partially attributable
to an increase in distribution orders in June 2004 of approximately $36 million in advance of a price increase.
In addition, during fiscal 2005 the Company provided additional vendor-managed inventory progress to
customers. Under this method, the new order and shipment occur simultaneously and without impacting
8