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Q&A: Belden CEO John Stroup

LAS VEGAS—John Stroup is president and CEO of Belden, a historic wire and cable company that now makes two-thirds of its revenues from networking and IP-based products and services. Belden broke out of its wire and cable mold with the 2007 acquisition of Ethernet switch maker Hirshmann, but the shift did not fully register in the television sector until its 2012 purchase of Miranda, and earlier this year, of Grass Valley. (SeeBelden’s Broadcast Evolution.”) Stroup spoke with TV Technology Executive Editor Deborah McAdams at the NAB Show in Las Vegas in April about the company’s transition from a cable manufacturer to a workflow component provider.

TV Techology:John, a couple of years ago you ran a cable company. What happened?
Stroup: Belden is of course synonymous with cable. It’s been around for 100 years.

About six years ago, we developed a point of view that we really wanted to expand our product set into the markets that we already serve, and the markets we serve are enterprise, industrial and broadcast. And in the broadcast area, we got real excited about the idea of getting more involved in active components and we made the acquisition of Miranda in July of 2012.

TV Technology:That radically changed the Belden brand, but cable is obviously still a very strong part of the business. What percentage of the business is that?

John: So I think now with the acquisition of Grass Valley, the percentage of revenue from cable products is about 35 percent, and when I joined the company in ’05, it was almost the entire company. We did make an acquisition in ’07 that’s not well known in the broadcast industry, but very well known in the industrial automation industry, called “Hirschmann,” and that was very significant for us, because it was the first meaningful acquisition we did outside of cable products.

TV Technology:There’s an IP transition going on. What dos that mean for the future of coax?
Stroup: It’s interesting, because we’ve been dealing with this trend for a long time. It happened in enterprise, already. A lot of people forget this, but there was a time when Belden was supplying proprietary cable to the enterprise market, for both telephonic applications and of course, Internet protocol. So that transition happened, we dealt with it quite well.

There’s actually been quite a transition happening in the industrial market already. So that company, Hirschmann, I told you about, that’s industrial Ethernet switches for industrial applications. Obviously, and that’s all IP-based.

And we think the same thing will likely happen in broadcast. It almost always happens slower than people expect. There’s lots of migration that has to happen; there are a lot of existing products. I think what’ll likely happen is there will be the same type of form factors, but they’ll need to be designed specifically for the application.

TV Technology:Because…
Stroup: So there are all these legacy systems in place. You have legacy connectors in place, you have preferences that people have in terms of how they use equipment, sometimes it’s environmental. So for example, in the industrial application, we’re using category cable, but it’s designed for rugged applications—fiber, copper-based technology. So our view is that there are always opportunities to make it easier for the engineer responsible for buying the products.

TV Technology:But that fragments your product offering to a degree. Does that make things a little tougher, with higher overhead, for you guys?
Stroup: Not really, I mean I think that… we really do pride ourselves at Belden at being good at managing complexity, so we actually like complexity.

We kind of view ourselves as a high-mix, low-volume company, we’ve always had a strong commitment to lean manufacturing, so almost everything we make is built to order. (Belden’s “Lean Enterprise” approach.)

We don’t build to forecast, we build to order. So to the extent that we have more SKUs, we have more complexity, we kind of view that as a competitive advantage for us and not something that really worries us.

TV Technology:Since the Miranda acquisition, Belden stock has doubled. Does that signal some optimism about broadcasting, about the media space?
Stroup: Yeah, I think there’s probably some of that. I mean I think first of all, we should recognize the market in general has done well in the last 18 months…
TV Technology:Not that well!
Stroup: We’ve done better, that’s good… we appreciate that, but there’s been a bit of a rising tide. I think probably for us is the acquisition of Miranda, followed by another acquisition of a company called “PPC” that was done in December of 2012. That, for us, was a bit of a tipping point. That’s when more than half of our revenue was coming from products other than cable.

I think that our investors began to appreciate and understand that our business model was changing, and therefore, the valuation of the company should be more like that of a connector company or an active components company. And I think that’s one of the reasons why our stock has done so well since then.

TV Technology: That diversification of products and services, basically…
Stroup: Yeah, and I think maybe just a larger percentage of our total business coming from higher margin products, more applied products, typically multiples are affected by margins and growth rates. And so, we’re in higher margin businesses, we’re in faster growing businesses, and I think it’s reflected in our share price.

TV Technology:As we discussed, for many decades, this was a cable-centric company, and now, there’s a very broad product line. What are the challenges there of managing all of that, of seeing the big picture?
Stroup: There are things we try and do in a central way and there many things we do in a very distributed way. So the things that are common amongst us, is we have a common business system, so we look at our financials the same way, we run our factories the same way, we have a common career development approach, we have common values, these are things that are common.

TV Technology:Operational things...
Stroup: Operational, cultural…and then we also have many things that are done at the platform level. So, a Grass Valley, which is a $500 million business for us today when you combine it with Miranda—most of the strategy’s done at that level.

There are some things that kind of ties us together. So, for example, any sort of innovation that may happen in Ethernet technology, we see that in multiple businesses and try and leverage that as best we can.

But the diversification is generally—or I should say, the diversity of technology and products—tends to be managed t the local level.

TV Technology:So you’re kind of hands off and the division chiefs report to you..
Stroup: I don’t know if they would tell you I’m hands-off. I have a bit of a reputation for being involved in the details. But yeah, it’s a common business system, a common business approach.

We’re very metric oriented. We want to be very customer-centric. And we feel like there’s a right way to run a business, and we ask all of our businesses to run their businesses that way, even though the strategies and the competitive environments may be different.

TV Technology:The U.S. market, especially broadcasters, are under a lot of pressure. Does Belden’s purchase of Miranda and Grass Valley seems to signal optimism about the sector?
Stroup: Almost everybody is really comfortable with the idea that consumption of video is increasing at a rapid rate. Now, how that gets monetized is a little bit complex. But if you take Belden and make it into its simplest sort of construct, we are a necessary element for delivering video, audio and data from one point to another. That’s what we do.

I think investors are convinced that consumers are going to want more of it. Whether it’s you and I with our iPhones, or whatever it is you carry around, we’re watching more video. If I watch my daughter, who’s 14 years old, she carries her computer around, watches TV [shows] on it all the time, she never wants to watch it on TV, she wants to watch it on the computer.

Those trends, I think, when we talk to investors, they’re all like, “absolutely, that’s the case.”

I think what’s hard for investors to figure out, is who are the winners and losers. So what’s going to happen to the long-term network companies? What’s going to happen to companies like Comcast, or DirecTV… there’s always some concern about who’s going to win and who’s going to lose.

I think what they feel comfortable with about us is that we sell to all those companies. So if Netflix ends up doing really well, which they have been, and they displace others, we’re fine, because they all need our equipment. In a simple way, we’re kind of the plumbing, to make this stuff work.

TV Technology:Why Grass Valley?
Grass Valley was for us, a very, very logical product extension and fortunately for us, it also came with an enormously powerful brand and scale.

But at the root of the decision we took, is they had products, and strength in products we didn’t have, that we felt we needed. And the fact that their brand was so well known was fabulous. The fact that we were able to take a business from $200 million to $500 million, which allows us to get economies of scale—also fabulous.

But the big initiative was around product extension. [The Miranda product line was heavier in routing, playout, multiviewers, monitors, graphics and branding, while Grass Valley focused more on production switchers, automation and editing, servers, cameras and camera systems.]

TV Technology
: So, the FCC question. There’s a lot of regulatory fluidity and uncertainty. How does that affect your business and your business decisions and your planning… or does it?

 Stroup: Not as directly as you might think. It impacts our customers significantly. To the extent that it’s affecting them, we need to understand it…

TV Technology
…and presumably their budgets, right?
Stroup:Yeah, so it can certainly impact their capital expenditure and that has a huge impact on us.
But I would say in general terms, there are as many situations where it creates an opportunity as it does create a threat, in terms of how they manage through things.

For us, the big thing that our customers are dealing with is, even though they’re under a lot of pressure to make more money, that often is a good thing, because our products are used to automate and to improve their productivity and their efficiency.

So the very fact that our customers are trying to become more profitable is a very wonderful stimulus for us, because our products are capital. They make investments in capital so they generate more revenue, become more productive.

Just walking around the booth the other day and I saw some of the advancement in camera robots, which is interesting to me, because on the industrial side of our business, we do a lot with robotics on the factory floor. Robotics have been on the factory floor for a long time.

And now you see more of it coming in broadcast, for the same reason—trying to become more efficient.

TV Technology:So are there a lot of synergies like that between industrial and the other divisions?
Stroup: I would say there are more between enterprise and broadcast than there are with industrial. There are some common technologies that are used in our industrial IT business and the Miranda-Grass Valley business, so there is collaboration there at the engineering level.
In terms of a customer level, collaboration amongst the platforms is not that often.

TV Technology:Do you think [in] the broadcast market, more clients are looking for a single vendor to cover the workflow.
Stroup: I don’t know if they express it that way. They certainly want things to be easier. So that you hear a lot. They also have to be mindful of the fact that if they go down a path of best-of-breed, they’re always vulnerable to one piece of the puzzle falling down.

That can be a financial issue, that can be a technology snafu. Customers seem to appreciate the fact that Belden is financially stable. They seem to appreciate the fact that our track record is one of long-term investment, and somebody with a lot of experience with customers, and certain they’re taken care of.

Belden’s been selling cable to CBS, NBC, ABC for a long time. So when we made these acquisitions and we went to visit them, the general reaction was, yeah, we know who you are. We trust you, and you understand our business, and that makes us feel good.

Now, as a CEO, you’ve got to make certain your employees don’t ever rest on their laurels, and don’t take that the wrong way. We’re only as good as our last project, and we’ve got to keep innovating and service them as best we can.

I do remember when the news came out about Miranda, because we all knew Miranda was in play, and we all went, “Belden?” It was very much a surprise.
Stroup: We had a strategic plan nobody knew about for many, many years before that. I’d been studying Miranda before then. I’d had conversations with the CEO of Miranda months and years before that.
So, yeah, we knew it was a surprise. It was very similar to the reaction of when we bought Hirschmann in the industrial space…

TV Technology… who are these guys?
Stroup: Yeah, and in 2007, it was even more of a surprise, because we were exclusively a cable company, and we went out and bought an Ethernet switch company, that had gross margins of 70 percent, compared to cable products, which have a gross margin of 30.

And, our biggest competitor was Cisco. So people thought, wow, that’s a big change for a cable company.

TV Technology:Belden has gone from being a St. Louis-based operation to one having locations across the continent. What are the challenges there?
Stroup: That, I’m pretty used to. Before joining Belden in 2005, I worked as a senior executive for a company called “Danaher,” and I was responsible for global business operations around the world.

And my background incudes engineering, and the products that I’m most familiar with are complex higher-margin products, so quite frankly, I personally had a hard time adjusting to a cable company than I did adjusting to the new company.

St. Louis is our headquarters, although it’s a small office. We have about 40 people. We’ve got some financial people, the legal team, human resources…

TV Technology:Where’s manufacturing?
Stroup: All over the world. United States, Canada, Mexico, China, Brazil, Germany, Czech Republic, United Kingdom, France, Netherlands. Our businesses decide and determine their own manufacturing strategy and where they want to build products. We tend to build product pretty close to consumption. There are a few exceptions to that.

TV Technology:
So none of the things going on in the broadcast business are really new to your operation in terms of adjusting to change rapidly.
Stroup: Yeah, it feels very much at home. In fact, we just had a meeting a little while ago with one of our bigger customers, one of our bigger Grass Valley customers, and I was sharing an experience with them about one of our industrial customers, which was a global automotive company in Germany, and they’re a big customer of ours.

I was saying to this particular broadcast customer, that you can imagine how the conversation would go if we’re the reason they stopped making cars. That’s a very uncomfortable conversation.

So we’re very familiar with the idea of mission critical, that stuff has to work all the time. Migration is really important. You can’t leave them stuck. You can’t have a dead end, and you can’t just come in one day and say, “look, we’re not going to support you any longer.”

So that’s all very familiar to us.

TV Technology: Most importantly, John, what is your handicap?
Stroup: I’m a 12, and I’m really confused about whether I want it to be better or worse. Because the ego side of me wants it to be 10, but the pragmatic side of me knows you’re always better off having a higher handicap, because then you get strokes.

TV Technology:
As a closer, is there any specific message you’d like to get across to the industry?
Stroup: The thing that I would like everybody to know is that we take a lot of care with the responsibility that we have, and at the end of the day, customers define our success. So our customer relationships are more important to us than anything.

And we realize that when you do transactions of this size, it can create distractions. And so, we want to minimize that, we want to make certain that we take the time to stay connected to our customers, to help them through things the best we can.

We have an integration strategy that we’re executing, but we want to be very transparent with people about what we’re trying to accomplish. Customers matter to us more than anything, so that’s where our focus is.