Operator: Our next question comes from Sheldon Grodsky with Grodsky Associates. Please go ahead.
Sheldon Grodsky: Okay. Well, you’re tempting me as I listen to all these questions and answers and you’ve mentioned that your bidding activity is going up at an extraordinary rate and your backlog is growing rapidly. How much do you think you could increase unit volume? I know units are all different in this business, but how much do you think you could increase unit volumes if you had the contracts in hand in — let’s say, in the next two years? Are we talking 50% or 100%? It sounds like you’re not — we’re not talking about 20%.
Craig Gates: Sheldon, I don’t want to be dismissive of your question, but in the reality that we face, I can’t answer it. Because we have pieces of business that are $8,000 per printed circuit board and we have other pieces of business that are $0.15 for a sensor. So, when I talk about — when you ask about unit volume, it’s just — it’s impossible for me to even answer. There is square footage that we have availability of. The equipment to replicate lines continues to get faster and faster for a given dollar of expenditure. And the availability of that equipment, which used to be almost unobtainium is now getting better. The big question for us and you as an investor is, do we see a big recession coming or do we see the improvement in commodity availability and unemployment and everything else kind of swamping over the efforts of the Fed to drive inflation down, that’s more to the question of what’s going to happen to our growth, then is our ability to add three or four SMT lines in $1 million a piece.
Sheldon Grodsky: What do you think the — aside from the macro economical, you’ve just been dealing with a few years of craziness between COVID and supply chain difficulties. What do you think would be the major constraint? Again, aside from the general macro economy, what would be the biggest constraint on your growth? Would it be in the design side? Would it be on the manufacturing side? Or just on the marketing side?
Craig Gates: I think the major constraint at this point would be continuing to absorb programs while providing the level of service that a new customer expects and demands. I don’t think you guys had — it’s not to say that you’re foolish or dumb or anything, because I’m not saying that, but I don’t think you have an appreciation — I don’t think you have an appreciation for what has to happen to move a program from a competitor to our factory or to start up a new design and move it into our factory, it’s incredibly complex. I think — I don’t know if I shared with you guys that we buy over 2 billion components in a nine-month period. So, every one of those components has to get into our system, has to get purchased at a timely period, has to be purchased at the right price, has to be delivered through whatever delays are happening, and has to get through our incoming inspection, and has to be used in a way that has been documented and laid out by our engineers.
So that process is incredibly taxing and time consuming. So, it’s a soft constraint rather than a, do we have enough square feet? Do we have enough mold machines? Do we have enough placement machines? Do we have enough stampers? And each piece of business can be dramatically different. You can have a customer who doesn’t even have his bill of material anymore, because he’s been in China so long that he’s just been counting on his China suppliers to do it for him, doesn’t have any engineers anymore. So, there’s really nobody we can even talk to about what’s important and what’s not important about the design. Doesn’t have a pipeline of components ordered. So, depending on lead times, it could take nine months to a year to get components here, and who has got a bad relationship with the supplier he’s leaving.
And so, the ability for us to step into that pipeline and just assume POs is very minimal. So, I guess that’s a very long-winded answer, but it’s why I can’t just give you a simple percentage.
Sheldon Grodsky: Okay. I won’t hold it against you.
Craig Gates: I’m trying my best.
Brett Larsen: Thank you.
Operator: Our next question comes from Bill Dezellem with Tieton Capital. Please go ahead.
Bill Dezellem: Thank you. I thought I was done. But Craig, I’m going to take the bait. You referenced the economic environment. What insights or indicators do you have of weakening economic environment versus not?
Craig Gates: I read all the stuff I can get my hands on as far as what people are predicting and then I try to compare that to what we’re seeing from our customers. We have yet to see any indication whatsoever of a broad-based slowdown or push out of orders. We have seen people who cut their forecast coming back with, “Oh God, we need upside now.” That has been more prevalent than people cutting their forecast and leaving it cut. We do see a better availability, as I said previously, on SMT equipment, which is said to be a leading indicator. We do see a better availability of componentry, but better is a relative term, it still sucks. We still see inflation in component costs. We see people coming in just today a component that goes on one of our highest volume products, that integrated circuit manufacturer came in with the about a 4% increase, and it’s not a less negotiated about it.
It’s a take it or leave it. We got other people that want to buy it. So, as of right now, I don’t see a broad-based slowdown coming. But that seems to be in conflict with everything I read and hear from people that are talking about it. So, right now, we’ve become as a result of everything we learned during COVID, we’ve become very hardcore on forcing our customers to pony up for any upsides or on the (ph) we make. Because we’re being extra cautious due to the fact that the world thinks a recession is coming. So, I don’t know, you’re the more economist than I am, but that’s what we see from our order book and from our purchase book.
