Chinese Speaker Maker Edifier Purchases Famous Electrostatic Headphone Maker Stax

Tyll Hertsens's picture

Stax, a company of about a dozen employees, which is easily the best known, most respected, and virtually only maker of electrostatic headphones, was purchased by Chinese speaker maker, Edifier, which is a roughly $700 million company.

From TMCnet.com here:

SHENZHEN, Dec 09, 2011 (SinoCast Daily Business Beat via COMTEX) -- Edifier Technology Co., Ltd. (SZSE: 002351) on December 9 announced the acquisition of a 100% equity in Japan-based STAX in cash.

The transaction value is JPY 120 million, i.e. CNY 9.7693 million, at the exchange rate of JPY 100 for CNY 8.1411 on December 6.

In U.S. dollars thats $1,546,989.82. Ugh ... Stax didn't get much for it. Both companies have produced press releases on the purchase, and the headphone enthusiast community is abuzz. I decided to spend a couple of days reading (Google translate is a miracle ... and a menace) the press releases, press coverage, and enthusiast forums ... made a few phone calls, too. Here's the story as best I can figure it.

The Deal
The Google translation of their official Notice of Aquisition of Assets covers many details of the deal. Eight board members voted unanimously on Dec 7, 2011 to effect the purchase with cash on hand. It says the purchase price was 1.2B Yen. This is incorrect, one forum poster said Google translate was misreading the original document. The cited conversion in the document to 9.7693 million yuan is correct, however.

The report says an outside company did the valuation of Stax based on a due diligence report by another firm using the Discount Cash Flow method of corporate valuation. This method delivered a valuation of between 85 and 126 million Yen. The report states the Stax deal goes through at the high end with 120 million Yen because of their "technical advantages."

The stock will be purchased from Mr. Yang made Meguro, who currently holds 100% of Stax stock. The actual transfer of funds will occur on March 31, 2012.

Stax abbreviated balance sheets for the last four years were included in the Notice of Acquisition of Assets document. I've reconstructed it using US dollars, and added some rows to calculate some financial ratios:

121214_news_edifierbuysstax_photo_financials

I'm no financial analyst, but the company looks small but viable to me. I found the 2008 ratios (bottom four rows) to be quite close to industry averages. The poor results in 2010 are stated to have been the result of significant and expensive product development effort ... the SR-009, no doubt. 2011 results are much better --- the SR-009 introduction was a little rough, but, in the end, the product was very well received, and many were sold. I can say from first hand experience that the SR-009 is a spectacular headphone and it's nice to see it did well for Stax.

You can see, however, that developing the SR-009 did put Stax at significant risk. Technical product development is very expensive, and betting the company every time you develop a product can lead to lots of sleepless nights. I think this is why Stax's selling price was so low: the way forward with expensive product development and a boutique manufacturer's small income stream meant new products would be few and far between, and return on investment slim.

Risks, Benefits, and Intentions
The notice goes on to highlight Edifier's intentions, and some of the advantages and risks to Edifier with the purchase.

Edifier states the main purpose of the investment is to obtain a superior position in the headphone market. Edifier does have a fairly large line of headphone products, but they do appear to occupy the lower end of the price spectrum. This move certainly has the potential to give them a much higher profile in the headphone market.

The notice states that Edifier will use its manufacturing capacity to reduce manufacturing costs and to bring product to market at more broadly acceptable prices. This statement is contradicted in a subsequent press release from Edifier in the fifth paragraph here, where it is stated that the operational team at Stax and the manufacture of classic Stax product will be 100% retained in Japan. Edifier states it will bolster Stax product development with additional R&D and industrial design assistance from China.

Edifier also claims in the notice that the acquisition will allow it to develop Edifier-branded portable electrostatic headphones at lower price points than Stax currently inhabits.

The translation under the heading of "Technical Risk" is difficult to interpret, but it appears to say that electrostatic headphones may be vulnerable to competition from other types of headphone driver technology, which might be able to deliver the same quality listening experience at a lower price that the electrostatic technology might not be able to meet. And if so, Stax might be eliminated. (I'd love for some native speakers to have a go at translating that particular paragraph and post your translation in the comments below.)

Under the title "Market Risk," it states that though the company clearly shows technical leadership in the high-end electrostatic headphone market, the high price of current Stax product is keeping its product out of mass market channels.

The "Risk Management" section states that this is the first time Edifier has bought a Japanese company and that the best stance might be to let Stax manage its own risks, and stand the "test of time."

There was, of course, an almost instantaneous and very vocal reaction from the enthusiast community. Let's take a look at some of the comments.

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Comments
dalethorn's picture
Stax and electrostatics

My thought is that there is tremendous market pressure toward making even high end headphones viable for portable use. Whether it means making small portable amps that can drive power-hungry headphones, or somehow making the higher end headphones less power hungry, the pressure is there.

I don't doubt that the absolute numbers are still there for desktop-only electrostatics and high end dynamics, but the numbers are going down as a percentage of the market, and the bean counters are very anal about that sort of thing. Not that they want to eliminate the niche product, or close the gap by reducing the quality and performance of the top end item. I think it's probably they're afraid of that huge gap between the $2k 'phones and that $8k or more 'phone and they want to fill in that gap some if they can, to lessen their risk if nothing else.

So exactly what Edifier will be able to accomplish I can't guess, but if they can make the high end electrostatic more relevant in the big picture, that will be a good thing. Relevant could mean a lot of things, but for me as an enthusiast who's willing to shell out even a few thousand dollars if the return is good enough, it boils down to "Can I ignore it and feel like I'm getting 99 percent of the best sound, or do I need to make the sacrifice and buy it because otherwise I'm a second-class headphone citizen?" (OK, so I may never be first class anyway, but you know, it's that nagging sensation that becomes more bothersome the more relevant those top end products become. So looking on the bright side, it'll be cheaper if they don't become relevant.)

khaos's picture
Love letter?

I didn't really bother to read the entire "love letter" in Chinese but the a more accurate translation of the title would be "Stax-loving friends", it's a lot more logical and less ridiculous than the bad Google translation.

Tyll Hertsens's picture
ThaNks so much for that. I
ThaNks so much for that. I really wasn't sure what the heck was going on there.
Number 9's picture
Love, brains and money...

Continue manufacturing in high-cost Japan? Are you kidding me?

Edifier should:

1) Keep engineering in Japan but move manufacturing to China.

2) Get rid of those pitiful distributors they have today. Form strategic partnerships with strong regional companies who have skin in the game (the headphone marketplace). Embrace them, because the old middle-man distribution model is killing the audio industry (case in point: Yama's)

3) Develop a global pricing model that ices the gray market. Make pricing more competitive through lower manufacturing and distribution costs.

Edifier then stands a chance of increasing not only revenues but margins over the long term with this acquisition. Maintain the status quo - its going to be more of the same (a long slow death) for Stax.

Chinese ownership is irrelevant IMO. Its a global business and Stax was being run as if this was still 1980.

attilahun37's picture
Thanks

Extremely helpful, thorough and thoughtful.
Thanks, Tyll.
I'm an investment banker and the purchase price really is shockingly low.
I'll bet the Stax mafia could have raised more money to cut a deal.
But, the sellers probably wanted to find a value added partner.
Personally, I wouldn't have sold 100% but rather entered into a joint venture to be able to participate in some of the coming upside.
Can't wait to watch this one unfold.

deckeda's picture
Thank you

... For letting me know in the hed that Edifier was famous for making speakers. Not that I have a pulse on the market, but who again are they? Are they an OEM, or do they manufacture for others, or design as well but don't sell under their nam in North America?

None of that actually matters to me, although seeing the name of a famous Japanese (did I at least get that part right? It's been many years since I was into this, sorry ...) headphone maker go to the Chinese does give me pause.

Thanks again for reporting this, Tyll --- company ownership and design pedigree/history are two of the most frequently left-out topics concerning consumer electronics, and IMO important ones.

sgrossklass's picture
On Edifier...

Their reputation stems from making active PC / multimedia speaker systems of the better kind and selling them under their own name (not sure about OEMing). That seems to have earned them good money. (If overseas companies can have stuff manufactured in China, native ones also can...)

I guess buying a company like Stax at a bargain price was too tempting to pass it up.

Currawong's picture
Number 9

People buy Stax *because* they are made in Japan -- because they are Stax and not some "global brand" with offices in one place and manufacturing in Asia. Move that to China and people will desert them.

Japanese people, in general, don't like the Chinese. The Chinese don't like the Japanese either. It's a hangover from the past. Regardless, Japanese people feel the same about manufacturing in China as many of us do.

Ideally the result will be that this will give Stax a buffer with which to develop new products without the "sleepless nights".

The 009s though - they don't wow you on first listen, they just simply, without drama, make every other kind of headphone on the planet seem incompetent IMO. The quality of their build is that far above everything else as well. Even the packaging is absolutely perfect, down to the plastic bag around the box, which is folded and taped *perfectly*.

A few companies in Japan, such as Stax, still hold the attitude that, even if, by our standards, they have reached perfection, there is still further to go. I think that, other than a few small manufacturers, only Apple have ever come close in maintaining such an attitude and producing a global company. I don't believe anyone else could pull it off, because it requires such an un-compromising dedication and focus that most people will give into diversions from it sooner or later.

Number 9's picture
To Currawong

People love Apple products even though they are designed in California and manufactured in China. No one seems to care that their iPhone or iPad was mostly made in China. Why should headphones be different?

Outstanding design, great support, competitive pricing, top-notch-engineering ... these types of things have no national boundaries.

What the Chinese lack is primarily marketing skill to build strong brands in Western markets. They bought a strong brand in Stax. All I am suggesting is they drop the backwards thinking which led to their bleak financial situation. They need to become more price competitive and lower manufacturing costs and develop a stronger distribution network. The market for $5K headphones is really small.

I've driven Saab's most my life and you probably heard this week about Saab's bankruptcy. An interesting commentary by one analyst: Great brand, bad business model. I stll love my Saab, but I would say the same of Stax if it continues to manufacture in Japan and attempts to sell over-priced gear through a shitty dealer network. Not sustainable.

MarcoGV's picture
Stax, Saab, electrets

I am driving a Saab also---I share Number 9's predicament there.

I have recently retired my 1979 Stax SR-44. This was an electret model, which I was given new as a gift in 1979. It does not work correctly any more; I suspect a problem with the electret losing its charge after 30-odd years. In my opinion, that headphone was superior to the Audio Technica ATH-700AD, the Fostex T50RP, and the Grado SR-60, all of which I own, particularly in the midrange (human voice and chamber music). Stax did not always sell only very expensive, top-of-the line electrostatics. Maybe Stax could sell again headphones of that quality to compete against the lower-cost audiophile headphones.

dalethorn's picture
Bias?

Now Currawong wouldn't be just a wee bit biased toward Japan or Stax, because he has a long time residence there? Just clarifying - that was a very dramatic endorsement of the SR-009, not that they don't live up to the hype.

Jazz Casual's picture
Do you think?

"The 009s though - they don't wow you on first listen, they just simply, without drama, make every other kind of headphone on the planet seem incompetent IMO." If not biased, then hyperbolical.

Shike's picture
meh

"People buy Stax *because* they are made in Japan"

No, they buy them because they like the sound.

If the only place to get the Stax sound is Stax, regardless of where they're made - many will STILL buy them. Besides, I've seen past retailers furious with serious QA problems from Stax even when they were made in Japan. Enough problems they stopped carrying them entirely in fact. I've stopped paying attention to where it's made considering that and instead focusing on "is it reliable - period".

Then again I'm not a fan of ESL technology on headphones where it's least useful IMO. Planar magnetic and dynamic still seems best for headphones, leave stats to speakers where they can really shine tech wise.

shstrang98's picture
What bothers me about this

What bothers me about this more than anything else is the idea that made china is so acceptable.
Yes for some stuff that is true. Iphones, ipods, ITurds whatever are nice products but they shouldn't even mentioned in the same sentence as Stax headphones. If Chinese ownership allows them to bring high quality headphones to a lower price point then fine. But by all means keep the expensive models manufacture origin in Japan. No one wants to pay high-end prices ($10k) for Stax headphones only to find they're made in China.

It probably won't be long before Audio Research, Levinson, krell, McIntosh, etc move to china as well. Classes Audio of Canada has moved all or their production to china.

And don't even start with calling my attitude "Racist." If it was racist then that person wouldn't even want Stax headphones because they are Japanese.

Lunatique's picture
Technical risk translation

I'm a native speaker.

Your interpretation of the google translation is pretty good.

The original per my translation:

(1) Technical Risk

Due to fierce competition in the headphones industry, even though Stax has greater technical advantage in electrostatic headphones, electrostatic technology might be replaced by more advanced technology. If the company cannot further invest and progress in the products' various technological developments, it could become obsolete in the market place.

The Monkey's picture
Purchase Price
I'm still confused by the purchase price. I mean, jesus, that's the average cost of a Manhattan apartment. The real estate alone must be worth that, right? Either I'm just completely naive, or we are missing major details with respect to this transaction (e.g., how much of Stax's debt Edifier assumed, which is usually included in the purchase price). If I'd known it was on the market at that price....
John Grandberg's picture
Me too...
We MUST be missing something because the number is just so low. You can't even buy a local hardware store or franchise a Burger King for that price.
Number 9's picture
What does $1.5M buy these days?

For $1.5M you can buy a McDonald's franchise in an urban location.

The sale price is indicative of the sad situation in high-end audio, which is, that it has become predominantly a cottage industry; many small, little firms lacking economies of scale, whereby the only way they can survive is selling expensive, cost-no-object niche products to fanatics with money to burn.

Notwithstanding, Sennheiser, AKG and Beyerynamic which have put R&D into uber headphones and sell them for more reasonable sums --is it truly innovation when you start selling $5K headphones, that are at best 10% better than other options which sell for orders of magnitudes less? Will they even sell more than 100 009s in a year? You call that a business?

I have not heard the 009, but if they are fantastic as Currawong says, then imagine if Stax did have ability to sell these for perhaps $1500? That would be disruptive enough to put Sennheiser, AKG or Beyerdynamic on edge. Ah, some real competition. That would be nice. Hopefully, one day, if Edifier makes the right moves, Stax will be able to do that and grow to gain the efficiencies of a larger business and be more competitive. As consumers, we stand to benefit.

Jazz Casual's picture
Stax is dead long live Stax.

Thanks Tyll for going the extra yard beyond mere speculation that's both rife and understandable. Whatever the future holds for Stax and the products that it makes, I can't help feeling a tad melancholic about this development.

ClieOS's picture
Not surprising.

I actually own the first headphone amp Edifier made back in late '90s. It is probably the worst headphone amp I have. Regardless, I have seen Edifier trying very hard to break into the headphone market since then without much success. Edifier probably see Stax as the one real chance they have to finally get into the higher end of the headphone market.

BTW, in the love letter Edifier CEO doesn't say they will 'produce diaphragm material for Stax'. Instead, he says the new brand will use 100% Stax produced electrostatic speaker unit while Edifier will produce the rest of the parts - in order to create more affordable, easier-to-use electrostatic headphone.

dalethorn's picture
100 percent of what?

I dunno about Stax making the speaker unit 100 percent and Edifier "all the other parts to reduce costs". If I were thinking about buying a $9000 headphone/amp combo like the SR-009 and a matching amp, then I think the less I knew about Edifier the better. If Stax wants to be successful, they sure don't need anyone's PR campaign (deliberate or incidental) promoting the notion of reducing costs by using parts from a manufacturer who doesn't have a reputation for excellence. In reality that may be OK and it's what most manufacturers do I'm sure, but it sounds bad here for Stax.

John Grandberg's picture
Similarities

This brings to mind the acquisition of Ultimate Ears by corporate giant Logitech a few years back (for $34 million if I recall correctly). Obviously a very different situation in many aspects.... but still - it's the closest example of a giant company buying small specialty headphone or earphone firm.

In some ways, UE has remained true to its roots. The UE Reference Monitor is widely accepted as a quality product, the UE18pro slightly less so. Still, UE generally remained the same as far as custom IEMs go. Their universal models are a different story though - it appears that the Logitech ownership has stopped them from competing at a high level in the universal arena. Maybe that's just not where they think the profit is right now.

I'd like to see the Edifier-owned Stax continue with their flagship products while running in a more efficient way (as many have said). I would also like to see an expansion in the low end of the market (think SR-001MKII and such), so that more folks can experience the Stax sound. Hook people with the entry level stuff and they will be more likely to want the higher models in the future.

JIGF's picture
Wow, what a polemic

Wow, what a polemic subject.

Thanks for the thorough report Tyll, very insightful.

jeffreyfranz's picture
Stax article

I want to add my voice to the many others who praised Tyll's work on this article. It is clear to me that this was a big and time-consuming job. Thanks, Tyll, you have our best interests at heart.

amateriat's picture
My thoughts turn to another hallowed brand...

...namely, Quad.

Near as I recall, after Quad was purchased by Verity Group, the entirety of its entire manufacturing facilities were moved to China. From a quality standpoint, it appears the transition went without a hitch. Don't know how (or if) Quad has dealt with any perceptual issues on this front.

I ultimately see a situation where Stax' manufacturing will be split between Japan (the ES headphones themselves) and China (electronics). This could also be a route to Stax re-entering the more moderately-priced (relatively speaking ES/electret 'phone market. The one thing for certain is that this won't be a boring ride.

Tyll, BIG thanks for your detective work on this!

nick n's picture
Lower end for the masses

Originally posted by Dalethorn:
"My thought is that there is tremendous market pressure toward making even high end headphones viable for portable use. Whether it means making small portable amps that can drive power-hungry headphones, or somehow making the higher end headphones less power hungry, the pressure is there."
Agreed, not that my measly opinion means anything..
I'd love to see few lower end models put out that are more easily affordable by more people. I don't mind forking over $ for higher end but not everyone has these priorities, or something like that. You know what I'm getting at anyhow. Maybe a larger diaphragm electret terminated in a commonplace TRS plug to tap the stat-curious bass oriented folks and avoid the whole speaker terminal adapter box thing which limits their application and probably puts a few folks off. With all the reasonably priced portable amps around these days no issues.
I've certainly taken a few full-sized electrets out for a walk. It's great.
Properly designed it could prove a serious contender. There have been a few examples of this in the past but only a few that hit up the bass decently. Just imagine what a TRS terminated closed back SR-50 would do to the market(anyone else own/tried one or am I alone there?) however they decided to deal with the transformers, but a larger driver with circumaural pads. No die-hard bass-heads need complain there! It's enough as it is. Bass machine.

Daydreaming again about classy chrome and matte black audio bits.

Too bad someone this side of the water didn't know about the sale previously.

Appreciate the article.
Made me sign up just to spill my dreams all over the page here in my first post...

Tyll Hertsens's picture
It would be very interesting
It would be very interesting if Stax could develop a really good electret. Thanks for the comments and welcome.
peterroumian's picture
don't worry guys if stax

don't worry guys

if stax ends we'll still have wachara from head fi Smile

Ryley 7's picture
Edifier is a multinational

Edifier is a multinational company, with offices in Beijing, Shenzhen, Hong Kong, Canada, Australia and Argentina, with manufacturing facilities in Beijing and Dong Guan, China.Quality Inspection India

Statix's picture
As a fan of Stax electrostatic cans, this is good news

As a fan of Stax electrostatic cans, this is good news to me. The Chinese, culturally as a whole, are serious about high-end audio. This is opposed to countries such as the US and Japan, where true audiophilia has become more and more a niche/boutique concept in the past few decades. Stax products have been developed at a snail's pace for a long time, and they cost an arm and a leg (by headphone price standards, at least). Hopefully this will accelerate new product development, and thus drive refinement, advancement, and exposure in the electrostatic headphone arena.