How Jabil helped Skullcandy get a deal with Best Buy

Headphone producer Skullcandy was able to seal an exclusive distribution agreement with the biggest consumer electronics retailer in the world, after striking a manufacturing partnership with Jabil Inc.

Jabil (NYSE: JBL), the largest company headquartered in St. Petersburg and a major employer in the area, said it had expertise that other manufacturers could not provide for Skullcandy’s highly sophisticated Crusher 360 headphone. After Jabil took control of the project, Skullcandy secured an agreement with Best Buy (NYSE: BBY) in time for the holiday season.

Jabil detailed its work with Skullcandy, based in Park City, Utah and a leader in the audio products arena, in a case study. It’s one of a series of reports Jabil has recently released highlighting work with clients other than Apple (NASDAQ: AAPL). Apple, Jabil’s largest customer, has seen sales slow for its core iPhone product.

The case study focused on two Skullcandy products.

Skullcandy’s Crusher 360 is “a computer on your head.”

One of the products was the Crusher 360, which has three microprocessors, digital signal processors and two different drivers in each ear cup.

“The level of technical complexity in our products is increasing exponentially,” said Jeff Hutchings, vice president of product for Skullcandy. “Today, it’s really a computer on your head.”

SkullCandy had worked on the project for a few years with different manufacturers that couldn’t make the company’s vision a reality, said Dylan Priest, director of sourcing.

Jabil brought expertise in acoustics, tuning and electrical engineering, and Jabil’s teams in Silicon Valley and in China delivered the final product on time and at cost, the case study said.

Jabil also worked with Skullcandy on Venue, a headphone with active noise cancellation that can block out noise across a wide spectrum.

“Usually it takes more than a year to make a brand new product, and we only decided to make Venue as a headphone less than a year ago,” Hutchings said. “But under the intense time pressures to have it ready for this holiday season, Jabil delivered.”

Jabil did not disclose any financial information from its work with Skullcandy.

Apple accounted for 28 percent of Jabil’s $22.1 billion in revenue last year. But Jabil, which provides design, manufacturing, supply chain and product management for its customers, has been stressing diversification, both within the line of products it makes for Apple and with other customers.

Michael Dastoor, CFO, Jabil

While Jabil’s business with its “largest customer” — the language Jabil typically uses in talking about Apple —  used to almost entirely involve making casings for iPhones, those casings now account for less than eight percent of total revenue, said Michael Dastoor, Jabil’s chief financial officer, speaking at the Citi Global TMT West Conference at the Consumer Electronics Show in Las Vegas in early January.

“If you actually go into the largest customer store, I can say with certainty that Jabil makes a component or a part on almost each and every product,” Dastoor said. “That’s a big change for us. It shows how good our relationship is, how good the partnership is with our largest customer.”

In addition, Jabil is focusing on products in other sectors such as medical, packaging, cloud computing and automotive. A deal with Johnson & Johnson Medical Devices is expected to result in about $150 million in revenue in fiscal year 2019, and expand to as much as $1.5 billion in revenue by FY 2021, Dastoor said.

“I feel really good that, yes, we have some level of concentration with that large customer and we’re very proud of that actually. And I think what we’ve done over time is to increase other parts of our business to reduce some of that concentration,” Dastoor said.

“So going forward, when the medical numbers start coming through, some of the other pieces that we’re working on cloud, 5G, all of that starts coming through, that number will start shrinking, not because we’re shrinking business with the largest customer. It’s mainly because we’re building the rest – or growing the rest of the business.”