Leading mountain bike manufacturer inspired by founder's hard uphill ride


BEDFORD, Pa. -- When Joe Montgomery was growing up in rural Ohio, he had an old single-speed bicycle. Going up hills was mighty tough work.

The family's fruit farm sat on top of the second of two steep hills that young Montgomery had to conquer to get home.

"There was no way you were going to pump the bicycle I had up those hills. You'd do the old S-turns going up, trying to get to the top," said Mr. Montgomery.

Today, he is making it easy for people of all ages, all around the world, to pedal up and down not just hills but mountains.

Mr. Montgomery, 55, is founder and chairman of Cannondale Corp., one of the world's leading makers of mountain bicycles.

The frames and many of the parts for those bicycles are built one at a time in Bedford, Pa., a rural community 150 miles northwest of Baltimore along the Pennsylvania Turnpike.

The Cannondale story is multifaceted. It's about a college dropout determined to run his own business, a company dedicated to high technology, and an American firm that became a world leader by building a high-quality product.

Cannondale's fat-tube aluminum bikes are recognized by cycling enthusiasts around the world.

Cannondale, based in Georgetown, Conn., went public Nov. 16 with an initial offering of 2.7 million shares of common stock priced at $13 a share.

The shares have traded as low as $9.75, but more recently have been in the $14-$15 range.

In its third quarter, which ended April 1, the company reported an increase in sales of 30 percent to $39.5 million. Net income, before an extraordinary credit, was $4.9 million, up 136 percent. The company's gross margins rose to 36.3 percent from 33.2 percent, the best in the bicycle business.

Cannondale employs about 800 people worldwide, including 80 at company headquarters, 560 at Bedford, and 65 at a smaller plant in Philipsburg, Pa.

The company makes racing and road bikes as well as mountain bikes, although mountain bikes have become the fastest-growing part.

In the United States, mountain bikes account for about 40 percent of all bikes sold but bring in 70 percent of revenue because of their higher price tags.

Mr. Montgomery said the key to Cannondale's success is making a light-weight bike that is stiffer and stronger than those of competitors. That stiffness makes the bikes more efficient.

"Joe Montgomery has worked a long time and gone a bit against the grain in an attempt to build a better bike," said Jean-Michel Valette, a senior analyst with Hambrecht & Quist of San Francisco.

Mr. Valette strongly recommends that investors buy Cannondale stock.

"Technology is really what brought me into the business," said Mr. Montgomery.

Technology has become the hallmark of the Cannondale bikes, first more than a decade ago with the strong, fat-tube aluminum frames, more recently with custom-designed suspension systems such as that on the Super V 900 full-suspension mountain bike.

That technology comes at a price. The Super V 900 costs about $3,500, but Cannondale is able to demand premium prices because its products are distinctive, Mr. Valette said.

jTC Cannondale also employs advanced technology in the design and production of the bikes. The designers in Connecticut use computers; changes can be relayed electronically to Bedford so that building one-of-a-kind, or prototype, bikes is a relatively simple matter.

The company invented its own process of heating the frames, which are made out of airplane-fuselage-grade aluminum. The heating, which takes place after welding, turns the frames virtually into one solid unit.

Mr. Montgomery's professional path, at least at the start, was much like those S-curves up the Ohio hills. He dropped out of several colleges, then earned a living by crewing on sailboats and did a brief stint on Wall Street as a stock analyst.

Finally, in 1971, Mr. Montgomery moved from Manhattan to Connecticut to start his own business.

In the beginning, the company made trailers for bicycles, then bike bags and other gear. But the goal always was to build an aluminum bicycle.

Manufacturing of metal parts was initially done in Stamford, Conn. The sewn pieces for clothing products and bike bags were contracted out. But as the company grew, Mr. Montgomery knew he needed more space, more employees and lower costs.

He wanted to be in a rural community where people had a strong work ethic and where there was high unemployment, preferably of skilled stitchers to make bike bags and clothing.

He scoured several states before finding what he wanted in Bedford, which used to be part of the old Shoe Belt. By the time Mr. Montgomery arrived in the late 1970s, the shoe-making industry had collapsed and the unemployment rate was 17 percent.

By the early 1980s, the company was getting strong enough to consider making bicycles.

After working on several designs, Mr. Montgomery decided a fat tube design would be stronger and lighter than other designs.

Cannondale shipped its first bike in the summer of 1983. Initially, most of the business was in the United States, but that has changed.

"We felt that if we were going to be a competitive company, we had to be a global company," said Mr. Montgomery's son, Scott, a company vice president who opened operations in Europe and Japan.

Cannondale bikes are now sold in 63 countries. In the most recent quarter, 32 percent of the sales were in Europe and 5 percent in Japan, with the balance in America.

The goal is, eventually, to have about 40 percent of sales in the United States, 40 percent in Europe, and 20 percent in Japan and other parts of Asia, Scott Montgomery said. Japan is currently Cannondale's most profitable market, he said.

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