Qualtek Manufacturing

Manufacturing in the Pikes Peak region has come a long way since the 1980s, when the semiconductor industry had a moment.

Chip and board makers flourished for a time before they were lured overseas. Their departures elicited a lot of hand-wringing and calls for diversification.

Today, the Colorado Springs manufacturing sector is the strongest it’s been in 30 years. It consists of more than 400 companies, 11,600 employees and high-profile segments including electronics, mechanical and medical devices, computer components, metal products, industrial equipment, plastics, printing and aerospace and defense contractors.

Reasonable construction and labor costs, relatively inexpensive utilities, moderate weather and the Pikes Peak region’s desirability as a place to live are among the factors that have contributed to manufacturing’s growth.

But perhaps the most important factor is the dedication of local leaders and manufacturers themselves to support the industry.

“You guys have, in my opinion, got a pretty pro-manufacturing community,” said Tim Heaton, president of the Colorado Advanced Manufacturing Alliance. “You have a lot of good manufacturers that really do care about and give back to the community,”

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A strong manufacturing industry is vital because “it is the driver that drives creation of wealth,” Heaton said.

Manufacturers are desirable primary employers that generate more than 50 percent of their revenue from outside El Paso County. That’s why they are a focus of the city’s and Colorado Springs Chamber & EDC’s economic development efforts.

The strengths

El Paso County has a good mix of manufacturing sectors and a contingent of small-to-midsize manufacturers that are well established, innovative and nimble enough to have survived through good and bad times, Heaton said.

“There’s a lot of contract manufacturing that does quite well for itself,” he said.

Firms like JPM Prototype and Manufacturing, founded in 1999 by CEO and President Dave Jeffrey, have carved out niches producing components or products to clients’ specifications.

Lockheed Martin and The Boeing Co., both of which have presences in Colorado Springs, “are using a lot of contract manufacturers to do their work,” Heaton said.

Innovation and uniqueness characterize many of the Pikes Peak region’s manufacturers.

ConcealFab Corporation specializes in RF-transparent  antenna concealment products for commercial and government customers.

ConcealFab, which has enjoyed growth topping 600 percent in the past three years, recently was named to Inc.’s list of the most successful and fastest-growing privately held companies in America.

Titan Robotics manufactures industrial 3D printers and provides 3D printing services. The company helps produce products from prosthetics to aerospace parts.

Founder Clay Guillory started the business in his garage in 2014. The company recently announced plans to expand to a 21,000-square-foot building to accommodate its rapid growth, and in 2018 it was named a Colorado Company to Watch.

Medical device manufacturers form a small but growing segment in Colorado Springs, Heaton said.

An example is dpiX, which embodies many of the positive trends bolstering manufacturing in Colorado Springs.

dpiX, established in 1999, makes imaging devices for medical, industrial and security applications. Digital X-rays performed on one of every two patients around the world use dpiX technology, President and CEO Frank Caris said in a 2018 email announcing the company’s next-generation X-ray sensors.

“Frank is a great example of somebody who made hay from the fact that a lot of computer board stuff moved overseas,” Heaton said. “He’s pushing the envelope.”

So is Christopher Fagnant, president of Qualtek Manufacturing, a metal manufacturing company that has been in Colorado Springs for almost 60 years.

Fagnant, who serves as vice chair of the CAMA South board, said collaboration is boosting the manufacturing industry.

“A lot of people in the Springs have been working together for a long time and are open to sharing what they’re doing and what they’re working on and finding other like-minded businesses to learn from each other and bring new business to town,” Fagnant said.

Qualtek and JPM combined forces in 2017 to win a large contract with a customer that was bigger than either could serve alone.

The collaborative spirit also is producing innovative organizations like Exponential Impact, an incubator for tech startups, and Milestones for Growth, Fagnant said.

Milestones for Growth, which occupies the building next door to Qualtek, supports business growth by providing commercial space for small manufacturers who’ve outgrown the garage but aren’t yet able to buy a whole building.

“Those are the kind of things that are happening in the community that are very positive,” Fagnant said. “People in general are recognizing the benefit of manufacturing as a complement to our economy.”

Longstanding companies like Qualtek have survived by adapting to changing market conditions.

Heat treating was a major part of Qualtek’s business for 45 years, but the company changed its business model last year, largely because of economic factors around the firearms industry.

“The Trump election was the worst thing for the firearms industry,” Fagnant said.

While gun sales boomed during the Obama years, they plunged when people no longer were worried about restrictions.

“We had one big customer that was a tier 1 supplier to the firearms industry,” Fagnant said. “They drastically reduced their production and throughput.”

That customer made up more than 50 percent of Qualtek’s heat treat business.

“For the sake of the business, we looked to really streamline around our metal stamping operations,” he said. “We shrank the size of the company around our stamping operation to be a vertically integrated manufacturer.”

The challenges

The biggest issue facing manufacturers throughout Colorado is workforce, Heaton said.

“This country turned its back on skilled labor — everybody had to go to college,” he said. “Today, we have a lot of overeducated baristas.”

Qualtek is challenged to hire, train and retain people, Fagnant said.

“We have a handful of fairly technologically advanced processes, but we have a lot of work that is very manual and industrial,” he said. “To be able to develop a workforce that is able to do both of those things and to move with the work as it comes is probably one of the most difficult things. There’s just not a lot of people with that experience.”

Employee benefits are another big issue, Heaton said. Smaller companies can’t compete with large corporations, and health insurance costs keep rising.

Legal marijuana can complicate hiring, especially for defense contractors and medical device companies.

“It is impacting the skilled labor shortage — no doubt about it,” Heaton said. “In this low-unemployment era, you might find a candidate you really like but who can’t pass a drug test.”

The marijuana industry has swallowed up warehouse space throughout the state, he said. Grow houses are huge consumers of electricity and impact peak load rates.

Colorado’s overburdened transportation infrastructure also causes headaches for manufacturers.

“Our roads in Colorado are a serious impediment to growing manufacturing,” Heaton said.

At Qualtek, transportation played a part in its decision to downsize.

“We were driving to Firestone once a day, five days a week,” Fagnant said. “The amount of time the truck was spending on the road, the amount of tolls they were having to pay, how much time they were basically just sitting in traffic — we had more hours in trucks with less stops. … Getting out of heat treat, we got rid of a lot of the delivery needs. Now we outsource the shipping to a couple of customers.”

Automation may be the answer to some of these problems, but along with it comes the risk of cybersecurity issues — something Fagnant is intimately familiar with.

Qualtek suffered a cyber attack in August 2017 when hackers invaded its server and forced the company to pay ransom in Bitcoin to retrieve its data.

“That cyber attack forced us to re-evaluate how we were set up and the levels of security built into our network,” Fagnant said.

“The biggest thing for most manufacturers is committing to reinvesting in IT infrastructure and hardware on a regular basis,” he said.

Cybersecurity is fundamental to the growth of manufacturing and staying competitive, Heaton said.

“El Paso County is going to play a key role in the automation future because of the cybersecurity stuff here,” he said.

Last but not least, manufacturers are having to cope with uncertainty emanating from Washington, D.C., and in particular, the Trump administration’s trade wars and tariffs.

“It’s a double-edged sword,” Heaton said. While many manufacturers support standing up to China, small manufacturers are paying higher costs and can’t pass them on to their customers.

Volatility in the steel and aluminum markets has leveled off, “but the U.S. is still the most expensive place to buy raw materials,” Fagnant said.

“All the talk around the mills in the United States to try and push manufacturers toward U.S. melt steel and aluminum, it didn’t necessarily help the steel and aluminum industries like it was intended to,” he said. Big companies were able to secure their purchases, but smaller players like Qualtek dealt with longer lead times and higher prices.

As a result, Qualtek has had to postpone a big project that was due to start last year.

“All of our steel and aluminum is U.S. melt,” Fagnant said. “We didn’t need to be incentivized.”

The support

Because manufacturing is a key industry in the Pikes Peak region, the city of Colorado Springs, El Paso County and the Colorado Springs Chamber & EDC are pulling out all the stops to attract new companies and help existing companies grow.

The city, county, chamber, UCCS, Pikes Peak Community College, Pikes Peak Workforce Center and local school systems are working together to meet workforce needs, said Chelsea Gaylord, senior economic development specialist for the city of Colorado Springs.

“The Pikes Peak Business and Education Alliance is a good example of that collaborative effort,” Gaylord said.

The alliance connects 12 school districts with businesses to improve communication about workforce requirements and develop work shadow programs, internships and apprenticeships.

For manufacturers looking to expand or move to the Springs, the city can deploy a rapid response team, which reduces by half the time it takes for permits and plans to move through the approval process.

“One of our current rapid response projects is Milestones for Growth,” Gaylord said.

Special tax incentives are available to businesses through economic development agreements and the Commercial Aeronautical Zone, Pikes Peak Enterprise Zone (administered by El Paso County), Foreign Trade Zone and 11 federal Opportunity Zones.

“We’re trying to leverage all of these things and to be a hub for opportunities for businesses,” Gaylord said.

“My optimism is that things are looking good right now,” Fagnant said. “We all know a recession has to be coming soon, and every manufacturer dreads that. … All the work that people have done over the last 10 years to strengthen the industry and build collaboration, my hope is all of that work is preparing us for the next downturn, when it happens, to mitigate its impacts and lessen the pain.”