# Gibson in financial trouble?



## ronmac (Sep 22, 2006)

http://www.tennessean.com/story/mon.../?hootPostID=b2cd8d92e1991f9216be07d31616457e



> Nashville-based Gibson Brands had its credit rating downgraded this week thanks in part to the poor consumer reception of its 2015 model guitars.
> 
> Gibson was downgraded by Moody’s Investors Service, which also put the rating on a negative outlook in a strikingly negative report. The rating was downgraded from B3 to Caa1.
> 
> ...


This why I buy my guitars from folks who breathe sawdust every day, and not the lawyers and investment bankers who are looking to "maximize return"...


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## Mooh (Mar 7, 2007)

I saw somewhere on the web yesterday that Gibson is also selling off property. That may or may not mean much.

Peace, Mooh.


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## ronmac (Sep 22, 2006)

They have become much more than a "guitar company", making several multi-million dollar acquisitions in the last couple of years. They seem to be trying to make a push into the consumer electronics and home studio markets, pushing flashy looking but low spec products.

It's "Wall Street" all over again. The CEO is the epitome of the "Greed is Good" culture, and is trying to maneuver the stock towards higher value. The products are merely peas in the shell game, imo.

Don't get me wrong, I still come across the odd J45 or Advanced Jumbo i wouldn't mind owning, but it would also bother me that I would be offering financial support to a shark.

end rant


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## boyscout (Feb 14, 2009)

Not to blow my own horn but... well... to blow my own horn I predicted this about two years ago. It's a textbook failure, with plenty of textbooks already containing stories of corporations that lost focus, over-reached, and crumbled.

Henry and (I suspect) his son may not be remembered fondly if the story concludes the way it might. Henry's legacy may be saving Gibson from the Norlin era, working hard and often very well at it for thirty years, and then leaving it to the gray fate in which he found it, in the hands of another cost-cutting conglomerate that buys it when it's spun off from the broken shards of Gibson Brands.

We might enter a period in which 2015 guitars become more desirable than new ones!

However it ain't over yet. They have stumbled to the edge of a precipice, and it doesn't look good, but they obviously felt some of the spankings in the past year or two so, maybe light at the end of the tunnel that's not a train!


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## Accept2 (Jan 1, 2006)

The whole guitar industry is fucked. Unfortunately it will be only for the dinosaurs one day.........


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## High/Deaf (Aug 19, 2009)

ronmac said:


> “The ratings also reflect the company's high leverage at around 8.5 times and *the risks associated with the consumer electronics business,”* the Moody’s news release about the downgrade said.
> 
> This why I buy my guitars from folks who breathe sawdust every day, and not the lawyers and investment bankers who are looking to "maximize return"...


Firstly, I wouldn't consider Gibson's core business 'consumer electronics'. Consumer electronics, by nature, is all about the newest, flashiest, smallest, fastest stuff. The guitar business is so much more about tradition and reputation. But I agree, they screwed the pooch in 2015 and this report does not surprise me in the list.

Re: breathing sawdust. There are many Gibson employees on the factory floor that breath sawdust every day. I believe many are still very passionate about what they produce. As far as maximizing returns? Who doesn't do that, from the small famous builders (who are now up to $15k + for their product) to the just-starting-out guys. The just-starting-out guys are more likely to produce great bang for the buck - as they are in the 'earn my reputation' phase. But not all of them will become widely known in the industry - and they ones that aren't watching the bottom line will have a very short career in the business - unless they just won powerball and are looking to spend the fortune.


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## Lincoln (Jun 2, 2008)

High/Deaf said:


> Re: breathing sawdust. There are many Gibson employees on the factory floor that breath sawdust every day. I believe many are still very passionate about what they produce.


I wonder what the actual percentage is of employees who work in a guitar factory - who play guitar?


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## ronmac (Sep 22, 2006)

> Over its 121 years, Gibson established itself as one of the world’s leading guitar companies, powered by superstar endorsements and revered craftsmanship, particularly of its high-end Les Paul models. But what is a company known for making guitars supposed to do in an era when popular music is largely powered by laptops and turntables?
> For Gibson, *the answer is detailed in a May credit opinion by Moody’s Investors Service, which revealed that 75 percent of the company’s consolidated revenue is now derived from consumer electronics.*


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## cboutilier (Jan 12, 2016)

Lincoln said:


> I wonder what the actual percentage is of employees who work in a guitar factory - who play guitar?


I wonder too. I could care less though, it's more a matter of their pride and workmanship. Leo Fender didn't play, and his guitars turned out alright.


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## butterknucket (Feb 5, 2006)

A few weeks ago a friend and I looked at a bunch of Gibson acoustics, and they were all nothing to write home about at all. 

When the big manufacturers lose their way, the small high quality luthiers and shops really shine.


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## mhammer (Nov 30, 2007)

It's reflective of what my buddy RG Keen refers to as "MBA disease": what happens to an organization when business-school types start running it.

The smaller places are essentially luthier-driven businesses that got bigger because of consumer demand for products. Gibson _was_ like that in the 60's. I toured through the old Parsons Street facility, where they expanded to meet the "folk-music boom" of the 60's, when everyone and their cousin wanted an acoustic guitar. Gibson went from a small place with as much square footage as your local medium grocery store, to a city block-sized facility. But that was in _response_ to demand, not an attempt to _drive _demand.

When the MBAs take over, their modus operandi is get bigger for the sake of getting bigger and drive demand. And that's where they stumble.


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## butterknucket (Feb 5, 2006)

mhammer said:


> It's reflective of what my buddy RG Keen refers to as "MBA disease": what happens to an organization when business-school types start running it.
> 
> The smaller places are essentially luthier-driven businesses that got bigger because of consumer demand for products. Gibson _was_ like that in the 60's. I toured through the old Parsons Street facility, where they expanded to meet the "folk-music boom" of the 60's, when everyone and their cousin wanted an acoustic guitar. Gibson went from a small place with as much square footage as your local medium grocery store, to a city block-sized facility. But that was in _response_ to demand, not an attempt to _drive _demand.
> 
> When the MBAs take over, their modus operandi is get bigger for the sake of getting bigger and drive demand. And that's where they stumble.


As well as simply trying to monopolize on a name.


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## mhammer (Nov 30, 2007)

I don't know if it is an attempt to "monopolize" as much as leverage the brand to the hilt.

I had the pleasure of meeting former Gibson president Ted McCarty (Mr. SG, Flying V, and 335), back in 1982, and he was as modest a man as they come; something I have yet to hear a comment from others who knew him (much better than a mere 20 minutes) contradict.


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## High/Deaf (Aug 19, 2009)

ronmac said:


> For Gibson, *the answer is detailed in a May credit opinion by Moody’s Investors Service, which revealed that 75 percent of the company’s consolidated revenue is now derived from consumer electronics.*


And that may explain a lot. Consumer electronics must be one of the least stable markets out there - suppliers, manufacturers and retailers are dropping like flies. I don't recall Gibson-branded electronics, so they've acquired existing brands, I would imagine. A combination of that and their 2015 failures would be a tough economic hit.

As far as growing, the same can be said of the second round of guitar companies as well - PRS, E-B, Dean, Kramer, etc. And I suspect their products don't have the same personalized build quality that they started with either.


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## mhammer (Nov 30, 2007)

I'm reminded of Corel's decline. They started acquiring all sorts of stuff, and expanding into markets they had no business jumping into, like children's software. Had they stuck with their basic product line of Corel Draw and Wordperfect, they might still be as big a player as they were a dozen years ago. Not Microsoft Office big, but not nearly as tiny a player as they currently are.

This is why Rickenbacker is still around, and won't likely go under anytime soon. They make a distinctive product that holds onto its niche. They have protected their trademarks consistently and effectively, and they haven't taken on anything in the last 50 years that took them out of their expertise and comfort zone. They're like the guitar-maker equivalent of a local high-end tailor or sporting-goods store. No bold expansion plans; just exactly what you shop there for, consistently delivered.


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## Robert1950 (Jan 21, 2006)

Both Gibson and Fender had to be rescued in the 80s. Norlin and CBS were not doing well with their Guitar ventures. Henry J. and a bunch of former Fender employees came to the rescue. Would it be the same this time around?


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## butterknucket (Feb 5, 2006)

mhammer said:


> I'm reminded of Corel's decline. They started acquiring all sorts of stuff, and expanding into markets they had no business jumping into, like children's software. Had they stuck with their basic product line of Corel Draw and Wordperfect, they might still be as big a player as they were a dozen years ago. Not Microsoft Office big, but not nearly as tiny a player as they currently are.
> 
> This is why Rickenbacker is still around, and won't likely go under anytime soon. They make a distinctive product that holds onto its niche. They have protected their trademarks consistently and effectively, and they haven't taken on anything in the last 50 years that took them out of their expertise and comfort zone. They're like the guitar-maker equivalent of a local high-end tailor or sporting-goods store. No bold expansion plans; just exactly what you shop there for, consistently delivered.


They've certainly tried to buy out Rickenbacker though. 

John Hall's father, F.C. Hall purchased Rickenbacker when he left Fender. F.C. Hall was also with Leo Fender right at the beginning and help him get Fender up and running.


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## Sneaky (Feb 14, 2006)

Growth by acquisition while going deeply in debt is not the best business model.

See example, Valeant:










I believe Gibson is still a private company so who knows what lurks on their balance sheet.


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## Sneaky (Feb 14, 2006)

butterknucket said:


> They've certainly tried to buy out Rickenbacker though.
> 
> John Hall's father, F.C. Hall purchased Rickenbacker when he left Fender. F.C. Hall was also with Leo Fender right at the beginning and help him get Fender up and running.


John Hall, the "Still the One" guy?


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## Scotty (Jan 30, 2013)

Lincoln said:


> I wonder what the actual percentage is of employees who work in a guitar factory - who play guitar?


Interesting thought. 
In North America, I'd say a large percentage. In Asia, probably much less


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## dradlin (Feb 27, 2010)

butterknucket said:


> A few weeks ago a friend and I looked at a bunch of Gibson acoustics, and they were all nothing to write home about at all.
> 
> When the big manufacturers lose their way, the small high quality luthiers and shops really shine.


Gibson acoustic guitars have been both the best sounding and worst sounding guitars I have encountered... gotta find the right one is all, and this is not unique to Gibson.


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## mhammer (Nov 30, 2007)

dradlin said:


> Gibson acoustic guitars have been both the best sounding and worst sounding guitars I have encountered... gotta find the right one is all, and this is not unique to Gibson.


True dat.
Consistency is easier to achieve with man-made materials thanit is when one is entirely dependent on wood.


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## ronmac (Sep 22, 2006)

mhammer said:


> True dat.
> Consistency is easier to achieve with man-made materials thanit is when one is entirely dependent on wood.


True, but many builders are remarkably consistent in their builds and voicing. Wren, deJonge, Bourgeois, Collings and many others get there by careful wood selection, proper curing, dedication to craft and final voicing and setup. Even lower end "factory" builders, including Larrivee, Takamine and Godin maintain a very high level of consistency.


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## mhammer (Nov 30, 2007)

No disagreement there. Consistency IS possible with wood...if you have the time to pay attention to it (and it does require more time than attention to consistency does with man-made materials). If your business model is to sell a LOT, attention to consistency is difficult to maintain.

I'm not making excuses for anyone. Merely noting that one should have more modest expectations under certain circumstances. If you know the manufacturer is going to have to cut corners, then expect corners to be cut.


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## ronmac (Sep 22, 2006)

Don't mean to appear argumentative, but....

Speaking of their acoustic products, they play in an arena where the bar has been raised significantly the past decade. Almost every other builder, regardless of price point, continue to improve in cosmetics, build quality and consistency. Gibson price their products to match the direct competition (Martin) and have no where near the quality control. The good ones are very good, but they are few and far between the last few years. 

I still play almost every one I come across when out visiting music stores in the hopes that one day (when I have money to spend) I will find one that begs to go home with me. It has happened during the past decade of trying...


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## dradlin (Feb 27, 2010)

ronmac said:


> Even lower end "factory" builders, including Larrivee, Takamine and Godin maintain a very high level of consistency.


The best from Godin or Takamine would be on par with the worst from Gibson acoustics, not even close to the best from Gibson. That is an important distinction.


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## mhammer (Nov 30, 2007)

ronmac said:


> Don't mean to appear argumentative, but....
> 
> Speaking of their acoustic products, they play in an arena where the bar has been raised significantly the past decade. Almost every other builder, regardless of price point, continue to improve in cosmetics, build quality and consistency. Gibson price their products to match the direct competition (Martin) and have no where near the quality control. The good ones are very good, but they are few and far between the last few years.
> 
> I still play almost every one I come across when out visiting music stores in the hopes that one day (when I have money to spend) I will find one that begs to go home with me. It has happened during the past decade of trying...


I don't know if he still has it that way, but when George Gruhn gave me his business card in 2009, on the back of the card it lists the serial numbers of Martins for each year of production. Martins are numbered in consecutive fashion, allowing one to see how many instruments were produced in any given year, as well as identify the year by the number. He was very cynical about the more recent build quality of Martins since the 1980s. And when you see how quickly production volume ramped up over the last 30 years, you can understand why.


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## colchar (May 22, 2010)

High/Deaf said:


> Firstly, I wouldn't consider Gibson's core business 'consumer electronics'. Consumer electronics, by nature, is all about the newest, flashiest, smallest, fastest stuff.



Gibson has expanded and is definitely in other fields like consumer electronics.


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## colchar (May 22, 2010)

Lincoln said:


> I wonder what the actual percentage is of employees who work in a guitar factory - who play guitar?



As someone else mentioned, Leo Fender couldn't play a note. He was an accountant. That didn't have a negative impact on his ability to manufacture guitars.


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## allthumbs56 (Jul 24, 2006)

I've been lucky I guess. I've bought two Gibson electrics sight-unseen, and my J-185 acoustic - which had to come home with me immediatley. I have never put any of them under a microscope. but they all look great. They are still exactly what I want - and what I paid for.


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## Robert1950 (Jan 21, 2006)

I can't afford Gibsons, not the ones I want anyway, even used. A used ES390 P9os would cost me well over $2000 used. So I got an Epiphone Casino Coupe which has the same specs. I am happy with. Few minor glitches along the way, but easily fixed. I wonder how the Epiphone division is doing.


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## Jim DaddyO (Mar 20, 2009)




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## Scotty (Jan 30, 2013)

I even heard mention of thier troubles on the radio today


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## vadsy (Dec 2, 2010)

how big do you thInk the govt bailout will be?


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