Power tool company Stanley Black & Decker Inc (NYSE: SWK) CFO Donald Allan Jr is seeking partnerships with battery and chip manufacturers to ease the pressure on the tool maker’s supply chain, the Wall Street Journal reports.

What Happened: The company is seeking electric battery and computer chip makers for component supply in return for an investment.

Stanley Black & Decker has a tentative partnership with a South Korean battery maker for a production line that will start manufacturing batteries in Malaysia in 2022. It is also in talks with other Asian and U.S. businesses about potential partnerships.

Stanley Black & Decker estimated $500 million in 2021 capital expenditures. It plans to incur about 10% – 15% of that to supply-chain partnerships and other related initiatives. Supply chain partnerships accounted for less than 5% of the CAPEX before the pandemic.

Stanley Black & Decker already has small-scale partnerships with companies that build specific tooling and production lines.

The company needs batteries for its cordless power tools and uses computer chips across its portfolio. It manufactures a significant portion of its products in the U.S. and Europe. It prefers to set up new production lines in those regions to beat Asia’s long wait times.

Why It Matters: SWK remains bullish on demand for its components like batteries and chips.

Competitors like Japan’s Makita Corp (OTC: MKTAY) and Hong Kong’s Techtronic Industries Co Ltd (OTC: TTNDY) manufacture a more significant chunk of their products in Asia, potentially providing them with easier access to batteries and chips.

Stanley Black & Decker identified around critical 30 suppliers and extended and prolonged contracts with many of them for up to five years.

Any price hike for batteries and chips can have a sizable impact on its finances as the components account for the most significant proportion of goods sold.

The company raised the cost guidance from $160 million to $235 million for 2021 due to inflation. It aims to pass two-thirds of the increase on to customers and offset the rest by increasing efficiency and cost savings.

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Stanley Black & Decker began raising prices for some of its products this quarter and has more hikes due.

The company expects to free up between $100 million and $150 million a year by increasing efficiency and cost savings.

Stanley Black & Decker’s Q1 operating margin expanded 810 basis points to 16.9%.

The company will need more batteries as it seeks to acquire the remaining 80% of MTD Products Inc. MTD produces mowers and other outdoor equipment and expects to move toward using more electric motors in the coming years.

Price action: SWK shares closed lower by 0.25% at $194.92 on Friday.

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