233 Kansas Street
El Segundo, California 90245
Telephone: (310) 726-8000
Fax: (310) 332-3332
Web site: http://www.irf.com
Sales: $1.06 billion (2004)
Stock Exchanges: New York
Ticker Symbol: IRF
NAIC: 334413 Semiconductor and Related Device Manufacturing
International Rectifier Corporation (IR) is the oldest independent power semiconductor manufacturer in the world. IR's products, protected by hundreds of patents, control the direction and flow of electrical current, a necessity for manufacturers of myriad electronics products. IR's technologies also help to conserve power. The company develops, manufactures, and sells control integrated circuits, diodes, rectifiers, and its signature product, HEXFET power MOSFET switches. IR derives more than 60 percent of its annual sales from Europe and Asia. The company operates production facilities in Italy, Germany, Mexico, the United Kingdom, and the United States.
An offshoot of the fast-growing aerospace industry in the Los Angeles area during the 1940s was the rise of attendant semiconductor manufacturers. IR was there from the start, founded on August 9, 1947, by Leon Lidow and his son Eric. Eric Lidow, who would control the company for the next half-century, was born in Vilnius, Lithuania. He attended the Technical University of Berlin, where he earned a degree in electrical engineering in 1937, the same year he immigrated to the United States. In 1940 he cofounded and served as general manager of Selenium Corporation of America, which was acquired by Sperry Corporation in 1944. Lidow stayed on after the acquisition, serving as vice-president of engineering until teaming up with his father to form IR. The Lidows created IR to put to use advanced processes they had developed for manufacturing selenium rectifiers, which converted alternating electrical current to direct electrical current. Their technology, formally employed on IR's August 9 founding date, was pioneering, predating the development of the transistor by more than four months.
IR started with six employees in an unincorporated area of Los Angeles, marking the beginning of the company's continuous efforts to produce devices with increasingly higher power ratings and superior reliability characteristics. The company's business revolved around controlling the flow and direction of electricity, an engineering feat of fundamental importance in the vast world of electronics, enabling appliances, automobiles, computers, and thousands of other devices, components, and systems to function. To switch and condition electricity, manufacturers relied on power semiconductors, using diodes, rectifiers, transistors, and other devices to make their products operate. IR, with its foundation resting on commercial semiconductor processes and devices based on selenium (a nonmetallic element), emerged as an early leader in the industry. At its start, the company manufactured rectifiers, diodes, and transistors for sale to domestic customers, but quickly demonstrated its talent for developing superior technology and its ambition to expand its presence outside the U.S. market.
From selenium, IR made the technological leap to germanium-based systems, introducing germanium rectifiers in November 1954. Three years later, the company's tenth anniversary was marked by the formation of International Rectifier Corp., Japan Ltd., representing the company's first foray into international expansion. In September 1958, Eric Lidow took IR public, completing an initial public offering of stock that preceded the establishment of the company's second foreign subsidiary, IR, Great Britain Ltd., in December 1958. One year later, Lidow drew the semiconductor industry's attention by besting his germanium rectifiers with the September 1959 introduction of the first silicon rectifier, which, facilitated by the company's previous international expansion, made IR the first company to introduce silicon technology to Japan.
An acknowledged force in the semiconductor industry, Lidow's company proceeded to accumulate an impressive list of technological achievements as it extended its global reach. In 1960, after introducing solar cells two years earlier, IR produced the world's first solar-powered automobile. One year later, the company commenced operations in Italy, followed by the establishment of subsidiaries in India in 1965, Canada in 1966, and Mexico in 1973.
Against the backdrop of IR's geographic expansion, the company's leading role in the technological development of power semiconductors produced disparate financial results. For IR, being the pioneer of widely used technology did not necessarily guarantee long-term financial success, which, as a publicly traded company, was an all-important objective. For instance, based in large part on the company's achievements as a pioneer in silicon control rectifiers, IR's stock swelled to $31 per share in 1966. By 1969, after the company's competitors had successfully jumped on the silicon bandwagon, IR's shares plummeted below $12. The company's technological achievements were exemplary, but, frustrating for Lidow, IR's financial reputation was not. Despite the dozens of pioneering patents held by the company, it began to falter by the 1970s, perceived by investors and industry observers as an organization suffering from stagnation. As the prospect of an industry pioneer withering on the vine began to emerge, the next generation of Lidows was exhibiting talents that soon would breathe new life into IR.
Eric Lidow's two sons, Alexander and Derek, possessed exceptional minds. Alexander, two years younger than Derek, built a photoelectric cell at the age of eight, but nevertheless was overshadowed by his older brother when the two boys were in their teens. Derek graduated from Beverly Hills High School at age 16, setting an example Alexander was unable to match. Alexander did not conclude his studies at Beverly Hills High School until the usual age of 18, which fueled a rivalry between the two brothers that would endure for the next 30 years. "I couldn't let him do better than me," Alexander told a Forbes reporter in September 1995, but, for Alexander, matching the academic pace of his brother would prove to be a difficult endeavor. Derek graduated from Princeton summa cum laude at the age of 20, then earned a Stanford Ph.D. in two years. Alexander earned an undergraduate degree in physics from California Institute of Technology in three years and was awarded his Ph.D. in applied physics from Stanford, like his brother, at age 22. In terms of the ongoing rivalry between the Lidow brothers, the race against one another in the academic world had produced no clear winner. IR would serve as the next proving ground, setting the stage for a brotherly battle that had a profound effect on their father's company. For Alexander, who had suffered the indignity of spending four years in high school, redemption would be found.
Derek and Alexander concluded their academic careers in 1975 and 1977, respectively, joining IR at roughly the same time the semiconductor industry was undergoing a dynamic change in technology. For years, the job of converting alternating current into direct current had been performed by bipolar transistors, but the electronics industry had struck upon a substitute for bipolars in many applications: power MOSFETs. MOSFETs, the acronym for metal oxide semiconductor field effect transistor, were more efficient, faster, and smaller than bipolars, threatening to replace the world market for bipolars, which was valued at roughly $1 billion. The potential for MOSFETs was vast, representing a critical area of development for a specialized power semiconductor manufacturer like IR. Not coincidentally, Alexander Lidow had experimented with the technology surrounding MOSFETs while pursuing his academic work at Stanford. His discoveries signaled the beginning of a new era for IR.
In 1976, one year before he was awarded his Ph.D., Alexander began working on an advanced MOSFET with promising capabilities. The early development of his chip, which broke electrical current into smaller, more usable units, impressed his father, persuading the IR chairman to give his son $100,000 worth of equipment and the aid of one engineer for further development of the chip, dubbed HEXFET because of its hexagonal shape. HEXFET was under development for production by the time Alexander left Stanford, but the price to make HEXFETs a commercial reality was severe. IR accumulated massive debt: "We bet the company, bet again, and borrowed to bet some more on HEXFET," Alexander recalled in a September 11, 1995 interview with Forbes. Alexander lobbied his father to shelve IR's existing businesses and concentrate fully on HEXFET chips. "The company had plateaued and was struggling," Alexander reflected in his interview with Forbes. "From my perspective, International Rectifier had nowhere to go." Derek disagreed, convinced that if the company invested everything in HEXFET its future existence could be in peril. The brotherly rivalry transmogrified into a feud, but plans went ahead for the commercial debut of HEXFET as long-term debt soared to 88 percent of IR's capitalization.
International Rectifier is a pioneer and world leader in advanced power management technology, from analog and mixed signal ICs to advanced circuit devices, power systems, and components. Technological breakthroughs from IR are setting the pace for innovation in the electronics we all rely upon each day. Inside our factories and automobiles, at our homes and offices, and orbiting our world, IR's power management technology is enabling today's leading-edge computers, appliances, lighting, automobiles, satellites, and defense systems—and creating a pathway to tomorrow's advancements.
The HEXFET power MOSFET was introduced in June 1979, and would become IR's mainstay product. By 1983, when sales amounted to $127 million, the rewards of the commitment to HEXFET chips were evident. IR controlled more than half of the fast-growing market for power MOSFETs, maintaining a 12- to 18-month lead over rivals such as Motorola, Hitachi, RCA, and Siliconix. Wall Street was impressed, evinced by a dramatic rise in the company's stock value from $7 per share at the start of the 1980s to more than $40 per share by 1983. The debt incurred from the headlong push into commercializing HEXFETs, however, had not disappeared. In 1983 IR's debt stood at 57 percent of its capitalization and would soon increase as the company prepared to build the most automated semiconductor manufacturing plant in the nation. The $82 million plant, called HEXFET America, engulfed the company further in debt, but as with the initial investment in Alexander's hexagonal chip, the potential rewards were convincing. The new plant would enable IR to manufacture HEXFETs in one continuous process, cutting production costs in half and increasing the yearly output per worker to $350,000, or more than double the industry average. The financial hurdles were cleared and HEXFET America, located in Temecula, California, commenced production in April 1987. Behind the scenes, however, the tug and pull between Eric Lidow's two sons tempered the celebratory unveiling of the new plant. The IR chief executive officer and chairman was determined to resolve the problem.
By the end of the 1980s, the constant bickering between Alexander and Derek over corporate strategy, which had persisted for roughly a decade-and-a-half, had forced Eric Lidow to take action. In 1989 he divided the company in two, giving Alexander control over IR's newer businesses and giving Derek command of the company's older business lines. "I felt both were right," the senior Lidow explained to Forbes in 1995, "and both were willing to accept responsibility for their ideas." What appeared as a natural solution to a nagging problem, however, quickly developed into a more pernicious problem. Separated, Alexander and Derek built contrary business groups that were inherently at odds, symbolized by the adoption of computer systems that could not communicate with each other. Further, the split spawned a host of corporate redundancies, with Alexander and Derek operating distinct administrative staffs and sales and marketing departments, creating a tangle of operations that ultimately enveloped IR's customers, who found themselves suffering as a consequence of the Lidow brothers' inability to work together. Eric Lidow, in his late 70s as IR stumbled into the 1990s, looked for another solution.
In 1992 Eric Lidow went to the heart of the problem and hired J. Mitchell Perry, a Palo Alto psychologist. With therapy as the recourse, the process of mending the differences between the brothers began—a difficult process that aimed to resolve a lifetime of issues. Eventually, the relationship improved, opening the lines of communication between Alexander and Derek. Before the end of 1992, they agreed to reunite their halves of the company, which, sparked by the new spirit of conciliation, led to a new product, the electric power conversion chipset. For decades, the company had sold components piecemeal, rather than combining components—the newer products governed by Alexander and the older products governed by Derek—to create a more comprehensive product. Alexander explained to Forbes in 1995: "The minute we got together and compared the things we were doing, it became clear all these [components] worked together synergistically in the process of converting electricity into refined energy." The combined chipset, far smaller and far more inexpensive than separate components, was expected to generate half of IR's sales by the end of the 1990s. Before its promising future materialized, however, there was already cause to celebrate. The reunited brothers and a unified IR produced encouraging results. By 1995, debt had been whittled down to 12 percent of capitalization, sales were up to $429 million, a 30 percent gain from the previous year's total, and earnings reached $39 million, double the total recorded in 1994.
After three years of watching his sons work together, Eric Lidow was convinced the familial squabbles of the past were over. In 1995 he named his sons co-chief executive officers, with Alexander in charge of manufacturing and technology development and Derek in charge of marketing, computer systems, and strategic planning. Initially, the company's financial performance continued to impress. Revenues slipped past the half-billion-dollar mark for the first time in 1996, rising to $576.8 million, while earnings continued to increase exponentially, swelling to $66.5 million. The following year, however, the company's financial results were negatively affected by oversupply and the costs incurred from restructuring the organization. The 1997 restructuring, aimed at improving efficiency, involved revaluing assets, consolidating administrative and service departments, reducing payroll, and relocating manufacturing operations, among other actions. Restructuring led to a onetime charge of $75 million, contributing significantly to the net loss of $43.2 million registered for the year. Despite the loss, IR expanded manufacturing capacity, confident that it would ultimately gain a substantial return on its investment. Expansion of the Temecula facility was announced in 1997, followed by the disclosure in 1998 of plans to build a $40 million manufacturing plant in Swansea, Wales. As the decade drew to a close, there remained one final chapter in the fraternal story that dominated IR's history, recasting the company for the 21st century.
In May 1999, IR announced it was eliminating one of its chief executive officer positions to pass the powers of joint control to a single individual. Alexander was named the company's sole chief executive officer; Derek, in June 1999, resigned from his post to pursue other interests, although he continued to serve as a member of IR's board of directors. Derek's statement regarding his departure, as quoted in the May 17, 1999 issue of Electronic News, explained the move and touched on IR's orientation for the future: "The co-CEO structure played a key role in executing a successful transition through periods of unprecedented demand, volatile market conditions, intense competition, and rapidly developing technology. IR is well positioned with an excellent strategy and exciting new products in an improving marketplace. The board of directors, Alex, and I all feel a single-CEO structure helps IR to achieve its long-range objectives."
With Alexander Lidow alone at the helm, IR recorded the greatest growth spurt in its history, doubling its revenue in a five-year span to become a billion-dollar company. Most other semiconductor makers suffered through the period rather than posting annual double-digit financial growth, as flattening personal computer sales had a corresponding effect on the sales of chip makers who served the personal computer makers. IR, however, was positioned in the one sector of the semiconductor industry immune to stagnant personal computer sales. As the main processors in personal computers became increasingly bigger, they ran increasingly hotter, creating a greater demand for IR's chips that regulated heat. Further, the late 1990s and early 2000s witnessed the proliferation of sophisticated electronic devices that required power management chips. IR's ability to thrive in a lackluster personal computer market was only one aspect of its success story under Lidow's rule.
Lidow invested in new technology and reaped the rewards of diversification. He also changed the profile of IR's business, which, when coupled with the new markets entered via the company's diversification, created a vibrant enterprise. Between 1999 and 2004, Lidow spent $300 million to acquire eight companies. The acquisitions gave the company new technology that enabled it to expand its presence in the aerospace and defense industries. Among the acquired assets were: a silicon-fabrication plant in Wales; Advanced Analog, a California-based company that produced direct-current converters for military planes and ships; and Zing Technologies, a New York-based firm specializing in making radiation-tolerant packaging for circuits. Lidow also began a dramatic shift away from less profitable businesses in favor of higher-profit-margin businesses. Components, which yielded gross margins of 20 percent, accounted for 80 percent of IR's revenue in 1999. By 2004, components contributed 33 percent of IR's revenue, with the production of advanced circuits, which yielded gross margins as high as 65 percent, replacing components as the company's mainstay business. In 1999, advanced circuits accounted for 20 percent of IR's revenue. By 2004, they represented 67 percent of the company's revenue volume.
IR was a substantially larger and more profitable company as it entered the mid-2000s. The company faced a future that promised to call on its expertise in power management, a future in which the chips made by IR were to be used in not just regulating electricity flow but in conserving energy as well. IR's chips were suited for improving the efficiency of scores of devices and appliances, ranging from personal computers to hybrid automobiles to washing machines. Appliances and hybrid vehicles, in particular, figured as two of the most important business areas in IR's future, as Lidow strove to emphasize the diversity of applications for the company's power chips and their ability to conserve power. The company's engineers teamed with Sanyo to develop a new generation of washing machines, air conditioners, and refrigerators that reduced power consumption by as much as 60 percent. In a hybrid car, IR's circuits switched power between the engine and the electrical motor, presenting what potentially could be a lucrative market for Lidow's engineers to exploit in the future.
HEXFET America; Rectificadores Internacionales S.A. de C.V. (Mexico); International Rectifier HiRel Products LLC; Advanced Analog, Inc.; Unisem, Inc.; IR Epi Services, Inc.; International Rectifier Company Ltd. (U.K.); International Rectifier Electronic Motion Systems, Ltd. (U.K.); International Rectifier Corporation Italiana, S.p.A. (Italy); IR Newport Limited (U.K.).
STMicroelectronics N.V.; Fairchild Semiconductor International, Inc.; National Semiconductor Corporation; Samsung Group; Siliconix Incorporated; Vishay Intertechnology, Inc.
Crider, Jeff, "Chip Maker International Rectifier of California Says Profits to Decline," Knight-Ridder/Tribune Business News, September 13, 1996.
——, "El Segundo, Calif-Based International Rectifier Plans Temecula Expansion," Knight-Ridder/Tribune Business News, December 6, 1997.
——, "International Rectifier Adding to Temecula, Calif.," Knight-Ridder/Tribune Business News, November 17, 1995.
Detar, James, "International Rectifier Sales Are Hot Because Its Chips Can Regulate Heat," Investor's Business Daily, January 14, 2005, p. A4.
——, "Power Control: Big Business at IR," Investor's Business Daily, January 22, 2004, p. A8.
Flores, J.C., "Semiconductor Industry in L.A. Finds Survival in Niche Markets," Los Angeles Business Journal, March 26, 1990, p. 10.
Haber, Carol, "IR Settles Suits," Electronic News, January 11, 1999, p. 10.
Henry, David, "That Old Electric Surge," Business Week, July 12, 2004, p. 99.
"International Rectifier Posts Net Loss," Knight-Ridder/Tribune Business News, July 18, 1997.
"Int'l Rectifier Adopts New Single CEO Structure: Alex Lidow Named to Top Position; Derek Lidow Steps Down," Electronic News, May 17, 1999, p. 14.
"IR Sets $40M Plant in Wales," Electronic News, October 5, 1998, p. 46.
Kellner, Tomas, "Don't Look Back," Forbes, November 29, 2004, p. 61.
Mathisen, Tyler, "International Rectifier Corporation—CEO Interview," America's Intelligence Wire, January 28, 2005, p. 32.
"My Brother, My Rival," Forbes, September 11, 1995, p. 134.
Palazzo, Anthony, "Chipmaker Targets Hybrid Cars As Engine for Revenue Growth," Los Angeles Business Journal, August 9, 2004, p. 27.
——, "Semiconductor Maker Quiet After Analyst Downgrading," Los Angeles Business Journal, July 15, 2002, p. 24.
Paris, Ellen, "Hot Again," Forbes, November 21, 1983, p. 332.
"Power Chips Get a Jolt," Business Week, March 19, 2001, p. 96D.
"Profits Up for California's International Rectifier," Knight-Ridder/Tribune Business News, April 15, 1996.
Serioty, Chris, "Broad Product Line Shields Chip Maker from Tech Ills," Los Angeles Business Journal, May 21, 2001, p. 51.
—Jeffrey L. Covell