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Semtech's mission is to be a leading manufacturer of high quality analog and mixed-signal products, dedicated to providing our customers with cost effective, innovative solutions for power management, protection, communications and interface issues.
Semtech Corporation, headquartered in Newbury Park, California, develops and manufactures analog and mixed-signal semiconductor products for such industries as communications, computer, video, automated test equipment, automotive, aerospace, and military. The company's circuits are used in communications, advanced power management, protection, and interface products to protect equipment from damaging power surges and to regulate power distribution. Semtech has a number of manufacturing facilities, located in the United States, Mexico, and Scotland.
1960-80: Serving the Military and Aerospace Industries
Semtech Corporation was founded in 1960 by Gustav H.D. Franzen and Harvey Stump, Jr., who together had established semiconductor company Diodes Inc. in 1959. When investors assumed control of Diodes after only a year, Franzen and Stump formed Semtech to provide components for companies with military contracts, as well as aerospace companies. Semtech was quickly successful, and in 1967 the company went public and was listed on the American Stock Exchange. The firm specialized in the manufacture of power rectifiers, which were used in such end products as jet airplanes and X-ray machines.
By the late 1970s Semtech's annual sales hovered around the $15 million mark, and the company's net income was about $1 million. Smooth sailing was not to endure, however, and trouble began to brew in 1979 and 1980. Semtech had since its beginnings used pure silver in its components, specifically in rectifier wires, or leads. The price of silver increased dramatically in 1979 and 1980, soaring from $5 per ounce to about $50. Semtech's manufacturing costs rose radically as a result, and the panic-stricken company began to use copper, a less costly alternative to silver. The company had unfortunately not anticipated or researched the consequences of replacing silver with copper, and problems arose. Copper was unable to withstand high temperatures, and Semtech's semiconductors were rendered useless. Semtech suffered through nearly a year when very little product was shipped.
Losses Mount in the Early 1980s
Semtech had a difficult time recovering from the silver crisis and struggled from 1980 to 1985. As sales fell, losses grew; for the fiscal year ended January 31, 1982, Semtech reported losses of $36,000 on sales of $13.81 million. A year later the company had losses of $113,000 on sales of $11.69 million, and fiscal 1984 losses grew to $668,000 on sales of $11.41 million. For the year ended February 2, 1985, losses mounted dangerously, reaching $3.97 million on sales of $10.94 million. The company attributed the declines to reduced demand and a severe slump in the semiconductor industry.
As Semtech fought to remain in business, changes in management threatened the company's future. Cofounder Stump was elected Semtech chairman in February 1984 only to resign six months later, citing personal reasons. J. Spencer Letts, a director and an attorney for a Los Angeles firm, was elected to take Stump's place. A year later, in May, president and CEO Sidney A. Wales stepped down. Wales, only the second president in the company's history, had headed the company for just over a year, taking the place of Stump when Stump became chairman. Semtech announced that the CEO and president positions would be filled temporarily by cofounder and Executive Vice-President Gustav Franzen, Vice-President Allen Gateka, and Chairman J. Spencer Letts. In September, unbeknownst to Franzen, who was on vacation in Europe, John 'Jack' Poe was hired to take the helm. Franzen remained executive vice-president. Finally, in November, Letts resigned as chairman.
Slow Recovery and Restructuring: 1985-90
Jack Poe faced enormous challenges in his first position as a CEO of a company. Poe was familiar with the semiconductor market, having worked at Fairchild Camera & Instrument and acted as vice-president of operations at Silicon General prior to joining Semtech, but those experiences did not prepare him for his first day at the crumbling Semtech. Poe shared his experiences with writer Jennifer L. Baljko of Electronic Buyers' News, noting that on that first day his secretary was absent because she was having surgery, two company attorneys handed him masses of paperwork and told him the Securities and Exchange Commission had questions about the company's failure to post a profit in four years, and a manager informed him that the company did not have enough funds to make the week's payroll. To add insult to injury, Poe gave a speech to Semtech's factory employees in the afternoon, only to discover afterwards that he had left his pants unzipped.
Poe implemented a restructuring strategy and set about turning Semtech around. To cut costs, Semtech cut its workforce 14 percent, from 264 to 227 workers, and sold a warehouse located in Nevada. Poe also kept a close watch on the company's expenditures. He explained to the Los Angeles Times how he managed to save money: 'The way you do that is you sign every purchase requisition.' Poe added that 'absolutely anything that is not essential to keep the company going, you don't spend it. We were living on checks that we got in that day to pay bills we had to send out that afternoon.' Slowly, losses were reduced. For the third quarter ended November 2, 1985, losses declined 11 percent from the comparable period in 1984, reaching $195,000. Then, for the first half of fiscal 1987, Semtech reported sales of $5.92 million. Sales were lower than the $6.10 million reached during the first half of fiscal 1986 because of a soft semiconductor market, but Semtech managed to pare down losses further, from $692,000 to $36,000. Fiscal 1987, which ended January 31, 1987, marked a turning point for Semtech. The company reported an annual profit of $179,000, the first time Semtech had reported an annual profit since fiscal 1981.
Another aspect of Semtech's restructuring was to focus more heavily on research and development. New technical and engineering divisions were established, including one to investigate new technology in microelectronic design and another to enhance existing semiconductor products. Semtech also beefed up its manufacturing processes, adding manufacturing equipment and upping plant capacities. These enhancements enabled Semtech to cut its lead times from 24 weeks to 12 weeks for a product line of military diodes. The family of diodes was among Semtech's most popular, and the diodes were used in a number of U.S. defense programs. Also in 1988 the company launched a line of power rectifiers. The fast rectifiers possessed higher voltage handling capabilities and were used in military and industrial applications. To keep up with the increased demand for its semiconductor products, Semtech acquired Polycore Electronics Inc. in September 1988. Polycore, which primarily served military customers, operated a silicon foundry and custom-die design business.
Though Semtech appeared to have evaded extinction, challenges still existed. The end of the 1980s brought the end of the Cold War, which led to a decrease in military contracts. A decline in the semiconductor industry hit Semtech as well, and Semtech saw its sales drop once again. In fiscal 1989 the company earned $1.7 million on sales of $19 million, but during the fourth quarter of that fiscal year profit declined 40 percent from the corresponding year-earlier period. Sluggish demand for semiconductors was blamed, and the company braced itself for an industrywide slump, a regular occurrence in the highly cyclical semiconductor business.
Transition to Commercial Markets in the Early 1990s
Semtech was by the early 1990s a survivor, and Poe was determined to lead the company to success. In response to falling defense contracts, Semtech diversified, turning toward commercial markets. The company dedicated resources to find new markets for its analog semiconductors and began to develop products geared specifically toward those markets. To quicken its foray into commercial markets, Semtech acquired Lambda Semiconductors, the semiconductor division of Lambda Electronics Inc., a power supply manufacturer, in 1990. Lambda Semiconductors specialized in the voltage regulator business and manufactured power transistors and bipolar integrated circuits. The acquisition provided Semtech with a more commercial sales mix, lessening its dependence on military and aerospace contracts from about 90 percent of total sales to approximately 50 percent. Also that year Semtech sold Polycore Electronics.
In 1991, to streamline operations and in response to slow activity, Semtech reduced its workforce by 28 percent. The company also sold its microelectronics business, which it had founded in 1987, to Natel Engineering Co. Inc. To further establish its presence in the power regulator business, Semtech purchased the assets of Modupower Inc. in 1992. Modupower, which was formed in 1990, manufactured DC/DC converters, power-supply modules, and voltage regulators. Semtech also hired Modupower founder Art Fury, appointing him vice-president of sales and marketing. In 1993 the company launched its first commercial line of transient voltage suppressor (TVS) diodes. The diodes were targeted for applications in telecommunications, data processing, office automation, and consumer electronics.
As Semtech adjusted to its new role serving commercial markets, so did its finances, which fluctuated wildly during the first half of the decade. Net income dropped from $840,000 in fiscal 1990 to $452,000 in 1991, despite higher sales. By 1993 sales to military and aerospace interests had dropped significantly. Net income sagged once again in fiscal 1994, reaching $95,000 on sales of $21.29 million, compared with net income of $431,000 on sales of $20.16 million in fiscal 1993. Semtech was not discouraged, however, noting that fiscal 1994 marked the first time the company received more orders in commercial and industrial markets than in military and aerospace businesses. In addition, the company remarked that it had invested heavily in new product development and promotional efforts to help with the transition to new markets.
Intensifying Growth: 1995-2000
Semtech gained momentum as it headed toward the 21st century. Sales began to improve, reaching $25.81 million in fiscal 1995, up 21 percent from fiscal 1994. After two years of flat sales and sagging profits, Semtech posted a net income of almost $1.2 million. The company focused on businesses involved in telecommunications and personal computer manufacturing, introducing more than a dozen new products geared toward notebook and desktop computers during the fourth quarter of fiscal 1995 alone. Semtech also launched a number of new products designed to provide solutions for low voltage power conversion applications in such battery-powered products as cellular phones, pagers, and notebook computers. One innovation Semtech made was in the development of a low voltage regulator that converted the industry standard five volts to 3.3 volts. Low voltage regulators had a growing market in computer and telecommunications businesses, which relied on lower voltages to enhance battery life and boost performance.
To increase exposure and liquidity for Semtech common stock, Semtech made a move from the American Stock Exchange to the NASDAQ National Market System in March 1995. The transition occurred at an opportune time, as the semiconductor industry staged a strong recovery. As a result, shares of Semtech jumped from about $2 a share to more than $19 a share during the first six months of 1995.
Focused on growth, Semtech acquired Gamma Inc.'s ECI Semiconductor, an analog semiconductor manufacturing firm. The purchase advanced Semtech's ability to produce linear voltage regulators and TVS products. In June 1996 Semtech announced plans to establish a design center in Santa Clara, California. The company hired two analog integrated circuit designers to head the center, which would focus on developing products for the portable electronic and networking markets, including cellular phones and notebook computers. CEO Poe commented on the importance of the design center in a company press release, stating 'While we have been tremendously successful in transitioning from a military customer base to a predominantly commercial and industrial customer base, Semtech knows it cannot rest on the laurels of its success. New products are the lifeblood of a company, and Semtech will be very aggressive in pursuing business opportunities within our areas of expertise and in the emerging markets that hold promise.'
According to plan, military and aerospace accounts dropped to about 30 percent of the company's sales in the mid-1990s as Semtech broadened its visibility in commercial sectors. Net income for fiscal 1996 surged 401 percent, hitting $7.53 million. Revenues increased 78 percent over fiscal 1995 sales to reach $61.68 million. In October 1996, Semtech was ranked number 51 in Fortune magazine's list of the 100 fastest-growing companies in the United States; the following year, the company climbed to number 30 on the list.
In anticipation of expansion in the automated test equipment market, Semtech acquired Edge Semiconductor in October 1997 through a stock swap estimated at about $50 million. Edge, based in San Diego, California, made analog and mixed-signal products used in automated test equipment. In April 1998 Semtech purchased Acapella Ltd., a United Kingdom-based designer of mixed-signal integrated circuits for fiber-optic communications. Acapella also acted as a design consultant for various electronics companies. This acquisition greatly enhanced Semtech's presence in the high-growth fiber-optic communications market. Then, in September 1999, Semtech purchased Practical Sciences, Inc., which specialized in the design of high-speed communications components and analog integrated circuits. This acquisition complemented the Acapella purchase and further boosted Semtech's presence in the fiber optic market.
Semtech also continued to develop technology for creating analog semiconductors, which were enjoying increased demand because they were instrumental in regulating the power to digital semiconductors. Expanding the company's design efforts, Semtech established a design center in Glasgow, Scotland, in fiscal 1998. In May 1998 a third design center was created. Located at Research Triangle Park, North Carolina, the center employed designers focused on data acquisition, power management, and video and interface solutions. In November 1999 Semtech completed expansion of the North Carolina facility, which grew from 4,700 square feet to 7,700. The company planned to hire 15 new engineers to add to its existing staff of 19 employees.
Despite sagging sales caused in large part by the economic crises in Asia, Semtech continued to grow and rack up impressive annual sales. In fiscal 1998, Semtech's sales surpassed the $100 million mark for the first time in the company's history. The following fiscal year, sales climbed 11 percent over the previous year. Semtech hired 52 new engineers that year, 36 of whom were dedicated solely to research and design, and launched 43 new product families, a 48 percent increase over the previous year. The third quarter of fiscal 2000 continued Semtech's upward trend, with sales reaching $47.1 million, a jump of 65 percent over the comparable period of 1999.
As Semtech faced the future, it planned to focus on high-growth areas to ensure its continued success and expansion. Developing solutions for the growing number of portable devices and enhancing technology for fiber-optic communications were among the areas on which Semtech planned to concentrate. The company also planned to investigate acquisition opportunities and to diversify its product portfolio in order to gain a leadership position in the constantly changing and growing communications industry.
Principal Subsidiaries: Semtech Limited (Scotland); Semtech Corpus Christi; Semtech Santa Clara; Semtech Corpus Christi S.A. de C.V. (Mexico); Edge Semiconductor; Acapella Limited (U.K.).
Principal Competitors: Analog Devices, Inc.; National Semiconductor Corporation; STMicroelectronics N.V.; Unitrode Corporation; Micrel Inc.
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