1818 South Highway 441
Sawtek is a leading global supplier of microelectronic signal processing products based on Surface Acoustic Wave and related technologies. We will leverage our proprietary technical expertise, unmatched customer service, rapid product development capability and superior technical support across the broadest range of products, markets and applications. We will aggressively pursue growth opportunities, utilizing our unique strengths to provide differentiated, value-added products and services that offer a competitive advantage in the eyes of our customers.
Sawtek Inc., based in Apopka, Florida (near Orlando), is a manufacturer of custom-designed electronic components, especially devices based on Surface Acoustic Wave (SAW) technology, with an emphasis on the high-end performance spectrum of its government and commercial markets. Its main products are SAW bandpass filters for both Intermediate Frequency (IF) and Radio Frequency (RF) commercial applications in the wireless telecommunication handset and infrastructure markets. Sawtek also makes customized high-performance bandpass filters, resonators, delay lines, and oscillators as well as SAW-based subsystems. The company's products are used in a broad range of microwave and radio frequency systems, including digital CDMA (Code Division Multiple Access) and GSM (Global System for Mobile Communication) telephone systems, digital microwave radios, wireless LANs (Local Area Networks), cable and high-definition television, cordless phones, satellite and defense systems, and chemical sensors. Nearly 75 percent of Sawtek's sales are to the communications industry, and among its major customers are Motorola, Hyundai Electronics, Lucent Technologies, Samsung, and Nokia. Its chemical sensors and related components are sold to pharmaceutical companies and to the government. In addition to it facility in Florida, Sawtek operates a manufacturing plant in San José, Costa Rica (Sawtek S.A.) and a direct sales office in Seoul, South Korea (Sawtek Far East). The company, which went public in 1996, has an employee stock ownership plan (ESOP), and at the start of 2001 its employees held about 21 percent of its stock.
1979–89: Origins and Entering the Commercial Market
Four Texas Instrument (TI) employees, headed by Steve Miller and Neal Tolar, founded Sawtek Inc. in 1979. All of them brought SAW technology experience to the new enterprise, begun for the purpose of providing radar and electronic warfare systems to the U.S. military. Prior to co-founding Sawtek, Miller was manager of TI's SAW Device Engineering and Development Laboratory. He had joined Texas Instruments in 1969. Co-founder Tolar, who joined TI in 1967, was a staff member in that company's RF Technology Group of the Corporate Research Laboratory. Until they stepped down from the day-to-day operations of Sawtek, these two men served in a variety of the company's executive positions: Miller was president from 1979 to 1997 and CEO from 1986 to 1999; Tolar, a director since 1979, served as vice-president of operations and engineering from 1979 to 1995, and senior vice-president and chief technical officer from 1995 to 1999.
Basically, SAW technology involved the production of acoustic waves in solid materials used in signal processing. The technology had only been pioneered in the early 1970s, so it was a relatively new technology with great potential and a wide-open field. In the early years of the company's development, Sawtek relied heavily on government contracts, but by the mid 1980s, because of military budget cuts, Sawtek began shifting its focus to the growing number of commercial applications, something Miller and Tolar had sought to tap into from the very beginning. Although the company was aided by the impact of digital technology on the telecommunications industry, which by then had entered a major period of rapid expansion and fueled Sawtek's own growth, the transition to the commercial sphere was at best gradual, taking over a decade.
1990–96: Gaining Market Share and Aggressive Expansion
In fact, in the early 1990s, the military and aerospace industry continued to account for more than half of the company's revenue. In 1991, for example, 61 percent of its net sales were still made in those market segments. However, by 1996, 85 percent of Sawtek's net sales came from the commercial market sector. In that same five-year period (1991–96), the company's international sales increased from 20 percent of total sales to 54 percent, largely aided by the worldwide growth of wireless telecommunications.
An Employee Stock Ownership Plan (ESOP) was instituted by Sawtek in 1991. The company borrowed $4 million from its commercial bank to lend to the ESOP to finance its acquisition of almost 8.9 million shares of common stock. It borrowed another $1.7 million in 1994, lending it to the ESOP for the purchase of over 1.6 million more shares of common stock
In 1995, Sawtek commenced an aggressive expansion campaign, taking major steps in the next year when it went public, expanded its facility in Florida, added more than 300 employees to its work force, and opened a facility in San Jose, Costa Rica, where, for approximately $1.3 million, it purchased a 31,690 square foot plant. At its 16-acre Apopka site, Sawtek added 33,000 square feet of production space plus an additional 13,000 square feet of office space.
Expansion involved considerable risk taking. Among other things, Sawtek relied very heavily on a small number of major customers. In fiscal 1995, for example, 60 percent of its revenues came from sales to the company's top ten customers—telecommunications equipment manufacturers like Lucent Technologies, Motorola, Nokia, Omnipoint, and Alcatel. The risk was exacerbated by Sawtek's recurring problem of not meeting delivery schedules, causing grumbling among some of its customers who wanted their needs met on time. Still, the company remained profitable, earning $4.1 million on revenues of $31.3 million for the fiscal year ending September 30, 1995, up from revenues of $19.1 million and earnings of $1.7 million the previous year.
The financial story changed the next year. Although the expanded Florida plant and new facility in Costa Rica doubled Sawtek's production capacity and helped increase the company's net sales by 84 percent, Sawtek recorded a $300,000 loss in 1996. The red ink was partly explained by the rise in costs resulting from the company's mounting overhead plus its increased debt retirement burden. Among other things, in the last quarter of 1996, the company began paying a quarterly ESOP compensation expense of about $195,000, representing the remaining payments on a loan secured in 1991 to purchase almost nine million shares of common stock for the ESOP program. To help offset its rising costs, pay off $3 million in bank loans, and finance further growth, the company decided to go public that same year, filing a stock registration statement on March 1, 1996. When it made its initial public offering, Sawtek offered 4.5 million shares of common stock, three million of which were owned by the company and the remainder by stockholding investors, including Miller and Tolar.
1997 and Beyond: Some Challenges But Impressive Financial Gains
The company returned to profitability with a vengeance in 1997, when, with revenues of $82.8 million, it netted an income of $20.8 million and a net profit margin of 25.1 percent. It would do even better over the next three years, turning in a stellar balance-sheet performance despite some bumps in its corporate road.
By 1998, the percentage of Sawtek's revenue generated by government contracts had dropped to just 8 percent. Increasingly, the company depended on both domestic and foreign commercial sales to offset the decline in sales to federal agencies. That shift created a problem in 1998, when a major South Korean buyer reneged on its large orders and Qualcomm Inc. cut back on the production of its Q phones, which used filters made by Sawtek. To offset its production costs, the company shifted its manufacturing to its facility in San Jose.
Despite the temporary setback, Sawtek continued its growth strategy. In 1998, it purchased Microsensor Systems, Inc., a private research and development company based in Bowling Green, Kentucky. Microsensor, acquired in a stock swap agreement, designed and manufactured scientific instruments for the chemical sensor market. The instruments employed polymer-coated SAW devices and other technologies, which suited Sawtek's SAW-based chemical sensor initiative. The acquisition provided Sawtek with an array of new products, an established customer base, and an enhanced technical expertise.
Miller stepped down as Sawtek's CEO in 1999. He was succeed by Gary Monetti, who had been the first college graduate to be hired by Sawtek back in 1979, when the company had only 20 employees. He had followed the advice of his father, which was either to start his own company or join a small one where he could make his mark by helping it grow. It was also in 1999 that Sawtek opened an office in Seoul, South Korea, dubbing the operation Sawtek Far East.
Monetti ran into some serious problems in early and late 2000. In February, the company's common stock again took a nose dive. The plunge was attributed to two causes: alleged insider profit taking (including the sale of stock by several Sawtek executives), and announcements made by Qualcomm indicating that it was developing new CDMA chipsets that would eliminate the need for IF transmit filters and render them obsolete. Later, in December, after Qualcomm released the news that its new Zero Intermediate Frequency technology, radioOne, reduced the size and cost of making CDMA radios, Sawtek's stock fell further, quickly dropping by $11.25 per share to $53.75.
The seesawing performance of Sawtek's stock in 1998 and 2000 did not stop the company from developing new products or continuing its expansion. It did take some damage control steps, however. Among other things, it publicized the fact that the sale of stock by Miller, Tolar, and other executive officers was strictly done in accordance with federal securities laws and basically involved the company's ESOP, not individual profit taking. It also responded to Qualcomm's claims, issuing, among other things, a white paper that it posted to its Internet site. According to Sawtek, the transmit IF filter used by Qualcomm in the past was not a SAW filter to begin with and, in any case, was never provided to Qualcomm in volume. Moreover, the SAW IF filter developed for Qualcomm's new chipset was not, Sawtek claimed, a vital company product. It noted that for the fiscal year ending in September 1999, SAW IF filters accounted for less than 1 percent of Sawtek's total sales.
The company certainly treated its difficulties as if they were a press-made mountain heaped over a factual mole hill and certainly nothing to impede progress. In the summer of 2000, it completed construction of its new, 30,000 square-foot manufacturing facility near San Jose, Costa Rica, doubling its production space in that country. Before the new plant's completion, Sawtek's Costa Rican operations already accounted for over half of the company's revenues and contributed significantly to its reduced tax burden. The new facility was slated to be used primarily for manufacturing a new line of products, including RF filters for digital wireless phones and IF filters for GSM wireless phones. The new plant also expanded Sawtek's work force in Costa Rica to over 250 employees.
The expansion in Costa Rica was Sawtek's last major move under Monetti's watch. In November 2000, ill health forced him to step down from his position as Sawtek's CEO and from the company's board of directors. His successor was Dr. Kimon Anemogiannis, who had been an officer with the company since 1998. He was named both CEO and president. To help with the transition, Monetti stayed on the company payroll as an advisor both to Anemogiannis and the company.
Anemogiannis had first joined Sawtek as director of engineering in 1995. He was named vice president-engineering in 1998 and vice president and COO in 1999. Before his employment at Sawtek, he held a variety of engineering posts at Siemens Matsushita, a SAW component manufacturer based in Munich, Germany. At the time that he moved over to Sawtek, he already had an international reputation as an expert and SAW technology innovator. At Sawtek, he had quickly become the chief force behind the company's strategy of becoming a high-volume, low-cost producer of a wide range of SAW-based components.
The new CEO inherited some problems from his predecessor, including the company's volatile stock, which, as noted, continued on its market roller-coaster ride throughout 2000. However, in February 2001, soon after Anemogiannis took on the president's job, Sawtek announced its pre-production release of its new miniature 5 x 5 mm cellular RF SAW duplexer, a device designed to offer higher performance and greater power handling for CDMA, TDMA (Time Division Multiple Access), and AMPS (Advanced Mobile Phone Service) applications than the miniature SAW duplexers then in use. Its development represented the kind of technological breakthrough that had always helped Sawtek weather the inevitable problems that beset most high tech, rapidly changing industries. The company seemed positioned to continue doing so well into the new century.
Principal Subsidiaries:Microsensor Systems Inc.
Principal Competitors:Allen Telecom Inc.; Dover Corporation; Fujitsu Limited; Microwave Filter Company, Inc.; Powerwave Technologies, Inc.; RF Monolithics, Inc.