Maxim Integrated Products (MXIM)
Author: Steve Szirom, senior analyst, InsideChips
The Beginning: Dueling Jacks
The blowup between the "Jacks" at an industry cocktail reception back in 1982 planted the seeds from which Maximum Integrated Products eventually grew. The "Jacks" involved in this incident were Jack Gifford, who at the time was running GE's Intersil Division, and newly elected GE CEO Jack Welch, who appeared to be reversing his earlier assurances to let Intersil keep its own Silicon-Valley-style stock-option plan for its executives after GE purchased Intersil.
Gifford, incensed, would have none of it, and so the two chip executives came to verbal blows during the party. A recent Electronic Business article recounting that fateful meeting quoted Gifford saying, "...and finally I was so mad, I said fuck you, and I just turned around and walked out." Not surprisingly, Gifford was out of a job soon thereafter. The exit was messy, according to rumors we heard at the time, and Maxim's beginnings were initially mired in legal quicksand. Within a few years, however, Gifford was well in command of his new analog ship, and the rest is history.
Gifford began his career in the 1960s at venerable Fairchild Semiconductor. Originally hired by Don Valentine (founder of Sequoia Capital) as a salesman, Gifford rose through the ranks to become a director of analog ICs. By the end of that decade, and after several promotions at Fairchild, he jumped ship with Jerry Sanders and others to launch AMD. His tenure there as CFO was only two years, as he had a falling out with Sanders--perhaps due to a mighty clashing of two strong personalities. After the AMD debacle, Gifford tried his hand at farming in the Sacramento area. But Cupertino-based Intersil lured him back to the analog IC world with a director job to head up a fledgling data-acquisition division. By 1980, analog was Intersil's biggest revenue generator, with sales of more than $100 million; Maxim Integrated Products, the company Gifford would eventual found in 1983, would take eight years to nudge the $100-million revenue mark.
The original Intersil, then a rising star in the analog industry, caught the eye of GE, which acquired the Silicon Valley upstart for about $240 million in 1983. We believe Gifford went on a mission to convince GE brass to keep Intersil as an autonomous subsidiary and allow the company to maintain Silicon-Valley-style perks and stock options. For a while, it seemed to work; eventually, however, GE minions became jealous of their new Silicon Valley brethren, and the fateful clash of the Jacks occurred as Welch moved to calm his troops.
Gifford, who was already a millionaire at the time, could have retired to his orchard in Marysville--and he did, for a while, until rumblings of discontent at Intersil reached a fever pitch under the GE regime. In 1983, Gifford and nine Intersil mutineers started Maxim. GE and Intersil immediately filed suit against the renegade band of ex-Intersilers, alleging infringement of trade secrets. The companies eventually settled the in 1984, when Maxim agreed to let GE/Intersil pick 10 of Maxim's chips during the ensuing five years to manufacture and market on a royalty-free basis. In return, GE granted Maxim rights to certain product know-how, trade secrets and patent rights.
Maxim began by making second-source analog products, but quickly moved toward developing proprietary analog functions and targeting the high-end performance market. By 1991, when Maxim reached $100 million in revenues, half of its 450-chip portfolio was based on proprietary devices. By the end of the decade, Maxim's home-grown management formula enabled it to crack the $1-billion mark.
Last year, following the death of Dallas Semiconductor's Vince Prothro, Maxim struck a deal with Dallas to acquire the Texas chip maker for about $2.5 billion in Maxim stock--but not before Gifford interviewed 150 Dallas engineers to make sure he was getting some stars for his analog roster. The deal immediately endowed Maxim with a 50% boost in revenues to the $1.5-billion mark in the 2001 fiscal year. It is the second-biggest acquisition in the analog world, after TI's recent purchase of Burr-Brown.
So far, Maxim seems to be digesting the fortuitous acquisition fairly well. Maxim gave up about 11% of its stock for about 50% more revenue and 30% more engineers. Gifford, who we believe is averse to acquisitions, could not resist the hen with the golden egg; in this case, we believe the Dallas board brought the deal to Maxim.
The only caveat is whether Gifford can bring the cowboys of Dallas in line with his management style--we will keep our eyes and ears tuned into this one. From a product synergy point, it should be a good fit. Dallas brings a strong line of high-volume power-management chips to Maxim's portfolio. Some fine tuning may be necessary to prune weaker lines and raise overall gross profit margins, which are lower than Maxim's.
The Profitable Analog Machine
What makes companies such as Maxim and Linear Technology tick? What makes them the envy of the chip world with gross profit margins of 70%?
Japanese companies are wracking their collective brains to come up with the answers; in the case of Maxim, we will shed light on part of the mystery.
1. A Shrewd, Competitive and Aggressive CEO.
It all starts where the buck stops--at the top. Gifford, for all his perceived faults as an occasionally tempestuous soul and an incurable micro-manager, is behind Maxim's success (not to take anything away from his many business directors). Still, some of the micro-managing stories we've heard could easily be called extreme. For example, we heard Gifford was the only person allowed to write with a red pen at the company, so when the troops see red on paper they know it is from the boss.
Clearly, Maxim is not run by a committee. It is interesting to note, however, that Gifford's archrival, Linear Technology chief Bob Swanson, appears to have a very similar management style. One Swanson story we heard is that he assigns cubicle spaces where employees can sit.
Gifford runs the show at Maxim with a tough-as-nails, no-nonsense style. In December 2001, Electronic Business magazine elected "Captain Jack" (as he is sometimes referred to by long-time industry insiders) "CEO of the Year." This was the first time in a decade, as far as we know, that Gifford shed his PR shyness. The article cover, which presents Captain Jack wielding a baseball bat, proudly adorns the otherwise engineering-oriented Maxim web site.
Gifford rules Maxim's world according to his 13 principles...errr, maxims. The only one we will mention here is #12, which states:
We like this one. Many big companies could prevent major headaches if their people followed number 12 to the letter. Together, the complete set of 13 principles is a great corporate-culture ethos. As far as we know, he is the only CEO in the industry to sign his name to a corporate-culture statement published on the web. That says a great deal about his management style. Readers can view the 13 principles on company's web site at this link.
Gifford is an accomplished baseball player, and is a regular participant on the Maxim Yankees team, which competes nationally and does quite well. One of his idiosyncrasies is that he is prone to hire smart athletes, as he believes they have that tough, competitive spirit, which carries over to business. For example, last year he named Los Angeles Dodger first baseman Eric Karros to Maxim's board.
As far as any potential successors are concerned, it might be hard to dislodge Captain Jack any time soon. As he states in the "CEO of the Year" article, "I'm the youngest 60-year-old you've ever seen. I love this job." We agree; his appearance has not changed much in the past 30 years and he still swings his bat well.
Maxim's top-level organization chart is shown in Figure 1. Several of his top generals retired, including VP Dave Fullagar who left around 1994 and has taken to a sailing life to distant shores. Ziya Boyacigiller, another VP, retired in 2000 to become an angel investor and mentor to software startups.
Several of the newer players in his VP lineup are Hungarian Laszlo Gal, who came over from Applied Microcircuits in 1999. Gal also spent time at Unisys and Motorola. Also arriving in 1999, Parviz Ghaffaripour joined the company from National Semiconductor, where he held various technical and management positions, including product line director for audio ICs.
2. Business Managers/Directors in the Driver's Seat.
Maxim is organized into the following divisions:
Within each division, business managers (BMs) are responsible for all aspects of the product
BMs scrutinize the market segments for their products and work closely with sales and applications engineers to identify customer needs. Based on their analyses, they present product ideas for development, including strategies and roadmaps.
The new-product planning process includes a team consisting of the business manager, the analog designer, and product definer. They put a great deal of effort into the product definition stage as they determine the specifications. BMs then monitor the product's development and work with inter-company groups to iron out problems to meet the development timetable.
The BM is in charge of leading the promotion strategy for the product. This process includes data sheet development, establishing an advertising campaign in conjunction with the marketing communications department, developing a pricing strategy, and coordinating the introduction (stocking, sample availability, and announcement) of new products.
Another key role of the business manager at Maxim is to orchestrate the efforts of applications engineers, sales people, and other company support groups to achieve design wins at the customer. This includes managing the quoting process. The business manager may become directly involved with customer design-win negotiations on larger deals.
Maxim's business managers are also responsible for developing forecasts that drive the manufacturing scheduling.
3. A Star-Studded Cast of Analog Designers.
If you hope to get a job designing analog chips at Maxim, you had better be good and prepared. The company's efficient R&D and chip-design machine provides a real competitive advantage. Maxim goes overboard to try to retain their star design engineers, and they have done a reasonably good job at it.
The company does not foster the touchy-feely, massage-parlor atmosphere of Steve Jobs' Apple Computer for its engineers; it maintains a professional approach to business. The company, which rewards those that perform, relies on stock options to motivate its designers--even more so than Linear Technnology, in our view.
Maxim has one of the best analog design teams in the business, and if you want to provide services to them such as subcontract design, be ready to suffer a ping-pong style of interrogation--a room full of directors firing questions left and right, applying pressure and trying to wear you down.
The technical and engineering organization has a good number of British nationals. Maxim has enjoyed success in the U.K. with its products and the organization there has grown. Some Brits expatriated to Silicon Valley, which explains why there is an unusually large number of Brits in the Maxim design organization.
The company makes good and extensive use of third-party design centers, which sometimes become acquisition targets.
Maxim always seems to be on a worldwide talent hunt for IC design resources. Our best guess is that the company ties up the design house with work to test the relationship, then swoops in to take it over through an acquisition if they're satisfied. This was the case with hySys, a small, five-person mixed-signal data-communications IC design house that spun out of Sican (now Sci-worx) in Hannover, Germany (see "Hannover Rumors" in Bits and Bytes, page 8).
We believe Maxim has design contracts around the world for mixed-signal and analog IC design work. For example, we heard that it works with Chipidea Microelectronics, an analog and mixed-signal specialist in Portugal (see Oct. 1999 InsideChips.Ventures).
Maxim's design centers are located throughout the U.S., Canada, Europe and India. Table 1 summarizes the company's far-flung design center operations. We believe the company's reason for establishing so many design centers in remote locations is to make it less convenient for design talent to walk across the street to the competition, a popular Silicon Valley habit.
Maxim is getting very creative in its choices for setting up design activities. Kona, on the Big Island of Hawaii, is the site of a new fiber-communications design center--probably the only microelectronic operation in the entire island chain. When we asked Maxim what motivated it to set up an IC design operation in Kona, here is its official party-line answer:
Maxim has an almost insatiable appetite for analog designers and the Great Design House hunt is an on-going process. We estimate that Maxim currently has an 800-strong engineering organization worldwide.
4. Focus on New Products and Product Definition
Maxim is a great believer that it must publish or perish. In this case, "publishing" means coming out with 20% to 30% new products every year. Last year, we estimate Maxim introduced more than 350 new products. This brutal introduction rate requires a well-honed development team and a seamless marketing roll out.
To lessen the chance of designing analog ICs that would fail in the market, a significant effort goes into up-front product definition, a task handled by technical marketing. Product definition is undertaken on a team basis, and Maxim goes to great lengths to ensure a real market exists for the new chip and that there is minimal direct competition. We believe that a number of Maxim's products fail, but its innovation percentage is large enough that it can sustain itself on winners; i.e., those products that bring in $500,000 and more in sales.
5. Strong International Revenue Base and Broad Distribution.
Three characteristics of the analog world are that products are diverse, not as high volume as their digital counterparts, and geographically dispersed.
Maxim recognized these characteristics very early and has been able to tap into the right international markets. International sales accounted for approximately 57%, 53% and 53% of net revenues in fiscal 2001, 2000 and 1999, respectively. We believe international sales in the current quarter accounted for up to 61% of the total. Europe has a long history of analog usage, and Maxim has built up a good base there. Maxim focuses heavily on using third-party distributors worldwide, and relying on setting up direct sales organizations throughout the North America market.
The diversity of the products and the relatively small volumes make analog products perfectly suited for distribution sales in areas that Maxim has set up a wide network of distributors. The direct sales effort, manufacturer's reps, and distributors are additionally enhanced by E-commerce web sales. InsideChips estimates Maxim sells to about 35,000 customers worldwide.
In North America, Maxim sells its products through a direct sales and applications organization in nine regional sales offices, and through its own and other unaffiliated distribution channels.
Maxim conducts its international sales through 23 sales offices, four sales representative organizations and 62 distributors. The company plans to consolidate and reorganize the worldwide distribution channels in fiscal year 2002 -- most likely to rationalize its sales channels with those of newly acquired Dallas Semiconductor.
Maxim has a long-term supply arrangement with Tektronix for the supply of products manufactured by that company prior to the May 1994 sale of its IC operation, and also for new Tektronix designs. This arrangement expires in May 2004, after which it becomes a month-to-month deal.
Products and Technology
Maxim has a line of about 3,200 analog products; approximately 2,700 are proprietary. Last year, the company introduced more than 500 new products.
Analog ICs connect the real world and the digital world by detecting, measuring, amplifying and converting real-world signals, such as temperature, pressure, sound, voice and light, into the digital signals necessary for computer processing.
The company's analog product line includes data converters, interface circuits, real-time clocks, delay lines, microcontrollers, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, switches, battery chargers, battery-management circuits, RF circuits, fiber optic transceivers, sensors, and voltage references.
Maxim's chips are used in a wide variety of microprocessor-based communications, industrial control, instrumentation, and data-processing equipment, including personal computers and peripherals, process control, test equipment, handheld devices, wireless and fiber communications, and video displays.
Maxim has a long and successful history of dominating niche analog markets with super-high margins and riding them out for several generations. Analog chips also have inherently longer life cycles than digital or consumer ICs. If and when a product area becomes a commodity, Maxim has usually already moved on to a slate of newer high-margin analog ICs.
Readers can view the complete Maxim product line at this link.
We believe that the communications segment of Maxim's business is its fastest-growing area and will account for about half of the company's sales in three to four years. Currently, computer, industrial and telecom each account for approximately 30% of total revenues. Military and other devices account for the balance.
The analog IC industry is competitive, but not to the same extent as digital IC and memory companies where foreign competition is more intense and subject to bloody price wars.
Maxim's main competitors are Anadigics, Analog Devices, Applied Micro Circuits, Conexant Systems, Infineon Technologies, Intersil, Linear Technology, Agere (Lucent), Micrel, Microchip Technology, Mitsubishi, Mitsui & Co., Motorola, National Semiconductor, ON Semiconductor, Philips Semiconductors, RF Micro Devices , Ricoh, Seiko, Semtech, STMicroelectronics, Siliconix , Sipex, Texas Instruments, Vitesse Semiconductor and others, including startup companies.
Table 2 shows a recent top-10 analog ranking. It should be noted that the Japanese and European firms listed are heavy on high-volume consumer ICs, while companies such as Maxim do not participate in the traditional consumer IC business.
Plants and Facilities
Maxim has manufacturing facilities in San Jose, Calif.; Dallas, Tex.; Beaverton, Ore.; Cavite, The Philippines; Samutprakam, Thailand; and other locations worldwide.
The combined Maxim and Dallas now have the facilities and equipment in place to ship approximately $550 million per quarter.
The company's San Jose fabrication facility was expanded this year, with the addition of a 20,000 square-foot sub-micron Class 1 clean room and a 5,000-square-foot Class 10 clean room. The expansion area will run advanced technologies on 8-inch wafers. The expansion of Dallas Semiconductor's fabrication facility in Dallas, begun in calendar 2000, was completed and paid for in the fourth quarter of fiscal 2001, and a conversion to 8-inch product is underway. The shift to 8-inch wafers will result in wafer cost reduction when the facility becomes operational in early next year.
This year, Maxim expanded its facility in Cavite, The Philippines, to 234,000 square feet of test, wafer-sort, laser trim, and shipping operations. This facility, along with its Thailand plant, is capable of testing and shipping one billion units per quarter. Maxim set up a shipping operation in Cavite to reduce costs.
In July 2000, Maxim opened a test operation in Thailand, diversifying the company's Asian manufacturing presence. The Thailand operation has the capacity to test more than 50-million units per quarter and is now testing approximately 25% of Maxim's units.
Maxim uses its own wafer fabrication and, to a small extent, silicon foundries to produce wafers. Maxim ships most of its processed wafers to foreign assembly subcontractors, located in The Philippines, Malaysia, Thailand and South Korea, where wafers are separated into individual ICs and assembled into a variety of packages.
Additionally, Maxim set up wafer-sort operations at this facility with the capacity to electronically test and laser-trim the majority of the wafers. Prior to the merger, product assembled from wafers manufactured in the Dallas, Tex. fab was tested primarily at subcontractors located in the Philippines. Testing for Dallas product was also performed in a test facility located in Dallas, Tex. At the end of fiscal 2001, the majority of the testing of Dallas product was transferred to Maxim's test facilities in Cavite. Except for low-volume Dallas product, which will continue to be tested in Dallas, Tex., Maxim is transferring the testing for remaining Dallas product to the Cavite site during the first quarter of fiscal 2002.
In fiscal 2001, Maxim opened a second test facility in Samutprakam, Thailand. Both testing sites will be expanded as necessary to meet demand.
Historically, wafer fabrication of linear ICs has not required state-of-the-art processing equipment. Newer processes do utilize and require some advanced facilities and equipment. Hybrid products are manufactured using a complex multi-chip technology featuring thin-film, thick-film, and laser-trimmed resistors. Maxim utilizes dielectric isolation technology in its newest advanced fibercom products.
For a majority of its wafer fabrication, Maxim relies on its fabrication facilities in San Jose, Beaverton, Ore., Dallas, Tex., and, to a small extent, manufacturing subcontractors. Maxim uses four subcontract silicon foundries that represent less than 5% of wafer production. None of the subcontractors currently used by Maxim is affiliated with Maxim.
Maxim's wafer fab in Dallas was built in 1986 and expanded in 1989, 1994 and 2001. This facility currently produces six-inch wafers. This wafer-fab site is in the process of replacing six-inch production capacity at this facility with eight-inch wafer production. The six-inch fab line will be phased out when the 8-inch conversion is completed.
In Dec. 1989, Maxim acquired a wafer-fabrication facility in Sunnyvale, Calif., which is capable of producing 3-micron CMOS and bipolar products. In May 1994, the firm acquired a mixed-class wafer-fabrication facility in Beaverton from Tektronix, which is capable of producing CMOS and bipolar products. In Nov. 1997, Maxim acquired a sub-micron wafer-fabrication facility in San Jose.
The prediction that the digital revolution will cause the death of analog has been hanging around the industry since the 1970s. When Linear Technology and Maxim started in the early 1980s, the founders were faced with this issue but were successful in convincing investors and customers that the digital revolution creates more (not fewer) analog opportunities. Today's total analog business is a robust $30-billion proposition.
Analog devices hold an approximately constant 15% share of the total semiconductor business--proving that the death of analog was greatly exaggerated by all the digital nay sayers.
Although both Maxim and Linear are in many application segments, we believe power-management-related chips account for about half the sales for both companies. They particularly dominate portable (notebook) computers. Most notebooks use Maxim or Linear Technology power-management chips.
The analog IC segment was one of the key beneficiaries of the communications boom, and the growth in sales at the leading companies reflects that. But communications systems spending slowed dramatically in 2001 and 2002, and the analog IC market is feeling the pain in that segment.
Maxim is well diversified across market segments, geographical regions and product areas. The company has done a very good job of determining which markets to expand into and then executing fairly well.
Analog makers such as Maxim also benefit from the fact that their manufacturing technology does not have to be on the leading edge like Intel's and others'. This somewhat isolates them from the high costs of acquiring newer equipment. They can lay back a generation or two behind the Intels of the world and only move into a process geometry when it is mature and problem free. Maxim has been following a strategy of buying other companies' fabs (Saratoga Semiconductor and Tektronix) and refurbishing and adapting them to its needs.
We like the fact that Maxim goes to great lengths to be close to its customers, which it does by deploying an army of field-application engineers to help them solve their design-in issues.
One area in which Maxim does not do a superlative job is in public relations. From our interface and dealings with the company, it is apparent that Maxim is very publicity shy. Besides routine product and required financial releases, there is not much PR coming out of Maxim's marketing communications department. In fact, it took a bit of searching simply to determine to whom we should route questions for this report. John VanZant is director of media and public relations, an office that primarily focuses on product and technology announcements. Amanda Lazare is head of investor relations and handles non-product-related corporate communications. Lazare reports to Gifford.
It appears that Maxim still does not invite the press to their Wall Street analyst briefings. However, Maxim does allow the press to listen to the more generic web quarterly conference calls. When InsideChips' Steve Szirom was accidentally invited to an analyst briefing, he was almost kicked out.
When we queried the company about this issue, the following was their answer:
It is easy to surmise that Maxim does not want to be featured too prominently in the limelight, which might draw unwanted attention from competitors and would-be competitors hungry to compete with the company for those high-margin products. In fact, Japanese companies were requesting strategic reports on Maxim and Linear Technology to lear their "success secrets" so they too can mine the high-profilt margins of analog ICs.
We believe the cautious PR stance is a classic Gifford management trademark. However, we strongly believe that Maximum could loosen up and establish a much more effective external communications program, which would enhance the company's overall strategic marketing without subjecting it to unnecessary competitive threat. Gifford has read "Only the Paranoid Survive" and has implemented the adage to its extreme.
The company's web site is markedly staid and engineering oriented. The blue color theme of the site does not inspire. It is all about products, applications notes, and data sheets. Companies usually provide information on their sales office locations, management bios, and press releases beyond product introductions and financial releases.
Maxim also operates an e-commerce site at its web site which we believe is a good supplement to the sales channels for standard ICs. The program called Maxim/Dallas Direct! is also extended to some overseas locations.
U.S. sales are handled by direct regional offices. However, it is difficult to find the locations of domestic sales offices, as the company does not publish this on their web site. It appears that the company wants to route field inquiries through a centralized telemarketing organization, which routes callers to the appropriate sales office. We tested this highly headquarters-centric system and were not overly impressed. It would be beneficial for customers who visit the web to know where the regional office is rather than having to navigate the telemarketing group.
The company has a top-notch but slightly quirky CEO, superior design talent, great product planning and execution, and a streak of paranoia about the competition that is too deep for its own good. The biggest current challenge for management is to integrate Dallas into the Maxim culture effectively.