To: Norrin Radd who wrote (171) | 11/12/1996 12:39:00 AM | From: Otimer | | |
To all,
Orange County Business Journal, Monday, November 11, 1996 at 18:48
What has been a lackluster year for the semiconductor industry is shaping up to be a gainful one for Santa Ana-based Microsemi Corp. The maker of semiconductors, diodes and transistors has seen sales and profits surge, the fruits of Microsemi's transformation from defense contractor to diversified electronics supplier. The results, too, are the byproduct of a restructuring that saw Microsemi shed a string of unprofitable acquisitions from a 1980s buying binge. "What you see is core business performance," said Philip Frey Jr., CEO and president of Microsemi for the past 25 years and chairman since 1987. For the nine months ending June 30, Microsemi had sales of $116 million, a 21% increase from the same period last year. Net income was $5.6 million, a 40% increase from a year ago. Microsemi's results for the quarter ending Sept. 30, the last in its fiscal year, are due out this month. Frey said the company doesn't expect any surprises. Analysts are projecting continued growth in both sales and net income, despite softness in some of the company's markets. Frey (pronounced Fry) has spent most of his life in the defense electronics industry, but in recent years has steered Microsemi from its reliance on defense contractors. The company was founded in 1959 as Micro Semiconductor in Culver City. In 1969, Micro Semiconductor was acquired by Standard Resources, a New York public company, which later adopted the Micro Semiconductor name. In 1971, the New York operation was spun off and Frey was brought on from Teledyne Inc.'s semiconductor division in Hawthorne to head what would become Microsemi. At the time, the company had annual sales of about $500,000, almost entirely to defense industry customers. In 1972, the company moved from Culver City to Santa Ana. Microsemi still was almost exclusively a defense business in 1987, but by then sales were close to $50 million. That same year, the company did a $35 million convertible bond offering, the proceeds of which were used to acquire about a dozen companies, most of them struggling "bargain" buys. When the acquisitions began straining profitability, Frey didn't waste a lot of time admitting his mistake. In 1989, Microsemi began selling them off. Sales, which hit a then-high of $104 million in 1989, fell to $83 million by 1991. But they've grown almost every year since and are expected by analysts to exceed $150 million for the fiscal year just ended. Now, even as the 69-year-old Frey begins considering handing over daily operations to a successor, the venerable executive still has ambitions for Microsemi. His goal is to grow sales into the $225 million range in the next two years. Frey also is looking to grow the company's profit by about 25% in the same time frame and lift Microsemi's pretax margin from about 10% now to about 15%. That, he hopes, will increase Wall Street's appreciation of Microsemi. At a price-to-earnings ratio last week of 12, Microsemi's trailing 12-month P/E ratio is about the same as that of its competitor, International Rectifier Corp. of El Segundo, but only about half that of another competitor, Micrel Inc. of San Jose. The company is selling at "a bargain rate," contended Frey. "There is possible expansion for the stock." Part of Microsemi's predicament has been distinguishing itself in an industry closely tied to the computer market and subject to fluctuation. A slowdown in the computer industry this year has lowered semiconductor industry sales growth to about 5%, down from 27% last year. Microsemi makes high-reliability semiconductors, custom diodes and transistors. Its components are used in the computer, medical, telecommunications, defense and aerospace industries to process electric signals and regulate power and voltage in all types of devices and equipment. Microsemi products are found in cellular phones, computer monitors, satellites and Patriot missiles. Customers include computer makers Hewlett-Packard, Compaq and AST Research of Irvine, and technology companies such as AT&T and Motorola. In the medical industry, Microsemi's products go into pacemakers and equipment made by Medtronic and Siemens. Commercial space industry customers include Hughes, Lockheed Martin and Loral, while military buyers include Northrop Grumman and McDonnell Douglas. Five years ago, about 70% of Microsemi's sales were to military customers. Today, that figure is about 30%, with the remainder spread out among the commercial space, computer, telecommunications, medical and transportation industries. Military, however, remains the single largest segment (see chart, page 12). And the customer base is broad. "No one customer is greater than 4% of our revenue," Frey said. "We are happy with the market mix." Microsemi has gained commercial market share in the face of competition from industry giants such as National Semiconductor, Motorola, ITT and General Instruments, as well as from mainstay competitors like International Rectifier, Micrel and Siliconex Inc. of Santa Clara. The company's strategy has been to target niche, underserved markets with specialized products. Microsemi operates at the high end of the industry; while the average selling price for a diode is 1 or 2 cents, a custom Microsemi diode goes for about $1. "Our competition does everything with relatively standard products. The Motorolas and the General Instruments don't do too many special things," Frey said. "These market areas aren't easily attacked by competition." The strategy has helped Microsemi fare better than the industry as a whole in what has been a turbulent year. The company counts a healthy backlog of about $70 million. Microsemi's book-to-bill ratio - a three-month average of bookings and billings that is an indicator of future business - has remained relatively strong even as that of the industry has dipped to historic lows this year. Microsemi's book-to-bill ratio hasn't gone below 1.0 this year and currently is at 1.04. That compares to an industry book-to-bill ratio that hit a low of about 0.85 earlier this year and rebounded to 0.99 in September. Frey attributed the company's bettering of the industry to its diversification. He said Microsemi has seen a slowing in the telecommunications and computer industries, but sales to medical companies and to the space industry, particularly in Europe, have been strong. Next year, Frey is projecting continued growth in those markets and in the company's military business, expanded opportunities in the computer industry and a rebound in telecommunications. For long-term growth, Frey is looking to new markets and expansion in existing ones. Microsemi is betting heavily on the PowerMite, a new surface mount diode package that is about twice the size of a pinhead. The PowerMite, which is used in cellular phones and portable computer PC cards, has been licensed to Motorola in a deal that gives a portion of Motorola's Malaysian production to Microsemi. Orders for PowerMite already have brought Microsemi's Watertown, Mass., plant to capacity. "That looks like it will be a significant product for us," Frey said. Acquisition of product lines is another growth tactic. The company recently bought lines from National Semiconductor and SGS Thomson Microelectronics, and earlier purchased lines from Raytheon and Unitrode Corp. of Merrimack, N.H. Microsemi's goal is to buy lines that no longer make sense for larger competitors but are compatible with a smaller company like itself. New markets hold potential growth area for Microsemi. For one, the company is looking to tap the automotive industry, where it currently does a small amount of business, amounting to about 2% of its revenue. While Frey said he doesn't expect the automotive market to become a major piece of business, a new, low-cost Microsemi plant in Shanghai, China, should help to grow its presence some in that price-sensitive industry. Tapping new customers in existing markets is another course. In telecommunications, where Microsemi already counts Nokia, Motorola and Northern Telecom as customers, others such as Ericsson and Siemens represent potential new clients. In the computer industry, the continued trend toward smaller, more powerful components represents potential new applications for the company, Frey said. In all of its markets, international sales stand to grow for Microsemi, which counts facilities in Ireland, India and Hong Kong. Only 10% of the company's total a few years ago, international sales now are about 30%. Frey projects that could grow to about 50%. In addition to the everyday risks of the fast-moving semiconductor industry, the challenge for Microsemi is to protect its coveted niche and manage its growth. Increased size will put pressure on the company's decentralized operations, which, in addition to a diode plant in Santa Ana that employs 550, includes U.S. facilities in Arizona, Massachusetts and Colorado. The plants have some overlap, which Frey said provides for internal competition. "We are set up with good managers and our facilities are modern enough to carry the load," Frey said. "The real test will be on the marketing side to see if we can find new markets to sustain the growth." At the same time, the beginnings of a transition have begun at Microsemi. Frey is looking to shift his job from hands-on manager to strategist. "My role is changing," he said. "I will become more involved with financial relations and acquisitions and partnerships. The day-to-day will be turned over to a replacement who will carry on the way we have." A search for a new CEO is in the early stages, both outside and inside the company. Frey envisions remaining as chairman. "I intend to stay in this role for a few years yet," he said. "I don't think you have to get out until you stop contributing." PHILIP FREY JR. Position: Chairman, president, CEO Age: 69 1995 compensation: $539,000 Born: Hackensack, N.J. Education: Engineering degree, RCA Institute, New York Resume: Naval petty officer; VP, general manager, semiconductor division, Teledyne Inc.; president, CEO, Microsemi, 1971; elected chairman in 1987 Home: Big Canyon, Newport Beach Family: Wife of 46 years, Nancy Rodgers Frey, recently deceased Hobbies: Tennis, deep-sea fishing, antique furniture restoration DOER'S PROFILE CORPORATE PROFILE MICROSEMI CORP. Headquarters: 2830 S. Fairview St., Santa Ana Employees: 2,300 (550 in OC) Main Product: Semiconductors, diodes Major shareholders: Philip Frey Jr., 10% (worth about $11 million at recent price of 11); Wechsler & Co. Inc. (owns debentures convertible into 19% of stock); Froley, Revy Investment Co. Inc., (owns debentures convertible into 14%) Symbol: MSCC (Nasdaq) |
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To: Otimer who wrote (172) | 11/12/1996 1:46:00 PM | From: Norrin Radd | | |
Otimer, That was a very positive article on MSCC, thanks very much. It confirms what some of us have known and will be good exposure for MSCC. I think Philip Frey needs to spend some more time on the road getting the good word out about MSCC. They expect to report good earnings at end of this month......again !!! |
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To: Norrin Radd who wrote (173) | 11/12/1996 8:27:00 PM | From: MadMax | | |
Tom, Not the day that we had hoped for, however one positive is that there appears to have been the start of rotation from the Large Cap's. to the Smaller Cap's in today's trading.
- Big Semi's were down
- Smaller Semi's were up
- A plus 10 tic on my small cap tech's is the best day in about three weeks.
- If it continues, it will bode well for MSCC |
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To: Norrin Radd who wrote (173) | 11/12/1996 10:47:00 PM | From: Bryan Arnold | | |
I agree that this was a very postive article. If Philip Frey starts to get out there and talk about the company, then hopefully some people will start to take notice and this stock could move in the right direction. Only time will tell.
Bryan |
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To: MadMax who wrote (174) | 11/13/1996 3:02:00 PM | From: Norrin Radd | | |
I think the earnings will be very good again. That combined with interest in the semi group should be good for us. |
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To: Bryan Arnold who wrote (175) | 11/13/1996 3:08:00 PM | From: Norrin Radd | | |
I think in any case MSCC will move higher. But if Frey really got himself out there it could really fire up a big move and a short squeeze.
We could use a White Knight fund manager who sees an opportunity to squeeze the shorts and make some real money....... or one of the market makers who wants to do the same..... |
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To: Bryan Arnold who wrote (175) | 11/13/1996 3:16:00 PM | From: Golfer9 | | |
I agree with you about Frey has to talk up the company, if only so that he can plan his estate taxes. At his age he should worry about the tax man. He could cover his taxes if the stock goes up to 20. |
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To: Norrin Radd who wrote (177) | 11/13/1996 9:17:00 PM | From: MadMax | | |
MSCC Shareholders Holding Tight -
- Today with a poor performing market, Dow dropping off to -20, MSCC failed to trade for three (3) entire hours, in the 11:30 to 2:30 time frame. Hold on tight folks and the ride will be worth it!!!
- If I were short here, I would be sweating bullet washers!!!
- Tom, don't look for help on a Short Squeeze from MM's they are all a bunch of "GOOD OLD BOYS" and stick together like glue!!!
- Rotation is hurting the market temporiarly. When the Nasdec diverges to the up side from the Dow, MSCC will be launched!!! |
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To: Golfer9 who wrote (178) | 11/13/1996 9:59:00 PM | From: Bryan Arnold | | |
Frey can do a good job of talking up the company and I think that it will occur as soon as they find a new CEO and he moves to just being Chairman. I think at that time then the company could move.
Another item that I liked in that article was the way he sounded. Somebody mentioned in another article about his postivity and I agree. If he can talk like that to the institutions then we could be seeing a good 1997. |
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