Analog Devices, Inc.
Analog Devices, Inc.
One Technology Way
P.O. Box 9106
Norwood, Massachusetts 02062-9106
(617) 329-4700 Fax: (617) 326-8703
Sales: $666 million
Stock Exchanges: New York
SICs: 3674 Semiconductors & Related Devices
Analog Devices, Inc. is one of the world’s leading producers of precision performance electronic components, including linear, mixed-signal, and digital integrated circuits, which are used to help convert sensory data into a digital format that can be understood by computers. Analog’s integrated circuits are used in laboratory test equipment, medical devices that sense information such as heartbeats, systems for controlling airplane cabin pressure, and controls on oil wells and military weapons. The company has also moved increasingly into the computer, communications, automotive, and consumer industries. Analog has helped develop integrated circuits for processing voice commands into personal computers and has introduced new digital signal processors that integrate voice, audio, fax/modem, and speech recognition functions for computer circuit boards. Analog’s products are also used in laptop and notebook computers, as well as in advanced telecommunications systems, including the U.S. cellular phone network. The company’s signal processing technology resulted in the development of a pocket-sized pager, which, when used with a satellite system, allows owners to receive messages anywhere in the world. Other cutting edge technologies include signal processors for electronic cameras, color scanners, digital copiers, and a unique crash sensor used to control automobile airbags. With nearly half of its sales in North America, 30 percent in Europe, and 16 percent in Japan, the company maintains manufacturing facilities in Massachusetts, California, and North Carolina, as well as Ireland, Japan, the Philippines, and Taiwan.
Analog Devices was founded in 1965 by Ray Stata and Matthew Lorber. Upon graduating from the engineering program at the Massachusetts Institute of Technology, Stata was hired by Hewlett-Packard in Cambridge, Massachusetts, where he shared an apartment with his former classmate Lorber, who was also an engineer. The two soon decided to go into business together, and, working out of the basement of their apartment building, they produced devices to test gyroscopes, calling their company Solid State Instruments. Although Stata and Lorber regarded their business as a failure, they were able to sell the company to Kollmorgen Corp. for $100,000 in stock. With this stock, they were then able to secure bank loans to launch their second company, Analog Devices. Now more familiar with the electronics market, Stata and Lorber selected a new product to manufacture: operational amplifiers—circuits that strengthened and clarified electrical signals. It was a niche market, without significant competition, and the new company immediately made money. By 1968, sales had reached $5.7 million, and, one year later, Analog Devices went public.
Lorber and Stata had difficulty adapting to the daily administrative duties involved in running a growing company. When the company went public, Lorber sold half of his stock and moved on to other ventures. While Stata remained, he preferred to concentrate on developing and marketing new products, so he hired an outsider to take the job of president. After a year, Stata, the company’s largest stockholder, found that he had to make the major financial and organizational decisions whether he wanted to or not, and he let his hired president go. In spite of his reluctance, Stata proved himself an adept manager, and several shrewd choices he made early in his career led the company through years of uninterrupted growth.
Stata worked hard to nurture entrepreneurial talent within his company, and he also acquired small companies with interesting product lines. In 1969, Analog Devices bought Pastoriza Research, a firm that had developed highly specialized integrated circuits that converted analog signals to digital. Analog signals included nonelectrical measurements such as temperature or pressure, and the converter changed these signals into a digital form that could be read by a computer. Stata speculated correctly that computers would become widely used in industry for controlling machinery, and Pastoriza’s specialized product would become a growing necessity. Analog Devices also began funding a manufacturer of semiconductors in 1969. Semiconductors—silicon chips that could perform the analog to digital conversion previously handled by bulkier components such as transistors—were a relatively new thing, and Stata took a gamble that the industry would grow. Using his stock in Analog Devices as collateral, he raised $2 million in capital, which he offered to three young engineers to start a semiconductor firm named Nova Devices. Two years later, Analog acquired Nova under a predetermined buy-out plan, and the company became Analog’s semiconductor division. This became Analog’s fastest-growing area, and, by 1982, semiconductors accounted for half the company’s income.
Sales rose an average of 25 percent a year at Analog, and the company continued to invest heavily in new product lines. Between eight and nine percent of sales were reinvested in research and development, and the company carried a debt of over $3 million. In spite of the high cost, funding new ventures was the key to Analog’s growth. In 1973, the company began backing Micro-Sensors, Inc., a small company that made sensors for measuring textile yarns during production. The company continued to work independently on improving the product, and Analog took over marketing and sales operations, a relationship typical of the way Analog moved into new product areas.
Beginning in the late 1960s, Analog Devices established sales subsidiaries in Germany and France, and, in 1976, the company moved more substantially into the European market. Accepting 40 percent financial backing from the Irish government, Analog built its first manufacturing plant abroad, in Limerick, Ireland. The new facility made metal oxide semiconductor integrated circuits, which were first developed by Analog engineers in Santa Clara, California, and had become the company’s single largest capital investment. The product line was quickly expanded to include multiple chip integrated circuits.
Financing new start-up ventures and building new facilities proved a strain on the company’s resources, and, in 1977, Analog sought investment capital. That year, Standard Oil of Indiana bought a 15 percent interest in Analog Devices in exchange for nearly $5 million in cash. Paying 50 percent over the market rate for Analog’s stock, Standard Oil regarded the deal as an investment in Analog’s growing semiconductor division. Analog doubled the size of its semiconductor plant in Wilmington, Massachusetts, and added a second facility to its new factory in Ireland. Then, in 1980, Standard Oil and Analog entered into a second agreement, establishing a joint venture called Analog Devices Enterprises. The five-year plan called for the oil company to capitalize start-up companies that Analog chose, as a means to acquiring new technologies. Between 1980 and 1983, Analog invested in 11 different high-tech companies, bringing Analog new products in such areas as digital signal processing circuits, image processing systems, and telecommunications instruments.
By 1982, Analog Devices, Inc. had sales of $156 million, shipping over 200 products to over 15,000 customers in the United States, Europe, and Japan. The company’s product line was diverse, and though it served large companies, including Hewlett-Packard and Digital Equipment Corp., no single company accounted for more than two percent of sales. Analog Devices’ products were used by wineries, aluminum smelting plants, medical diagnostic labs, and a growing variety of industries that used computers for inspection or control. Although sales at times were somewhat impeded by the effect of the strong dollar on the European market and by industry-wide slowdowns, Analog Devices’ performance in the first half of the 1980s was generally strong. The company was at the forefront of several high-tech areas and became a recognized leader in converters that could continuously change signals from analog to digital and back. The company also pioneered a highly regarded computer-based system called MACSYM that measured and controlled physical processes. Analog expanded its manufacturing capacity abroad in the early 1980s, building assembly plants in Japan and the Philippines.
Stata had taken his company through a series of five-year plans, carefully projecting growth and moving into strategic areas of new technology, and, in 1982, he predicted that Analog Devices would be a billion-dollar company within eight years. However, by the mid-1980s, profits at Analog began to decline. The joint venture company Analog Devices Enterprises was terminated in September 1985, and, the following year, Standard Oil of Indiana (which had become Amoco Corp.) sold its stock in Analog in order to concentrate on its core oil business. Moreover, military budget cutbacks led to reduced sales of established product lines.
Forced to spend a substantial share of its resources on developing new technologies, which did not immediately translate into new products, Analog Devices saw its stock price decline in the late 1980s. By 1990, the share price stood where it had ten years earlier, and the company posted its first loss. The company had not reached its $1 billion goal—sales were about $485 million in 1990—and it was too large to compete with the smaller high-tech firms that were overtaking niche markets.
Plans were made to turn the company around. In 1990, the company bought Precision Monolithics, Inc., a specialty circuit manufacturer, giving Analog new manufacturing technology and significantly expanding sales. Stata also undertook several organizational changes in order to streamline the company, combining several divisions into a single Industrial Electronics Division. Industrial automation, automatic test equipment, motion controls, and industrial controls, all of which were previously developed in facilities across the United States and the United Kingdom, came under one roof at corporate headquarters in Norwood, Massachusetts. European operations were also combined under a single European headquarters in Germany. In late 1990, the company cut about 600 jobs, bringing the workforce down by more than ten percent.
Perhaps the most significant shift in the company’s direction involved a new product that was slow to reach the market. Since the late 1980s, the company spent more than one-third of its research and development funds on a new technology: digital signal processing—an exciting process that allowed a single chip to perform functions that previously required a circuit board. With a variety of applications in markets that were new to Analog, the chips could be used to process voice signals into digital signals for use in telephone technology and in personal computing. Analog also entered an alliance with Hewlett-Packard in 1992 to develop mixed-signal semiconductors, which could combine analog and digital processing on a single chip.
The company poured money into research, and, by late 1991, it reported promising results. Its mixed-signal technology had allowed Analog to build a minute sensor that was used to trigger an automobile airbag in case of a collision. While the standard system used multiple sensors and extensive wiring, with an installation cost of $400 to $600, Analog’s single sensor sold for only $5, bringing the total cost of an airbag system to around $100. Perfected in 1991, the sensor was first deployed in 1994 Saab automobiles, and an American car manufacturer was expected to follow in 1995. Analog had not made products for the automotive market before, but its first effort seemed extremely promising, and the company soon brought out other sensors and converters that could be used in a variety of consumer products. Analog introduced a low-cost, accurate, and stable temperature controller in 1993 that could be used in residential thermostats. During this time, Sony Corporation became an Analog customer, using a new high-speed analog to digital converter in its digital camcorder.
In 1992, Analog’s digital signal processing chips debuted in the personal computing market in Asia, and by the following year many major personal computer and component manufacturers, including Compaq and Microsoft, signed deals to use the new technology. The chips could be used to manipulate real-world sounds and images, making them important to many new computer software applications. Moreover, the chips could be programmed to enable a computer to read material back to the user, or to allow people to give instructions to their computers over the telephone. Texas Instruments, AT&T, and Motorola also sold digital signal processing technology—representing larger sales than Analog’s 1992 figure of $60 million—but only Analog priced its chips low enough to appeal to the personal computing industry, and the company expected sales to boom in the coming years. Analog also had a strong market presence in consumer audio and telecommunications, as its digital signal processing chips could be used in compact disc players and cellular phone handsets. With the success of its newest wave of products, Analog Devices’ sales swelled, its stock recovered from its early 1990s low, and revenues from digital signal processing were expected to more than double by the end of the decade. After losing some its earlier customers, the company skillfully used its resources to develop new products for growing markets, and by the mid-1990s, Analog Devices seemed clearly on the rise again.
Analog Devices Limited (United Kingdom); Analog Devices, GmbH (Germany); Analog Devices S.A. (France); Analog Devices K.K. (Japan); Analog Devices APS (Denmark); Analog Devices S.A. (Switzerland); Analog Devices Nederland, B.V. (Netherlands); Analog Devices International, Inc.; Analog Devices Israel, Ltd.; Analog Devices A.B. (Sweden); Analog Devices SRL (Italy); Analog Devices HDLSGESMBH M.B.H. (Austria); Analog Devices Korea, Ltd.; Analog Devices, B.V. (Netherlands); Analog Devices Finance N.V. (Netherlands Antilles); Memory Devices Finance Bermuda, Ltd.; Analog Devices Holdings, B.V. (Netherlands); Analog Devices Research & Development Ltd. (Ireland); Analog Devices Inc. (Philippines); Analog Devices Marketing Limited (Great Britain); Analog Devices Foreign Sales Corporation, B.V. (Netherlands); Analog Devices Domestic International Sales Corporation; Memory Devices, Limited (Great Britain); Analog Devices Asian Sales, Inc.; Analog Devices Taiwan, Ltd.
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