Maxim Integrated Products, Inc.
Maxim Integrated Products, Inc.
120 San Gabriel Drive
Sunnyvale, California 94086
Fax: (408) 737-7194
Sales: $250 million (1995)
Stock Exchanges: NASDAQ
SICs: 3629 Electrical Industrial Apparatus, Not Elsewhere Classified; 3674 Semiconductors & Related Devices; 3679 Electronic Components, Not Elsewhere Classified; 3699 Electrical Machinery, Equipment & Supplies, Not Elsewhere Classified
Maxim Integrated Products, Inc., is a leading developer, manufacturer, and seller of linear as well as mixed (linear and digital) signal integrated circuits for the analog market. Analog devices process signals that represent real-world phenomena such as temperature, pressure, sound, or speed. Maxim’s products include circuits used in data converters, power supplies, battery chargers, amplifiers, switches, and other mechanisms produced by the instrumentation, control, communications, and data processing industries. More than half of Maxim’s sales in the mid-1990s were overseas.
New Technology, New Markets
Maxim was founded in 1983 by a group of ten coworkers, several of whom had formerly been employed by Intersil Inc. Intersil was the General Electric Co. subsidiary that developed and manufactured linear circuits. Linear, or analog, circuits measure physical properties by means of analog waves. They differ from digital circuits in that digital devices operate using a binary language based on ones and zeros (rather than analog waves). Various characteristics make digital circuits preferable for advanced logic-based applications, such as processing data and controlling computers. Linear circuits, in contrast, are favored for some jobs that require the interpretation of varying physical properties like temperature and pressure.
By the early 1980s, digital technology was rapidly supplanting traditional analog technology. In fact, the general consensus was that digital circuits would eventually replace analog circuits in almost all applications. Many companies began heavily emphasizing the development of digital technology, and most universities eliminated many of their analog technology courses and replaced them with digital-related curricula. In part as a result of this trend, the coworkers at Intersil banded together to launch their own venture. Indeed, that group believed that linear circuits would continue to be important in applications for which digital technology was inferior. They felt that Intersil (and other semiconductor companies) were failing to take advantage of opportunities related to linear technology.
Several Intersil employees, led by Intersil executive Jack Gifford, left the General Electric subsidiary in the early 1980s and joined with a few other entrepreneurs to incorporate Maxim Integrated Products in April 1983. Gifford, the leader of the group, was a chip industry veteran who had started his career in 1965 with industry pioneer Fairchild. He had held several senior management positions before becoming chief executive of Intersil, and had founded a number of high-technology concerns. Interestingly, he was also a member of the UCLA Baseball Hall of Fame. Gifford planned to pool his team’s brainpower to develop a range of linear chips. He hoped to benefit from huge growth in the semiconductor industry, which was being driven by new digital technology, by offering linear chips that would complement digital devices.
Specifically, Gifford and his co-founders saw an opportunity to make advanced analog chips that could interpret real-world physical properties (like temperature, voltage, and sound) and then transfer that information to a digital chip for processing. For example, linear circuits could be used in new telecommunications equipment like cellular phones, because phone systems still used analog waves to communicate. Linear circuits could also be used in the growing array of handheld battery devices, which utilized the advantages of analog circuits to measure voltage. Furthermore, linear technology still played an important role in many broad applications; for instance, it was used to manage various computer functions like printing.
Maxim spent its first two years trying to develop marketable chips. Aside from the problems typically related to a small business startup, such as a lack of investment capital and low cash flow, Maxim had to deal with a lawsuit filed by General Electric’s Intersil. Intersil filed suit shortly after Maxim was incorporated, claiming that Gifford and other former employees were infringing on its trade secrets. In fact, the former Intersil workers had brought with them much of the proprietary knowledge that they had developed while employed by Intersil. The suit was resolved in 1984 when Maxim agreed to let Intersil choose up to ten of its products (by July 1989) to manufacture and sell free of royalties. In exchange, Intersil agreed to grant Maxim the right to specific trade secrets, products, and patent rights.
Proponents of digital technology were correct in predicting that digital circuits would quickly overshadow analog circuits and replace the older technology in most applications. In fact, during the 1980s the analog share of the circuit market shrank to represent less than 20 percent of industry sales. But Maxim’s founders were also correct in guessing that aggregate sales of analog chips would rise in the wake of huge chip industry growth. Because Maxim was one of the few companies targeting the sector, it benefitted greatly and even outperformed most of the companies competing in the digital arena. The company posted net losses during its first few years in business because of startup and research and development expenses. But sales rose rapidly, to $4.6 million by 1985 and then to nearly $16 million in 1987. It was in 1987 that Maxim posted its first net surplus (of $340,000).
Maxim’s gains during the mid-1980s were the result of a savvy, multifaceted strategy. Importantly, from the start Gifford chose to emphasize overseas sales, where markets were realizing the fastest growth. By 1987 Maxim was shipping well over 50 percent of its output abroad. Gifford also chose to target the high end of the analog market, using Maxim’s respected brain trust to chase the high-profit segment of the business. To that end, Maxim focused on developing high-tech analog chips for new applications, such as miniature handheld electronic devices and cutting-edge telecommunications equipment. That segment represented about 20 percent of the chip industry, and consisted primarily of circuits thata operated at high speeds and at very low power levels.
Among other advantages, Maxim’ contrarian product strategy (i.e., building analog circuits while the rest of the industry moved toward digital chips) allowed it to keep production costs relatively low. While manufacturers of cutting-edge digital chips often had to invest in expensive new manufacturing facilities. To products using somewhat dated manufacturing facilities. To keep costs low, Maxim began developing the chips, contracted Production to domestic manufacturers, and hired Asian companies to package the goods. Late in 1989, through, Maxim became a manufacturer when it bought a wafer fabrication plant from the bankrupt saratoga semiconductor. Maxim paid only $5 million for the plant, which had relatively little value to manufacturers of high-end digital semiconductors.
The Late 1980s
Maxim’s move into manufacturing followed its transition to a public company early in 1988. The initial public offering represented a big risk for Maxim, because it was the first initial public offering made by a technology company following the stock market crash of 1987. Maxim was dubbed a “polar bear” by the investment community, because it was the first high-technology enterprise to “break the ice” with an initial public offering since the crash. Nevertheless, the offering was a big success and brought a hefty $16 million into Maxim’s coffers. For the 1988 fiscal year (ended June 30,1988), Maxim recorded sales of $28.3 million, about $3 million of which was netted as income. Within a year of the offering, Maxim’s stock price had increased nearly 40 percent to about $7.5.
Despite an ugly semiconductor industry downturn during the early 1990s, Maxim continued to prosper, and seemed immune from industry turbulence. In fact, the company made news during the summer of 1991. While almost two dozen of Silicon Valley’s biggest chip makers shut down operations during the week of July Fourth in response to economic recession, Maxim not only remained open, but sustained its round-the-clock manufacturing shifts. Meanwhile, it continued to enjoy marked sales and profit gains: revenues increased to $42 million in 1989 and to $74 million in 1991, while net income rose from $7.6 million to $13.7 million during the same period. “We’re open 24 hours a day, every day [including Christmas],” explained a company spokesman in the December 23, 1991, Business Journal-San Jose. “That’s where the big profitability numbers come from.”
Maxim’s mission is to continuously invent high-quality analog engineering solutions that add value to our customers’ microprocessor-based electronics worldwide. We have consistently increased our stockholders’ equity by meeting our cost and performance goals, minimizing time-to-market, and maximizing our engineering productivity.
As important to Maxim’s success during the 1980s and 1990s as its product strategy was its management philosophy. The company was largely employee-owned, for example, and was known as a well-managed, good place to work. Maxim was also known for high-quality products and good customer service. It was only one of a handful of companies, for instance, that was named to Business Week’s Top 100 Small Companies and Forbes,s Top 200 in both 1991 and 1992. In addition, in 1993 Forbes named Maxim one of the 13 “best-of-the-best” small companies in the United States. Among its greatest strengths was its research and development team. In 1992, for example, Maxim churned out a total of more than 70 new products (14 more than it had introduced the previous year).
Maxim continued to benefit from industry trends into the mid-1990s as demand for new miniature electronic devices surged. The number and type of wireless communications devices, for example, was growing rapidly. And entirely new product categories—such as portable notebook computers and handheld electronic testing devices—that had emerged since the early 1980s were thriving. Maxim prospered by developing specialized chips, many of which incorporated both analog and digital technology and worked in conjunction with digital semiconductors. By 1993 Maxim had introduced more than 600 new chips and was selling its goods to more than 10,000 customers around the world, including International Business Machines, Motorola, and Hitachi.
By the 1990s, Maxim was vying for market share in its high-end, linear-technology niche with only one major competitor: Linear Technology Corp. As markets continued to rise, so did Maxim’s (and Linear’s) sales. Indeed, Maxim’s revenue climbed to $87 million in 1992 and grew to more than $150 million by 1994. More importantly, profits climbed to about $14 million before increasing to $24 million in 1994. Those gains helped push Maxim’s stock price up to more than $50 early in 1994 (from less than $10 in 1988). In 1994 Maxim brought out 140 new products, and the company planned to increase that number every year throughout the mid-1990s.
Maxim diversified its operations late in 1994 when it purchased the integrated-circuits division Tectronix. The move reflected Gifford’s intent to move into the wireless and fiber-optics communications businesses, which depended on complementary linear technology. It also brought additional manufacturing facilities to Maxim’s pressured production arm. With new production facilities, the only major hindrance to Maxim’s growth was a shortage of chip designers that were schooled in linear technology, as many universities had almost abandoned the technology. To that end, Maxim devised a mentoring program that was designed to turn entry-level engineers into senior chip designers in a span of only five years.
Maxim posted consecutive sales and profit gains every year after it was incorporated in 1983, and continued to do so into the mid-1990s. At the same time, its growth highlighted the company’s chief constraint: a lack of analog-engineering talent, which Maxim was trying to address through its own training program. Aside from that limitation, there was relatively little hindering Maxim’s potential to sustain gains into the late 1990s.
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