Dionex Corporation

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Dionex Corporation

1228 Titan Way
Sunnyvale, California 94085-3603
U.S.A.
Telephone: (408) 737-0700
Fax: (408) 730-9403
Web site: http://www.dionex.com

Public Company
Incorporated: 1980
Employees: 805
Sales: $186.8 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: DNEX
NAIC: 334513 Instruments and Related Products Manufacturing for Measuring, Displaying, and Controlling Industrial Process Variables

Located in Sunnyvale, California, in the heart of Silicon Valley, Dionex Corporation has been in the business of designing, manufacturing, and marketing analytical instruments since the mid-1970s. The company made its reputation with ion chromatography (IC) products, employing a revolutionary technique that permitted chemists to quickly separate, identify, and measure ionic components (or charged molecules) in complex chemical mixtures, even at very low levels of concentration. IC replaced more time-consuming wet chemical methods and found a ready market. Dionex IC products are used in such applications as environmental monitoring and the quality control of substances used in food, beverages, drugs, and cosmetic products. Its customers include corporations, research laboratories, and government agencies, both in the United States and around the world. Because Dionex’s devotion to the constant improvement of IC technology, it controls more than 70 percent of a $200 million worldwide market, the same share it held twenty years earlier. Dionex is a much smaller player in the field of high-performance liquid chromatography (HPLC), a $2 billion market in which the company holds just a one percent share. HPLC uses light to separate and measure molecules. Furthermore, Dionex makes separation products that rely on the Accelerated Solvent Extraction technology it invented in the mid-1990s. ASE dramatically speeds up the extraction of organic compounds for analysis from such complicated samples as soils, polymers, and processed foods. What previously required hours, or even days, can now be accomplished in minutes using ASE. The technology is used, for example, to detect the presence of PCB’s in soil. Every year since going public in 1982, Dionex has posted record sales and earnings. In addition to offices located throughout the United States and a worldwide distribution network, the company owns subsidiaries located in Austria, Belgium, Canada, China, Denmark, France, Germany, Italy, Japan, the Netherlands, Switzerland, and the United Kingdom.

Developing Ion Chromatography in the 1950s

The idea for IC grew out of the Dow Physical Research Laboratory in Midland, Michigan, during the late 1950s. One of the early pioneers of the technology was Hamish Small, who was born and educated in Northern Ireland and worked several years for the United Kingdom Atomic Energy Authority before immigrating to the United States in 1955 and taking a job with Dow Chemical. According to Hamish’s writings, there was no corporate mission at Dow to develop IC, just a belief that inorganic ion analysis would be an improvement over wet chemical techniques: Inorganic chromatography, as it was called then, was just a dream shared among such colleagues as Bill Bauman, Bob Wheaton, and Mel Hatch. Each was active, in one way or another, in ion exchange technology; none was trained as an analytical chemist. IC, however, gained little ground over the next decade. The researchers used water as an eluent and employed electrical conductivity to detect and measure ions in a single process. It was not until late 1971, according to Hamish, that he and his colleagues developed a chromatographic method that used ion exchange as the separation mode and conductivity monitoring as the means of detection. Once certain particles were ionized, however, it was necessary to find a way to see them through the noise. Thus, a suppressor device was introduced, a column of ion exchange resin that allowed the ionized particles to stand out. The final hurdle was to find the most suitable eluent. At first, sodium hydroxide was employed but an accidental discovery led the researchers to finally settle on a carbonate-bicarbonate solution, which would become the standard anion eluent for many years to come.

Aside from the laboratory challenges, the researchers faced resistance from Dow management, which at first did not recognize the importance of the new technology. After months of internal lobbying by researchers, IC became accepted within Dow, and once it showed commercial promise, a number of executives wanted the company to develop IC products. Hamish was not enthusiastic about that possibility, foreseeing the relatively tiny boat being swamped, and was relieved at the decision to seek an entrepreneurial licensee outside of the company.

At this stage, at least by today’s standards, IC was still a crude process, yet it was already clear that what took chemists hours to accomplish could now be done in mere minutes. The company that appreciated the importance and commercial possibilities of the IC technology and purchased exclusive rights from Dow was the Palo Alto, California, firm of Durrum Instrument Corp., makers of analytical instruments. Durrum was owned by International Plasma Corp. of Hayward, California, established in 1969 to produce gas plasma processing equipment. It acquired Durrum in 1974.

Durrum established a separate business unit for its new IC products, naming it Dionex, derived from Dow Ion Exchange. To provide legal protection, Dow’s patent department was active in securing a number of patents that were important to the growth of the new venture. In September 1975, the first commercial IC instrument made its public debut at the fall meeting of the American Chemical Society, demonstrated in the back of a rented van. It was also introduced to the scientific community in a paper published in Analytical Chemistry. At first the instruments were only capable of analyzing simple anions and used mostly to detect sulfates. Nevertheless, Dionex’s claims seemed too good to be true to many chemists. Once the company proved that its product indeed saved time and money, however, it began to log steady sales and build a solid customer base. Dionex forged a close relationship with its customers and began to work with them to develop new methods, and eventually new products, to address problems that IC was particularly suited to solving. That customer interaction would become a cornerstone of Dionex’s future research and development efforts, maintained to this day. For a number of years Dionex also continued to work closely with the Dow researchers in further improvements on IC technology.

A. Blaine Bowman Leads a 1980 LBO

The IC business unit was spun-off in 1978. While the business of its subsidiary grew, Durrum by 1980 reduced its emphasis on other products, and the parent corporation sold off the gas plasma processing equipment business to SmithKline. Dionex Corporation was then incorporated in California in 1980 to purchase the Dionex assets, a leveraged buyout(LBO) led by A. Blaine Bowman, a Durrum executive. Bowman had both a scientific and business background. He earned an undergraduate degree in physics from Brigham Young University and an M.B.A. from Stanford. Before joining Durrum as an executive vice-president in 1977, he worked as a Product Engineer at Motorola Semiconductor Products Division. After generating less then $1 million in revenues from the sale of IC products in 1977, the new Dionex reached 16 million in sales in 1981. In December of 1982, Bowman took the company public. Dionex would be reincorporated as a Delaware company in 1986.

Under Bowman, Dionex began its impressive string of record sales and profits, fueled in large part by devoting as much as nine percent of revenues to an ongoing research and development program. The first major improvement to the IC technology was realized in 1981, when Dionex introduced fiber suppressors. Instead of the operator taking time to remove the suppressor device and regenerating it with a chemical solution, fiber technology made possible continuous regeneration. Dionex also introduced in 1981 its series 2000i ion chromatographer, the first metal-free system, a far more versatile product that eliminated contamination caused by corrosive eluents. In 1984, Dionex took a major step when it offered the first PC-based IC workstation and the first on-line IC system from process analysis. The company also gained approval from the Environmental Protection Agency for its AS4 column in the analysis of anions in drinking water. Dionex’s research efforts then produced a revolutionary breakthrough in IC technology with the 1986 introduction of its MicroMembrane suppressors, which now made gradient elution possible meaning the types of ions that could be analyzed grew substantially. To fully take advantage of the MicroMembrane suppressor, Dionex introduced its 40001 system in 1986.

Expansion and Acquisitions: Late 1980s and Beyond

Aside from technological advances, Dionex also expanded its business operations in the early 1980s, forming subsidiaries in Europe. By fiscal 1985, the company was generating more than $35 million in annual revenues. By the end of fiscal 1987, sales would top $50 million. Profits also showed continual improvement. Despite having no debt and substantial cash in hand, however, Dionex showed little interest in external growth. The only exception was the 1988 acquisition of Lee Scientific, maker of superficial fluid chromatography equipment, which allowed the company to enter into a related market.

To support its steady sales growth, Dionex employed a two-prong marketing strategy. In addition to direct sales calls, it improved its customer base in already established applications by using direct mailings and advertising in trade publications and at seminars and workshops. By continuing to work closely with its customers to solve specific problems, Dionex created new applications to be exploited commercially. In effect the company’s marketing and research and development efforts converged. By 1993 annual revenues topped the $100 million level.

Company Perspectives:

Innovation and quality have made Dionex a leader in the worldwide separations industry. Our expertise allows us to work closely with chemists, biochemists, and other customers in various markets. We actively seek new technologies to help our industry. Customer satisfaction is the foundation for our continued growth and strong financial condition. And it is the organizing principle for all of our operations, from R&D and manufacturing to sales and customer support.

Most customers in the early 1990s were clearly interested in increased productivity, and Dionex responded with a series of affordable and reliable products that allowed a greater sampling capability, as well as ease of use. In 1990 the company introduced the DX-100, a low-cost system geared toward routine ion analysis applications. A year later came the DX-300, suitable for gradient and microbore applications. In 1992, Dionex introduced its Self-Regenerating Suppressor feature, which eliminated the need for chemical regenerants, replaced instead by water. Hamish, long since retired from Dow, collaborated with Dionex researchers in 1995 to help incorporate the AutoSuppression feature in future products and ultimately lead to what the company called its Just Add Water technology.

Some of the most important advances in IC systems were the result of improved software. In fiscal 1994, Dionex introduced its PeakNet Windows-based software, which was incorporated into a new line of PC-based IC workstations. Improved versions of PeakNet would result in even more productive systems.

In the 1990s, Dionex began to expand beyond its traditional IC products. In fiscal 1995, it introduced a new technology, Accelerated Solvent Extraction. The resulting systems would be used around the world for a multitude of environmental, industrial, and food and beverage applications. Although Dionex was engaged in small niches of the $2 billion high-performance liquid chromatography market, in 1998 it fully entered the business by acquiring a small German company, Softron GmbH, at the cost of $24.7 million. The Softron technology was combined with a Chromeleon software system to produce Dionex’s Summit HPLC System for use by scientific, pharmaceutical, and industrial laboratories in analyzing chemical compounds. Moreover, Softron, with $10 million in annual revenues, provided a European customer base on which to build.

In fiscal 1998, Dionex topped $150 million in revenues while posting a $28.7 million profit. By fiscal 2001, revenues would improve to $176.8 million and net income to $31.4 million. During that year Dionex would also make one of the rare acquisitions in its history, the $12 million purchase of LC Packings B.V., a Dutch maker of liquid chromatography systems used in Proteomics and drug discovery research. The Packings acquisition improved Dionexs position in the HPLC market. In a released statement, Bowman noted, “This will greatly improve our access to the leaders in Protoemics research, and our insight into the quickly developing needs of the major pharmaceutical and biotechnology companies doing this important work.” Far from content with its success, Dionex was introducing more new products than ever before. It was also expanding its worldwide distribution channels. In January 2001, it increased it direct sales subsidiaries by opening offices in Denmark and China.

Despite boasting record profits each year since going public in 1982, Dionex remained virtually unknown to a vast majority of individual investors, with most of its stock owned by institutions. The company’s business was difficult for most people to understand, a major reason why the price of Dionex stock was undervalued when compared to its competitors or to the market in general. The company had made money in both good times and bad, and appeared well positioned to continue its pattern of growth well into the future. Under Bowman, Dionex gained a solid reputation with its customers, who displayed their loyalty to the company by returning to buy more products. Good relations were maintained by not only having Dionex employees install its products, but with strong after-sales support as well. Moreover, an ever-widening network of distributors and foreign distributors allowed Dionex to spread its risk, with more than 60 percent of all sales coming outside of the United States. The company could also expect to improve significantly on its share in the HPLC market, with a short-term goal of becoming the third largest player. Perhaps the biggest challenge to Dionex in the years ahead would simply be its ability to recruit the number of trained and qualified technical people needed to keep pace with the company’s growth.

Principal Subsidiaries

Dionex Softron GmbH; LC Packings Nederlands B.V.

Principal Competitors

Alltech Associates; Hewlett-Packard Company; Perkin-Elmer Company; Varian Associates; Shimadzu Corporation; Thermo Instruments; Waters Corporation.

Key Dates:

1975:: Dow Chemical licenses Ion Chromatography technology to Durrum Instrument.
1978:: Dionex is spun-off as a subsidiary of Durrum.
1980:: Dionex incorporated as separate entity; A. Blaine Bowman becomes CEO.
1982:: The company goes public.
1988:: Lee Scientific acquired.
1998:: Softron GmBh acquired.
2000:: LC Packings B.V. acquired.