TriQuint Semiconductor, Inc

views updated

TriQuint Semiconductor, Inc.

2300 Northeast Brookwood Parkway
Hillsboro, Oregon 97124
U.S.A.
Telephone: (503) 615-9000
Fax: (503) 615-8900
Web site: http://www.tqs.com

Public Company
Incorporated: 1985
Employees: 2,046
Sales: $312.27 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: TQNT
NAIC: 334413 Semiconductor and Related Device Manufacturing

TriQuint Semiconductor, Inc. is a leading designer and manufacturer of semiconductor products, using gallium arsenide instead of silicon as the base material for its circuits. TriQuint operates four manufacturing facilities, in Oregon, Florida, Texas, and Costa Rica. The company derives the bulk of its business from sales to wireless communications companies.

Origins

TriQuint was born within the corporate structure of another company, its mission to serve its parent by turning nascent technology into market viability. TriQuint's earliest roots were traced to a research project undertaken by Tektronix Inc. in 1978. In their Beaverton, Oregon-based laboratories, Tektronix engineers experimented with developing high-speed semiconductors, using an exotic material called gallium arsenide, or GaAs, as the base material for their integrated circuits. In 1985, when Tektronix's sales eclipsed $1 billion, the company used its venture capital firm, Tektronix Development Corp., to provide the funding for a new independent subsidiary, TriQuint Semiconductor, Inc. Tektronix, a company known for electronic design and engineering tools, hoped to use the high-speed semiconductors developed by TriQuint in its own instruments.

When TriQuint first began operating as Tektronix's independent subsidiary, the prospects were high for the market potential of gallium arsenide semiconductors. Although Tektronix never revealed how much it originally invested in TriQuint, industry observers estimated that the company's venture capital arm provided TriQuint with at least $20 million in start-up capital. With this initial investment, Tektronix management hoped TriQuint's engineers could develop a way of producing gallium arsenide chips in large volumes and at a price low enough to attract customers. Gallium arsenide possessed superior qualities to silicon—by far the most common base material used to manufacture semiconductors—but it was also much more costly to produce, particularly in large volumes. Gallium arsenide allowed for much faster computing than silicon, carrying an electronic charge faster than silicon could while consuming less power than silicon. The advantage came at a price, however. Gallium arsenide typically cost as much as $200 per wafer, ten times the price for a silicon wafer. Further, manufacturing techniques for producing gallium arsenide chips in bulk at a price acceptable for the commercial market had yet to be developed. As such, there was great promise for gallium arsenide, but much work was required to turn the material's promise into reality. As TriQuint set out, it was positioned as a pioneer in the development of gallium arsenide technology, with industry observers and Tektronix management waiting to see if the company could deliver on the promise of the next-generation material.

TriQuint's first years in business were spent trying to unlock the potential of gallium arsenide by improving production methods. At a 20,000-square-foot facility leased from Tektronix, TriQuint engineers worked on increasing commercial acceptance of gallium arsenide chips, which many industry pundits believed would ignite sales. In the mid-1980s, the U.S. military was the primary purchaser of gallium arsenide integrated circuits, accounting for two-thirds of the gallium arsenide market, a $50-million-in-sales business. By the 1990s, some experts believed the gallium arsenide market could reach $2 billion in annual sales, but only if the commercial sector was persuaded to choose gallium arsenide over silicon in greatly increased numbers. TriQuint, itself, was hoping to reach $50 million in annual sales by the late 1980s, but it would take roughly a decade before the company met its financial objective. Instead, the first five years of TriQuint's existence proved to be a financial struggle, as the company racked up successive annual losses throughout the latter half of the 1980s.

Although TriQuint was a money-loser during its first half-decade of business, profitability was not the sole measure of the company's success. By the beginning of the 1990s, TriQuint ranked as the largest manufacturer of gallium arsenide semiconductors in the United States. The gallium arsenide market, as a whole, had developed into a $200 million business by the beginning of the 1990s, with TriQuint keeping pace with the industry's growth by registering compounded annual sales increases of between 30 percent and 50 percent. Much of the company's focus was on developing its commercial business, particularly in telecommunications where gallium arsenide's properties were useful for converting sound waves into digital signals.

As TriQuint sought to exploit the technological advantages of gallium arsenide in the telecommunications sector, the company also searched for a partner in the gallium arsenide industry. TriQuint occupied the leadership position in the market and had recorded strong sales growth, but profits eluded the company. Further, the slower-than-expected growth of the gallium arsenide industry exacerbated the costly nature of gallium arsenide production, forcing the company to seek help in navigating its course as an industry pioneer. The addition of a partner, specifically a partner willing to invest, promised to alleviate the financial demands of gallium arsenide production, to open new marketing opportunities, and to better the chances of achieving profitability. By the beginning of the 1990s, TriQuint was negotiating with three companies, attempting to secure an investment to better its chances and to assuage the growing impatience of its 90 percent owner, Tektronix.

TriQuint entered the 1990s facing a critical juncture in its development. The gallium arsenide market was growing, but not at the pace predicted in the mid-1980s. TriQuint was recording steady sales growth, but not at the pace forecasted at its inception. Most disconcerting, the company was proving to be a perennial money-loser, its ability to turn a profit hampered by the difficulties in manufacturing gallium arsenide chips in volume at an acceptable market price. To improve its situation the company sought a partnership, negotiating with aerospace giant McDonnell Douglas Corp. in 1990. As part of the talks, TriQuint proposed producing advanced computer chips for McDonnell Douglas's military needs. Aside from providing a new source of revenue, the joint effort with McDonnell Douglas promised to help TriQuint establish new product lines. "I think you're going to see more and more of this happening," a TriQuint marketing executive commented to Business Journal-Portland in an April 9, 1990 interview. "The gallium arsenide business is a very expensive one, and there's not enough demand out there at this point to justify the duplication of capacity."

1991 Merger Bringing in New Management

The pressing nature of TriQuint's financial condition led to a corporate maneuver far more profound than a joint venture agreement. The event also signaled the arrival of a new leader, an individual who would guide the company into the 21st century. In January 1991, a merger was arranged between TriQuint and a California-based gallium arsenide chip producer named Gigabit Logic. Within months, another merger was arranged, adding Gazelle Microcircuits, another California-based gallium arsenide chip producer, to the combination of TriQuint and Gigabit Logic. In the fall of 1991, a new leader was hired to manage the merged companies, a veteran of the semiconductor industry named Steven J. Sharp. Before joining TriQuint in September 1991, Sharp spent nine years at Texas Instruments and 14 years working for Signetics Corp. After leaving Signetics, Sharp founded Power Integrations, Inc. and Silicon Architects.

With Sharp at the helm serving as president and chief executive officer (he was named chairman in May 1992), TriQuint embarked on a new era. Sharp made severe cuts after he arrived, closing several facilities and trimming the company's workforce by a significant amount. Following the merger with Gigabit Logic and Gazelle, TriQuint's payroll swelled to 330, which Sharp reduced to 185 within months after his arrival, leaving TriQuint with a smaller workforce than it had before the merger. Sharp also oriented the company's strategic focus toward communications applications such as fiber optic telecommunications, satellite communications, and, most important, wireless communications. In the years ahead, the demand from cellular companies for gallium arsenide technology would increase robustly, making Sharp's decision to place an emphasis on wireless applications an astute one.

Following the mergers and Sharp's arrival, TriQuint began to exhibit unprecedented financial vitality. By mid-1992, the company had recorded its first six months of profitability, ending six years of successive losses. By the end of 1992, as the profits continued to roll in, TriQuint had collected $29 million in revenue. The sales total was less than TriQuint's original management would have expected for the company by the early 1990s, but for Sharp and his new management team, the financial results for the year were cause for celebration. Further cause for joy arrived in 1993, as TriQuint began to shine for the first time in its history.

Company Perspectives:

We are a global supplier to the communications industry with a focus on media interface applications of RF and optical communications systems. Our mission is, "Connecting the Digital World to the Global Network," and we accomplish this through a diversified product portfolio. We strive to be a premier supplier of solutions based on complex materials such as GaAs, InP and other compound semiconductor materials and SAW-based products.

Not long after TriQuint recorded its string of six profitable months, Sharp began negotiating with AT&T Microelectronics. The talks carried on for nearly a year before industry observers were apprised of what precisely the two companies were discussing. In August 1993, AT&T announced it had acquired a substantial stake in TriQuint, an investment that was part of a product development deal with TriQuint. According to the terms of the agreement, TriQuint began manufacturing most of the gallium arsenide semiconductors for AT&T Microelectronic's wireless telecommunications equipment. Also, the partnership called for both companies to jointly develop a new manufacturing process related to technology developed by AT&T Microelectronics. With this process, TriQuint hoped to be able to develop gallium arsenide integrated circuits for higher power wireless devices and next-generation fiber-optic communications systems.

Following the announcement of the deal with AT&T Micro-electronics, Sharp, in a September 6, 1993 interview with Business Journal-Portland, declared, "With this investment, we have no need to go public." Before the end of the year, however, TriQuint completed an initial public offering of stock, raising roughly $17 million in a December 1993 debut on NASDAQ. TriQuint appeared to be destined for a successful 1994, having brokered a pivotal deal with AT&T Microelectronics, shown itself able to post consistent profits, and made its public debut. The company faltered, however, making 1994 "the year from hell," according to Sharp in a February 1995 interview with Electronics Business Buyer.

TriQuint's run of success ended in the spring of 1994, a point at which the company had reported ten consecutive profitable quarters. The downward slide began when the company's largest customer, Northern Telecom Ltd., announced slower than expected sales of some of its transmission equipment. For TriQuint, which relied on Northern Telecom for 30 percent of its total sales, the announcement meant a substantial reduction in orders for the rest of the year. Negative reaction to the news was swift, causing TriQuint's stock price to plummet 48 percent in one day, which led to a shareholder lawsuit. The company lost money for each of the final three quarters of the year, including a $7.5 million loss in the company's third quarter as sales dropped by one-third.

Sharp responded quickly to TriQuint's anemic condition. The company's facility in Santa Clara, California, obtained in the merger with Gazelle, was closed, which reduced the company's overhead. "We also focused on speeding up our product introduction cycle," Sharp explained in his February 1995 interview with Electronics Business Buyer. "We got more new products out in the third quarter than in any quarter in our history, and had 17 design wins of over $100,000 last year," he added. Although the company found itself in a precarious financial position, it did not reduce research and development spending. In fact, TriQuint increased its funding of product development for the wireless market, which Sharp viewed as "probably the single biggest opportunity we can identify over the next 10 years," as quoted in his February 1995 interview with Electronics Business Buyer.

Rapid Growth in the Late 1990s

Following a disastrous inaugural year as a publicly traded company, TriQuint rebounded well, setting the stage for the company's explosive rise during the second half of the 1990s. Sales increased 50 percent to $46 million in 1995, as its focus on the wireless market began to pay dividends. In 1997, the company left Beaverton and moved to Hillsboro, Oregon, where it constructed a 32-acre corporate campus anchored by a 160,000-square-foot complex. By the end of the following year, sales had eclipsed $100 million for the first time.

By the end of the 1990s, TriQuint exuded strength, its commitment to gallium arsenide production at last delivering substantial financial gains. The commercial demand for gallium arsenide chips enabled the company to garner a greater portion of the multibillion-dollar semiconductor market, as telecommunications companies, and cellular telephone manufacturers in particular, provided a foundation for growth. In the February 18, 2000 issue of Business Journal-Portland, Dan McMillan wrote: "TriQuint appears to have a solid strategy and a management team that is focused on executing that strategy. The company is focused on the telecommunications market and it's tough to find any sort of industry expert who doesn't think that's a good strategy." Other industry observers, particularly investors, saw the soundness of TriQuint's strategic focus as well. In a three-month period in 1999, the company's stock price soared, jumping from $90 per share to more than $220 per share. Sales reached $164 million in 1999 before climbing to $300 million in 2000.

TriQuint entered the 21st century recording robust growth and deepening its involvement in the wireless market. The first years of the new century saw the company forge several important deals that increased its capabilities to attract customers from the wireless sector. In May 2001, TriQuint announced it had signed a cooperative agreement with San Jose, California-based Atmel Corp. to design, manufacture, and market cellular telephone components using Atmel's silicon-germanium technology. In July 2001, TriQuint completed another merger, absorbing the assets of $160 million-in-sales Sawtek Inc., an Orlando, Florida-based manufacturer of surface acoustic wave-based signal processing components for the wireless communications industry.

Key Dates:

1978:: Tektronix engineers begin experimenting with gallium arsenide as the base material for integrated circuits.
1985:: TriQuint is formed as a subsidiary of Tektronix.
1991:: TriQuint merges with Gigabit Logic and Gazelle Microcircuits.
1993:: TriQuint completes its initial public offering of stock.
2001:: TriQuint merges with Sawtek Inc.
2003:: TriQuint acquires Agere Systems Inc.'s optoelectronics business.

As TriQuint charted its course for the future, the company anticipated bolstering its involvement in the wireless sector and adding new technological capabilities to its portfolio. For the years ahead, TriQuint would rely on a new leader to oversee the day-to-day management of the company. In October 1991, after a decade in charge of the company, Sharp announced his desire to reduce his corporate responsibilities. His decision to lessen his involvement in the company led to the appointment of Ralph Quinsey in July 2002 as president and chief executive officer. Sharp retained his title as TriQuint's chairman. Before joining TriQuint, Quinsey spent 20 years working for Motorola, where he served in various capacities developing both silicon and gallium arsenide technologies for wireless telephone applications. Under Quinsey's stewardship, TriQuint entered a new business area in January 2003, when the company acquired Agere Systems Inc.'s optoelectronics business for $40 million. The addition of the optoelectronics business, which contained components that carried data and voice traffic over optical networks, added further strength to TriQuint's operations. As the company pushed forward, nearing its 20th anniversary, it promised to explore other strategic opportunities in the telecommunications and networking markets.