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Silicon Valley Nation: Maxim confronts new challenges
There is an old maxim about company transformations...and then there is the new Maxim.
CEO Tunc Doluca and his team have spent five years shaking up what had become a classic three-yards-and-a-cloud-of-dust old-line analog company, Maxim Integrated Products. They changed up their manufacturing strategy and brought in a manufacturing expert from Intel; replaced the CFO; refocused the business units; tidied up their distribution and supply-chain strategy; and brought in new marketing blood. On top of that, the company got so serious about the word "integrated" that they rebranded the company as Maxim Integrated.
The company has rebranded and repositioned and refocused, and the stock market's taken notice: in the last two years, Maxim shares have begun to outperform some key competitors.
But, really, the hard part is beginning now, because an entire customer base doesn't awaken one morning and suddenly realize how different and fantastic their vendor is, especially in a market when there are a lot of choices; especially in a market where analog competitors are scratching the integration itch; especially in a market where digital companies are adding more analog into their portfolios.
"Our challenge is convincing the customers that we can take care of all of their analog needs," Doluca says, sitting in front of an impressive painting of Istanbul, in his native Turkey.
"I think in most cases, our customers are still thinking the right way to do these (designs) is we'll get highest-performance analog blocks and put a pc-board design together and build a system. But they don't realize we have the blocks and we can do it for them."
To date, the strategy has been to sweep up analog components around other existing analog components the company sells. But the company also is looking at a "Big D (digital), Little a (analog)" strategy. Maxim has a bunch of a "Big A, little d" products, but the key is to get a reputation as a company that delivers a truly integrated solution with competitive digital technology.
Such a strategy "helps us because not only are we capturing analog revenue, we're capturing digital revenue inside some of these (systems)," Doluca said.
Some of the company's mobility products, for example, which are primarily power supply solutions have embedded MCUs. "They're becoming so complex you need those micros to do sequencing or looking at the health of the power supply. But we still call those Big A, little d parts," he said.
"Big D, little a"
As for "Big D, little a," Doluca points to the company's recently released Zeus platform. Zeus is a smart meter SoC for embedded smart grid equipment that needs to measure and to communicate securely. A built-in cryptographic module secures communication; a secure bootloader prevents unauthorized firmware modification; and tamper detection assures providers that any attempts to physically attack the meter will be detected, recorded, and reported.
"It's got a very accurate front end for analog measurements and feeds it to a powerful microcontroller that can do all the calculations. It has a processor to handle communications protocols. Do it does measurement, handles communications needs, and, something unique to Maxim, it provides anti-tampering security," he said.
The challenge for any corporate transformation is to expand into new areas without neglecting what you got here. In Maxim's case, this means traditional analog "building-block" or "catalog" parts and the manufacturing capability that supports that.
"Customers aren't looking for the highest integrated products if they don't have performance," Doluca said. "They still want the level of performance they're going to get by buying these discrete components."
Over the past several years, the company has evolved its manufacturing strategy with this in mind. First, it hired Vivek Jain away from his job running Intel's Technology Development and Manufacturing facility in Santa Clara. Jain embarked on a strategy of moving a chunk of Maxim's manufacturing into foundries (on both 200- and 300-mm wafers), while keeping its own fabs for products targeting less-volatile markets.
"When you get into a high-integration product area, especially markets like mobility that are quite volatile...we realized we needed a more flexible manufacturing model," Doluca said. Maxim, by shifting some products there, they could better hit customer supply dates.
"Our lead times have shortened. We were able to meet our committed dates a lot better than in the past," he said.
This has gone a long way toward healing an old Achilles' heel at Maxim: customer support. "Maxim did not have a good reputation for supporting customers logistically," Doluca said. "We've improved dramatically."
Additionally, Doluca and team tightened its supply chain, inking a 2008 deal with Avnet to make the giant distributor a key partner to service and support the longtail customer base.
Since then, Maxim's found 5,000 new customers it "didn't know about," Doluca said.
Some of those customers may be attracted by the new integration strategy that's been backed up by smart investments. Before 2007, Maxim had done almost no acquisitions, save for acquiring a Tektronix wafer fab. It preferred to build everything in house. Since 2007, it's acquired a dozen companies, including
- SensorDynamics AG for $130 million plus $34 million in debt. SensorDynamics focuses on low-power wireless interfaces to MEMS sensors and is best known for inertial MEMS sensors and automotive smart-key chips.
- Genasic, which makes a 65-nm CMOS transceiver IC for HSPA and LTE applications.
- Phyworks, which makes transceivers and transimpedance amplifiers span the entire spectrum of data rates, from 1- through to 10-Gbps.
- L&L, a small firm that was developing and licensing digital control technology based on "state-space."
- And, the biggest acquisition, Teridian Semiconductor Corp., for approximately $315 million in cash.
What lies ahead
It's a well-framed story, and the actions Doluca and his team have taken since 2007 make logical sense. But challenges abound, especially because pursuing an component-integration strategy requires a completely different mindset about engineering, according to Steve Ohr, analog analyst at Gartner.
"They need to figure out the best balance between standard analog products (multi-market building blocks) and application-specific analog (like cell phone power management ICs or smart meters). The product lines require totally different engineering processes, and offer quite different revenue streams and margins," he said.
Traditional analog parts are usually designed by a single engineer, require little promotional outlay and can be sold for decades. The gross margins can be as high as 70 percent, Ohr said.
"With application-specific parts, you’re talking about a specialized, more integrated part type, put together with a short time-to-market window, and often for a specific model consumer product with a 12- or 18-month life cycle," Ohr said. "Engineering-wise, this is a coordinated team effort. But an ASIC/ASSP purchaser like Apple will know what your cost structure is, and will beat you up on pricing."
A company may reap hundreds of millions in revenue on an ASIC/ASSP product but with little margin, he added.
"The reality is that very few companies are equipped to do both types of analog--standard and custom application-specific," Ohr said.
There are old maxims about company transformation: One is "time will tell." Another is "Don't count your chickens before they hatch."