Is Microchip a high-tech herald?
• Local industry analysts hope that the chip-maker's arrival indicates better times ahead
When Arizona's Microchip Technology Inc. announced last July that it was buying the dormant Fujitsu plant in Gresham, the news Ñ like the first bluebird of spring Ñ briefly sent spirits soaring.
If a solid performer like Microchip was willing to invest in Oregon in the face of adversity, could a turnaround in the state's battered high-tech sector be far behind?
So far, Microchip's purchase hasn't proved to be much of a harbinger. But hope hasn't died.
'I don't think it's necessarily wrong to think that their move here would be a good testament' to other companies considering a move into Oregon, said Gresham City Manager Rob Fussell.
Moreover, said Multnomah County Chairwoman Diane Linn, 'They're providing middle-class jobs, which are a foundation within a community, and we believe they're right on track.'
Microchip is anything but a splashy throwback to the days of high-tech excess. It's a company that sticks to its so-called core competence Ñ microcontroller chips Ñ and stresses long-term steadiness over quick profits.
A passel of investment advisers name it as one of the top stock picks for 2003. Sam Stovall, Standard & Poor's senior investment strategist, calls it one of the bright stars in tech's gloom.
In other words, it could be exactly what Oregon needs.
So far, the Chandler, Ariz.-based company has hired nearly 100 workers, two-thirds of them former Fujitsu employees. Actual production in the Gresham plant will start this summer, after which another 100 workers will come on board by the end of 2003.
Microchip's microcontroller chips are embedded in an enormous range of everyday products, from dishwashers and microwaves to garage door openers Ñ 'limited functionality' items as Kathy Clevenger, the company's Gresham manufacturing director, characterizes them.
The company counts consumer, automotive, office automation, industrial and communications markets among its primary customers.
Even the Segway, the two-wheel vehicle that has been ballyhooed as the next big advance in short-distance personal transportation, relies on Microchip products. Microcontrollers in the Segway's handlebars and a balance sensor, which keeps the vehicle upright, are produced by Microchip.
The company's diverse customer base helps to cushion it against downturns in any particular business segment.
It has contracts with about 37,000 customers, with no single purchaser comprising more than 3 percent of the company's revenues.
Consumer product companies make up 35 percent of Microchip's business, and automotive products another 18 percent. Industrial and office automation products account for 16 percent each, while communications products contribute the other 15 percent.
'That meant when the telecom market went down 90 percent (in the last two years), it didn't hurt us as badly as it did companies that had put everything into it,' explained Paul Loughran, Microchip's public relations manager.
Overall, Microchip's net sales for the first nine months of fiscal 2002, which ended Dec. 31, were $500.5 million, a jump of 18 percent from the same period a year earlier. Analysts largely credit Microchip's stellar 55 percent gross profit margin levels.
The outfit also has delivered solid, if hardly awe-inspiring, news to its investors, retaining steady stock prices in the $23 range and earnings of around 17 to 18 cents a share.
'This is one of the best-positioned semiconductor companies in the world, and their numbers have been better than most companies in the industry,' said analyst Mark Edelstone, managing director of Morgan Stanley's San Francisco office.
The downturn affected Microchip like everyone else, he said, 'but they were able to get their core business back very rapidly, and the company is executing extremely well.'
The same strategies that inspired Microchip to buy the Fujitsu plant for about one-tenth of its worth have made the company a reliable investment, Edelstone added. Microchip paid $183.5 million for a facility that would have cost $2.2 billion to erect from the ground up.
Back in business
When Fujitsu owned the plant, it employed between 700 and 900 workers, by various counts.
Clevenger acknowledged that Microchip will top out around 400 workers by 2010.
Clevenger said the former Fujitsu employees provide a stable foundation.
'Some people are doing the same job they had before, maintaining the site equipment,'
Clevenger said. 'They're the equipment engineers, and they know the tools and processes.'
Gresham and Multnomah County officials lobbied Microchip hard, said Chief Executive Officer Steve Sanghi. The state's Strategic Investment Program contribution, a $17.3 million tax break during Microchip's first seven years of operation, made the deal work.
'It was a very important closing condition,' Sanghi said last summer.
The Strategic Investment contribution, though, further amplified Microchip's succeed-or-else status. Some have subsequently questioned whether the investment will help seed any future start-ups, since Microchip won't perform much research and development in Gresham.
But Matthew Chapman, Centrisoft's president and chief executive officer who has served on Microchip's board for five years, believes that some research will take place in Gresham once the facility becomes fully operational.
What's more, the plant 'will serve as a major source of revenue for the company for years to come,' he said.