To All: Sorry about the length of this post, but I think it is worth my time to write it and (hopefully) your time to read it>
Like many of you, I have suffered a great deal due to the performance of IMPX stock. In my frustration, I sent an not-so-nice e-mail to the company, not expecting a reply. To my amazement, the following letter was sent to me via e-mail from David A. Laws, President and CEO of the company. I would like to thank him publicly for taking the time to address my concerns.
Dear "Will"
Fiscal Year 1996 has been a challenging time for IMP, its employees, customers, vendors, stockholders and friends. In this letter I will try to answer many of the most frequently asked questions about the events of the last year and about our future plans, so that you will understand our present strategy and will continue to support us through this difficult time.
During the first fiscal quarter (April to June 1996) IMP saw the busiest and most upbeat time in history. The factory was running at full production , twenty-four hours a day, seven days a week. We had engaged with two new customers, Iomega and International Rectifier, who, we believed, were building dominant positions in their markets and who were demanding ever larger shares of our capacity. Our R&D team was also working on an Iomega funded development for the next generation Zip-drive read-channel. During this promising period, we had to turn away many potential new business opportunities. By improving yields, working long hours, and investing in new test capacity we were able to keep pace with the most urgent demands. We had started shipping production volumes of silicon from one offshore foundry partner and were in the process of bringing up a second to keep pace with the demand. During the time when Iomega was publicly citing component shortages as the reason for their inability to meet demand for the Zip drive, I am pleased to say that IMP was not the culprit.
At the same time, IMP stock activity became irrevocably tied to that of Iomega. Many investors who were attracted by the Iomega story , apparently bought IMP stock as a proxy for Iomega, seeing it as another way to participate in the success of the Zip. Unfortunately when the Iomega stock price peaked in late May and fell to a third of its value over the next threee months, IMP stock followed suit.
Recognizing that in the long term, their demands could overwhelm IMP's capacity, Iomega asked IMP, in May, to join a "Dream Team" partnrrship together with Intel, Motorola and Texas Instruments(TI). Under this arrangement they asked IMP to license the new read-channel device to TI in exchange for a substantial royalty and a guaranteed percentage of Iomega's consumption. We were very excited as we saw this as an excellent way of maintaining our relationship and continuing to enjoy a rapidly growing revenue stream. However, Iomega subsequently advised us that they had changed their plans and instead would contract directly with TI to be their long term supplier because of their ability to integrate many functions in addition to the read-channel. We did not, of course, immediately accept Iomega's position and took several months to negotiate a mutual separation agreement, which included cancellation of the new product development activities.
Of more immediate concern was that Iomega also advised us that due to slow sales, especially in Europe, they had significantly over-estimated their near term needs. Iomega would require only a fraction of the capacity IMP had been asked to reserve for them through the balance of the year. This change in the company's outlook was advised in our quarterly earnings release, although Iomega was not named specifically in order to protect their proprietary information regarding the state of their business. This is now public information as the result of an article in Business Week in August. We have continued to ship to Iomega, although, unfortunately, at a much lower level than we had set aside capacity to support.
The second major blow to our fortunes came with International Rectifier's (IR) announcement in September that their business was running significantly below expectation. At this time IR was our largest foundry customer and was growing rapidly. Although they did not need any further product for their current business, we negotiated a new lower rate to preserve the capability to manufacture wafers to their unique needs.
The loss of planned revenue from Iomega and IR, together with slower activity from many other customers, required that we take drastic action to reduce our expenses. Since the peak of employment in the summer, we have reduced our workforce by nearly 50%. This has been predominately in the manufactuing and support areas, but has also included some engineering and sales personnel. The remaining IMP personnel have also contributed to cost reductions by participating in plant shutdowns one week out of every four; essentially taking a 25% paycut. Management and sales personnel continued to work through these periods, but without pay.
Today IMP is facing many challenges. These include a worldwide glut of wafer foundry capacity, lawsuits from investors who were disappointed by the fall in the stock price, and the loss of a major proprietary product customer. Let me address each of these issues.
Although IMP participates in the specialty analog segment of the wafer foundry business, vendors who would not have considered supporting these unique needs in the past, now pursue it aggressively. Competition is particularly fierce from large off-shore suppliers. IMP is responding tothis situation by developing new high voltage and other special processes aimed at a number of fast growing applications. This is allowing us to engage with new customers who should begin to contribute to revenue in Fiscal 1998.
We believe that the claims made by plantiffs in the class action lawsuits have no basis in fact. While defending these actions presents a distraction to IMP management, we are hopeful that they can be resolved without material effect on the company's day to day operations.
Since I have assumed responsibility for the company, I have directed our new product development activities towards analog processes and devices that will appeal to a broader customer base than prior IMP products. This strategy will take longer to rebuild our revenue base than many of us would like, however I believe that it will create a stronger company over the long term.
Today, business remains slow and we cannot predict when the demand for our foundry capabilities will return to former levels. However, as noted above, we are starting to see interest in our new process offerings. We have a dedicated team of engineers aggressively pursuing new analog IC developments that we believe will show results within twelve months. We have also achieved outstanding improvements in the efficiency of our manufacturing operation. This will stand us in good stead to be a competitive supplier of these products as they are introduced.
Finally, to conclude, I would like to touch on our view of our market today. We still firmly believe that the analog segment of the semiconductor business is an excellent place to be over the next decade. Contrary to conventional wisdom, as the world has become increasiongly digitized, the demand for analog products has not declined but has increased. This is because analog circuits are essential to interface the digital world to the real world. An excellent example of this is the new generation of digital cellular phones which contain many more analog devices that the analog sets they replace. According to Pathfinder Research, analog ICs, once worthy of only departamental status in large semiconductor vendors, will reach $36.8 billion in revenues by 2000 and will be able to support many separate, more focused companies.
Thank you for your continuing support.
David A. Laws
President and CEO |
