Micrel's CEO talks about R&D expenditures
TWST: What significant trends and developments will be happening in your sector of the market over the next few years?
Mr. Zinn: The semiconductor industry, in general, is undergoing one of its fastest growth periods in recent memory. So there are several issues that are impacting or affecting the semiconductor industry. One, of course, is capacity, being able to ramp up and meet the demands for our products. And then the second is staying up with the technology developments, in particular, the high bandwidth or communication infrastructure for the Internet. The issues for us in ramping up capacity have to do with the lead times currently out there for capital equipment. Everybody else is looking for the same equipment, so you’re vying for the same delivery slots as other people. So that does, to some degree, exacerbate the ramp up schedule. But we’re dealing with that, and that’s one of the challenges we have, being able to ramp up capacity fast enough.
TWST: How will your R&D expenditures reflect these developments over the next few years?
Mr. Zinn: Twelve percent to 12.5% of sales is what our R&D runs because the company is growing quite rapidly already — on a dollar basis, it’s growing tremendously, but on a percentage basis, it’s remaining relatively flat. In order to grow your research and development, you have to have the ability to attract key talent. Because there is a prolific number of communication companies starting up, we find ourselves competing with all of these start-up communication semiconductor companies. To that end, it’s making it difficult to attract key talent. As you know, some of these start-ups have been acquired recently — one recent one I think was to Intel; a company called Giga was sold to Intel for $1.25 billion. That’s kind of rich for a company of our size to have to pay that kind of price. The company was a small company. It had less than $40 million in sales, and yet they sold for $1.25 billion. So all these good designers and communication system architects are looking at this as the next dot-com IPO opportunity for them.
TWST: With that acquisition that you just alluded to, what’s the greatest opportunity for Micrel (Nasdaq:MCRL) over the next few years?
Mr. Zinn: Certainly, one of our goals is to acquire some key talent in that area. We recently acquired a company called ETC in Ames, Iowa. They’re an analogue and mixed signal design company. They’re a small company — less than $3 million in revenue a year. But we wanted that design talent, so we acquired them for significantly less than what Intel paid for Giga, but this did give us some designers to help us launch these newer products. One of the ways in which we intend to grow our product line is to acquire these type companies. So we are on a big acquisition effort. |
