VARL CEO interviewed by Rocky Mountain News>
Vari-L looks for a leap in growth
By Vicky Uhland
Special to the Denver Rocky Mountain News
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Vari-L Co. Inc.
Type of business: Designs, manufactures and markets a wide range of signal processing components and devices used in wireless and military communication systems.
Location: 4895 Peoria St., Denver
Corporate officers: David G. Sherman, president and chief executive officer; Joseph H. Kiser, chief scientific officer and chairman; Derek L. Bailey, vice president of sales and marketing; Daniel J. Wilmot, vice president of engineering; Jon L. Clark, vice president of finance and chief financial officer; Matthew Pope, vice president of commercial engineering; Janice E. Hyland, vice president of quality assurance.
Employees: 200, all in Colorado
1998 revenues: $18.1 million
1998 earnings: $2.7 million
1998 assets: $50 million
Symbol: VARL (Nasdaq)
Stock price: $32.62
--------------------------------------------------------------------------------
In a state where telecommunications giants battle for dominance, a small Denver-based company is quietly accumulating market share in the wireless communications industry.
Vari-L makes signal processing components used in wireless equipment. The company specializes in three markets: telecommunications infrastructure; wireless consumer products, such as cellular phones and pagers; and military satellites, radar and missile-guidance systems.
Vari-L's clients include all of the telecom and military heavy hitters: Lucent, Motorola, Nokia, Ericsson, Hughes, Lockheed Martin and Mitsubishi. The company also has impressive market share in telecommunications infrastructure, which includes wireless Internet and fiber optics. Vari-L controls more than 75 percent of the GSM base station market, which is the most popular transmission frequency in Western Europe.
And yet, Vari-L reports sales in the millions rather than billions. Revenues for 1999 are expected to be about $23 million, up from $18.1 million in 1998.
Vari-L President and CEO David Sherman expects those numbers to increase sharply in coming years, partly because Vari-L's chief competitors in the wireless communications market are two small Japanese companies not known for their customer service.
"I love competing with (them)," Sherman said. "You can buy anything you want as long as it's in their catalog, at their price and when they want to deliver it. You can see why I'm bullish on our ability to take market share."
Analysts forecast 30 percent growth in Vari-L's earnings per share annually over the next five years. The company's stock, which was trading at $5.75 in early 1999, closed out the year at $32.62.
Vari-L isn't likely to have any serious domestic competition soon, Sherman said.
"With our level of technology, millions of dollars worth of equipment and world class engineers, you don't just flip a light switch," he said.
Vari-L was founded by James Kiser in 1953 in Stamford, Conn., and moved to Denver in 1969. The company's first contract was with the Navy to supply electrically variable inductors. The letter L is the symbol for electrical inductance, hence the name Vari-L.
In 1992, Sherman and Kiser recognized that Vari-L's signal processing components also could have an application in the growing wireless communications industry.
The company developed and patented voltage controlled oscillators (VCOs), which adjust the wireless signal to a predetermined frequency, a necessary step for wireless transmission. The company dominates the market for VCOs used in base stations for cellular phone transmission.
Currently, the base stations market makes up about 71 percent of Vari-L's total revenues. The signal processing arm of the company, which includes fiber optic networks, has a 7 percent share, and military products make up 17 percent of revenues.
The cellular subscriber market has the lowest earnings share, at 5 percent, but has huge growth potential, Sherman said.
"There's 10 million new users on line in Japan alone," he said.
Vari-L traditionally has been an international company, with its revenues divided equally between domestic and international sales. But in 1999, 65 percent of its sales were domestic.
"The domestic marketplace for digital communications is beginning to really take off," Sherman said.
And while the military communications market is declining at a rate of 5 percent a year, Sherman said Vari-L has no plans to drop it.
"It gives us insight into the cutting-edge technology in the world, and it's a solid $5.5 million in revenues each year."
While Vari-L is rapidly expanding its revenues, the company has managed to keep the same number of employees -- 200 -- that it had five years ago.
A key factor is three robotic assembly lines that the company recently installed at a cost of $1.75 million to $2 million.
Before the installation, Vari-L had the capacity to make 2 million to 2.5 million components a year, with 32 people on the assembly line. With the robotics system, the number of workers needed has been cut to eight, and total production numbers increased to between 8 million and 10 million.
January 2, 2000
denver-rmn.com |
