New report on SEMX (paid for by SEMX) published in the Wall Street Transcript. Perhaps Salim knew this was coming.
GILBERT RAKER - SEMX CORPORATION (SEMX)
CEO Interview - published 10/22/2001
DOCUMENT # NAG618
GILBERT D. RAKER has been Chairman of SEMX Corporation since May 1990.
Prior thereto he was a Managing Director of Ditri Associates, Inc., a
buyout firm, which he joined in March 1987. Prior to joining DAI, Mr.
Raker was Executive Vice President of CPC Holdings/Kenmare Capital
Corporation. Prior to that time, Mr. Raker was Director and Executive
Vice President (Chief Operating and Chief Financial Officer) of
Combustion Equipment Associates, a New York Stock Exchange listed
manufacturing company, where he had significant responsibility for the
reorganization of that company in a Chapter 11 proceeding. He has also
served as Vice President of Finance for Barber Oil Corporation, a New
York Stock Exchange listed energy and natural resource company,
Assistant Treasurer of IU International Corporation, Director of venture
capital activities for Capital Management Corporation and a consultant
for Touche Ross & Co. Mr. Raker received a BA degree in Chemistry and
Mathematics from Eastern College and an MBA degree in Production
Management from Syracuse University. He has completed all the course
work for a PhD in Finance at Syracuse University. Mr. Raker is a member
of Beta Gamma Sigma and the Financial Executives Institute.
Sector: semiconductor equipment
TWST: Could you give us a history and overview of the company?
Mr. Raker: SEMX Corporation is a company which principally manufactures
proprietary thermal management materials, microelectronic packages and
modules and Internet components in a group which we identify as the
microelectronic packaging group. That is our largest operating group.
The target markets of that group include the fiber-optic, wireless,
telecommunications, Internet infrastructure, defense, automotive and
other industries. So we're really basically selling to the creme de la
creme of the electronics industry. The company is focused on trying to
take our strengths in advanced materials technology and combining them
with packaging (packaging simply means, in layman's language, housings
for components). We're looking to do this through both vertical and
horizontal integration. We also have a second business which is
currently for sale which is a wafer reclaim services group which
reclaims silicon wafers for the semiconductor industry. This enables
them to continue to reuse those wafers for test monitoring purposes at a
lower cost than what they would otherwise have to expend if they were
buying all of their materials brand new.
TWST: What is your own experience and involvement with this company and
the industry?
Mr. Raker: I became associated with the company in 1988 with several
individuals and we acquired the company when it was extremely small,
only $5 million in sales. Basically we have built the company through
several acquisitions and, more importantly, through internal
technological development and internal growth. The focus has been to try
and pull together the products, which the circuitry assemblers require,
to build the final components and devices for the many broad-based
commercial, industrial, defense and other applications.
TWST: What's the competitive landscape?
Mr. Raker: We have competitors in each segment of our business and most
of them are very, very large companies. For instance, in the thermal
management materials area, one of the largest competitors is Sumitomo
Corporation and Brush Engineered Materials. In the wire business, we
compete with a company in Japan called Tanaka and a company in the
United States called American Fine Wire. So as you go through each of
the individual components of our business there are competitors
throughout the landscape.
TWST: Are those competitive areas considered fragmented or are there
serious dominant leaders that you have to take into consideration as you
look at your own goals and strategies?
Mr. Raker: In the case of the companies which I mentioned, I think there
are serious dominant leaders in a few of the businesses that we're in
such as precious metals stampings where there are highly fragmented
groups including some 'mom and pops' where we compete. The advantages
that we try and bring to the party are that we are both ISO and QS
certified so that we have the capability to be able to handle major
contracts as a tier one supplier to such companies as Ford, General
Motors, Bosch and companies like that in the automotive industry. In
many cases we're the sole supplier or sole provider of a number of
products for them.
TWST: As you go through the review of your growth strategy and look at a
culling process, what criteria are you using and what impact might M&A
activity have on growth?
Mr. Raker: Let's go back to discuss why we're selling the wafer reclaim
business. When we acquired the wafer reclaim business in 1994, it was a
small player in a very fragmented industry. At the time, the pricing in
the industry was such that it was very fair and you could make a
reasonable profit for having to withstand severe up and down cycles as
well as very capital-intensive expenditure requirements. As the industry
has continued to develop, basically the Japanese competitors in that
business have taken the pricing down precipitously on an extremely
aggressive basis and the reason for it is that they have had sponsorship
which is so inexpensive for many of them that they are able to bring
some of the capital to focus in this industry at considerably lower
hurdle rates than we ourselves have. As a consequence, as we looked at
that business on an ongoing basis, we determined that that's not the
best place for us to continue to keep our capital employed. What we're
looking for instead is to continue the fairly good growth rate that we
have experienced in the past and to obviously bring to the bottom line a
fair return on that. As I said before, when we bought SEMX, we were
very, very small. We took it public in 1991 when it was only $6 million
in revenue. Last year, we finished the year with revenue of about $75
million and we look forward to that kind of continued progress and
development in our advancement. We're really anxious to first of all
reach a $100-million plateau which is going to be difficult this year in
today's downturn in the electronics market. However, over time, we
believe that the kinds of products and services and the technical
capabilities that we have to offer to some of the larger electronics
companies will position us to accomplish those kinds of results. After
we accomplish that size and substance, we're looking to then pick
another plateau, like $250 million and begin to work on that.
TWST: Would you give us an assessment of your management team? As you
look at the opportunities ahead, do you have the skill sets and the
bench strength onboard today or are you looking for any changes or
additions?
Mr. Raker: I think management is always a very critical factor in
companies of our size. We have, I think, some very good managers in that
not only are they focused on accomplishing the business results that
we've talked about, but they also have very strong technology
backgrounds and a very good capability in such areas as powdered
metallurgy and other types of technical areas that are very useful to
our customers. Where we provide the important service to many companies
is that they will end up designing a circuit and for one reason or
another either that circuit will have some kind of an operational
problem in it and that problem will interface with various types of
materials that they have selected. With the assistance of our
engineering and technical staff, we can go in and help them come up with
a more efficient solution and one which is hopefully less costly for
them. This is also a very important factor in the ceramic packaging area
where we just made an acquisition about a year and a half ago and have
completely retooled our facility in California to be able to expand our
offerings to companies in the niche areas of microelectronic packaging.
We are not looking to compete with such companies as NTK and Kyocera,
that are giants in the ceramics and packaging business. What we're
looking to do is stay highly focused on trying to provide important
packages to industries that may have thermal management problems
connected with them so that when we design housing for a circuit, in
many cases that housing requires a piece of our metals or product that
might be useful in dissipating heat away from the semiconductor chip
itself to assist it in operating more efficiently. That's the kind of a
focus and also a service that we really look to provide to our
customers.
TWST: What specifically is on the agenda? As you look out over the next
12-24 months, what would make that time frame a success at SEMX?
Mr. Raker: I think the first thing we have to make sure of is that we
withstand this business downturn which I think is obviously affecting
everyone in technology quite significantly. Although we did experience a
business downturn in 1998, as a result of the Asian crisis, that
business downturn lasted approximately nine or 10 months and we came out
of it as a much stronger company. Our current focus at this point in
time is to make sure that we have the staying power and that we keep the
proper people here to really be certain that we can be responsive to
addressing our customers' requirements on an ongoing basis. I think the
second most important thing right now that we're focusing on is making
sure that we can qualify as a provider of new or next generation
products of some of the high volume runners for some of these niche
items so that when this turnaround does come, it's quite dramatic for
us. We're looking to catapult ourselves to the next level, not just by
growing slowly in allowing people to come to us, but for us to really go
to the market and search out the requirements that our customers have
and then try to be responsive to them. Longer term, I think our real
edge will be ultimately to combine with a company that has more
capability on an international scale. For instance, we just entered into
a sales distribution agreement arrangement with a European company
called Electrovac or to possibly even merge with a company that would
enable us to have more marketing clout and muscle in a very difficult
business. As you know, as a supplier to the electronics industry one is
always being challenged more than some other industries. In addition to
extraordinarily high quality and material requirements, there's always
been a push within the industry to constantly reduce prices. This is why
a new consumer product comes out at $X for the first six months or so,
perhaps an extremely costly level, but as the industry works through how
to improve its production the cost drops significantly. As a supplier to
that type of an industry, our customers are always looking for us to
assist them in reducing our prices, yet constantly maintaining our
technical competence and quality. It's really quite a challenging
assignment, yet one that I think our team is very focused on, very
interested in and committed to.
TWST: The company's Polese subsidiary experienced a disturbance back in
March. What do you see as the long-term effect of that on the company?
Mr. Raker: To clarify the situation, the disturbance in March was
attributable to an external ammonia gas tank, which is required to
provide gas to our high temperature furnaces having an operational
problem. In so doing, it overheated and the gas in that tank expanded
beyond a certain pressure level. As it was designed to do, a release
valve kicked off and the ammonia escaped which was not good. The
positive outcome was that it avoided, as it was supposed to, any further
accidents such as the explosion of the tank itself.
TWST: It was a safety valve to prevent that type of problem.
Mr. Raker: The main problem there was that to get back into business, we
had to get the tank fixed which was done fairly quickly with both the
approval of the San Diego Fire Department and the OSHA operations.
Secondly we had to adjust and improve and correct any problems that the
lack of the ammonia gas in the furnace atmospheres caused. So in one
case we had a furnace that we lost the operations of completely for
several months. As a result of some other measures that we took (in one
or two previous capital expenditures that we had made ultimately) we
were able to get the firing capacity of our ceramic high temperature
furnaces back up to a modest level consistent to restart the business.
At this point in time, I would say that we are more than capable of
producing a capacity that is significantly beyond what the level was
that we were at prior to the accident, but it just took a couple of
months for us to make sure that we got everyone of those problems worked
through. In working through a problem like that you want to make sure
you've got the continued safety of your employees, your surrounding
neighbors and others all in mind such that those situations don't happen
again. We were inspected and allowed to restart our operations probably
within a week of that accident and that was with the full consent of all
of the governing authorities. It was just the residual affect of that
accident that we had to deal with since then ' reestablishing production
levels for our customers.
TWST: When you look at the overall operations of SEMX and that one
facility, what percentage or what portion of the overall business does
that business normally represent and is there a percentage that you've
applied to what this destruction might mean, top and bottom?
Mr. Raker: Last year the Polese Company was about 50% of the total
company's sales, so the disruption was sizeable. What it will ultimately
mean is very difficult to discover because part of the disruption was
due to a loss of a couple of pieces of business that we needed to work
on and get out right away and since we were unable to do so that
business went elsewhere. On the other hand, with the downturn in the
market, it's difficult to assess exactly what the true impact was vis …
vis this status of our customers normally looking to delay or extend
some of their contracts and their purchase orders and things of that
sort. That's a very hard question for me to answer because even if I had
all of the accounting data on our side, it's very hard to predict
exactly what the impact would have been on the sales end, and,
therefore, to make a top- and bottom-line estimate is almost impossible.
TWST: Do you have insurance settlements that would compensate for any
disruption or losses?
Mr. Raker: We have received some insurance settlements. The settlement
obviously is not complete because if you've had experience with business
interruption insurance before, you'd know that these claims take a
length of time to really fully adjust. We have been advanced, I believe,
at somewhere around $.8 million or so. There are additional items that
are pending and our expectation is that some of those kinds of items
will in fact be successfully settled with the insurance company, which
is Chubb. I think they have been relatively helpful to us in both
getting back into operation and trying to be fair about our claim.
TWST: What are the three or four key summary points that you would
present to convince a long-term investor today to buy in?
Mr. Raker: I think there are a couple of very, very important key
factors which investors have to look at and, unfortunately, the market
price of our stock does not currently reflect these at all. The first is
that SEMX Corporation is a very unique company in that it's one of the
first that has brought together both a strong orientation in thermal
materials management with a strong orientation in ceramic packaging. As
you may or may not know, ceramics is a product that when you heat it to
harden and finish the product, it shrinks from its original form. The
knowledge and understanding of the shrinkage rates and their impact on
what you're doing is very critical. There have been probably 25 or 30
ceramics businesses that have probably failed over the last 15+ years or
so in this industry due to the fact that they have not had good ceramic
formulas. The one that we acquired about a year and half ago is a very
good one; it was developed many years ago through a series of companies
that was started by Cabot; millions of dollars were spent on it and its
development and it has proven to be successful and has been accepted by
a number of companies that we have qualified it for just over the last
nine or so months. That's one item. I think the second item is that the
availability of independent high temperature confined co-fired ceramics
is fairly limited in the world. You have major companies like IBM,
Kyocera and NTK, that have billions of dollars in sales and control
their own ceramic capabilities. There are very, very few smaller
companies that have their own ceramic capability to make ceramic
feedthroughs and things of that sort that are important in electronic
packaging. As we focus on such things as higher gigabyte range wireless
devices, the ability to make a ceramic feedthrough for that industry on
a specialized basis is something that should be, and we believe, is
going to be in very high demand. Thirdly, the arrangement that we've
made with Electrovac is a very important one in that it is a European
based company that has had a great deal of success in packaging, but in
a form of packaging which is classified as what I would call glass to
metal seal applications. To a large extent, these are high volume, lower
cost operations and one of the things that we found extraordinarily
appealing about Electrovac is the fact that they have processes that are
highly mechanized and also extremely cost competitive. They have almost
limited sales in the United States and the first step of the arrangement
that we have taken with them is for SEMX to enter into a sales agreement
to help them in the US Ultimately, we are looking far beyond that for
them to enter into an agreement to help us in Europe and then see what
we can do on potentially a combined basis. I think the fourth factor is
that we are extremely well positioned within the market to grow when the
turnaround ultimately develops. Although everyone is very down on fiber
optics and optoelectronics at this point because they feel that
companies overbuilt fiber cables, I believe that some of the statistics
that people are using in the industry are a bit misleading. While it is
true that possibly as much as 90% of the fiber cable that has been laid
is not being fully utilized, if you take a look at the long transmission
lines (in other words the transmission lines between major urban
centers) I think you will find that the percentage of utilization of
those lines is considerably higher, probably closer to a 65% to 70%
range. As the need for that kind of communication increases to an even
larger impact, it is quite possible that the demand for some of these
products will reemerge to a very significant level; now I'm not saying
the significant level of last year, which may very well have been
overheated, but I'm saying a significant historical level. You have to
realize that as a company, although we're positioned well in this
industry, we have had very little sales in ceramics and packaging at
all; so for us to grow quite dramatically, that could happen overnight
if we're successful in getting one or two contracts that are focused on
a moderate level of business. For instance, if somebody gave us a $10-
million or $15-million contract, which is bupkis in this industry, that
can be a very significant growth opportunity for our company as a whole.
We do believe that we are positioned to take advantage of things like
that. When an investor considers SEMX he should look more closely at
the position for achieving growth, not just the current loss which comes
primarily from the silicon wafer reclaim business.
TWST: Thank you. (DWA)
GILBERT D. RAKER
Chairman & CEO
SEMX Corporation
1 Labriola Court
Armonk, NY 10504
(914) 273-5500
(914) 273-2065 - FAX
www.semx.com
e-mail: investorrelations@semx.com |
