Sirenza Microdevices (Sunnyvale, CA) acquired the assets of the Vari-L Co. (Denver, CO) on May 5, bringing together companies with different product lines but similar cultures. Integration of the two companies offers traditional manufacturing capability to Sirenza (a fabless company), along with 50 years of experience in VCOs, PLLs, and other frequency generation devices, and a presence in the defense market. Vari-L benefits from Sirenza's breadth of design and semiconductor expertise, greater capitalization, and similar interests in the infrastructure market. Robert Van Buskirk, CEO of Sirenza, and Chuck Bland, formerly CEO of Vari-L and now COO of Sirenza, offer two points of view on the new organization.
MRF: Tell us a little about Sirenza's history.
Van Buskirk: The company was founded by John Ocampo and his wife, Susan, who are still the company's largest shareholders. John is chairman of the board and Susan is treasurer. Their vision was to develop a broad range of new products featuring advanced technologies, but since they were self-funded they did not have the capital required for manufacturing. However, the fabless business model gave them a practical way to bring many advanced technologies to the market. The company actually started out as a semiconductor packaging supplier called Matrix Microassemblies. John and Susan took products originally intended for defense applications and applied commercial packaging and test processes for commercial applications. With their defense heritage, these products had high performance and were well suited to wireless-infrastructure applications, which is how the company moved into that area. The company ultimately changed its name to Stanford Microdevices, and to Sirenza Microdevices in January 2001.
MRF: What attracted you to the company?
Van Buskirk: I met John when I was at TRW where I was responsible for its commercial GaAs business. Stanford Microdevcices was one of our foundry customers. I knew the pros and cons of being a fabless company, and I had become a proponent of the fabless business model. I joined the company because I had a keen interest in further developing that model.
MRF: What led Vari-L to seek an acquisition partner?
Bland: We knew for several years that it would be necessary for Vari-L to diversify its product line to remain competitive in some important market segments. When your primary customers are manufacturers of base-station equipment, the size of your company and the breadth of its solutions definitely matter. These large companies are intensely focused on reducing cost, and they will retain only those suppliers that can help them achieve it. They demand a wide range of design solutions and the ability to deliver functional blocks, not just a single-function component. To prosper in this environment, we needed engineering talent that spans the entire transmit and receive chain. Sirenza's strength in amplifiers and semiconductors seemed to be very complementary to Vari-L's expertise in VCOs and PLLs. We felt that together we could provide the multifunction modules that base-station manufacturers are asking for, as well as more versatile design services.
MRF: Apparently, several suitors were pursuing Vari-L. Why did Vari-L ultimately choose Sirenza?
Bland: Seven companies were interested in Vari-L. We chose Sirenza because we saw a fit between our strengths and theirs, and because Sirenza is well capitalized, so it has staying power for the long term. Both companies are also focused on serving the infrastructure marketplace, and have similar goals.
Van Buskirk: At Sirenza, we knew also that size and versatility were becoming crucial. Customers told us it would be advantageous for us to broaden our products and technology. Vari-L looked like a partner that could make this happen. We had lots of versatility in semiconductors, but Vari-L would give us oscillator, synthesizer, mixer, and passive component expertise. Having a global footprint is also important, and large portions of Sirenza's sales are to countries other than the US, which is true also for Vari-L. Now when we go to these companies we'll be able to offer a much more complete solution.
MRF: Can you give us an example of the functional integration you spoke about earlier?
Bland: In the past, our customers would put our VCO on a circuit board and add components around it to create a PLL. Of course, when you put bare components down, your yield suffers. When they get the complete PLL from us, they're assured that it meets their specifications. They don't have to worry about variations in individual components because we have already absorbed them in our manufacturing process, so yield for the customer is much higher. Now that we are part of Sirenza, we can take this approach with a far greater array of multifunction components.
Van Buskirk: Taking this further, there are two basic ways Sirenza and Vari-L together can offer customers an appealing solution: integration and bundling of components. By integration, I mean that we can take Sirenza's RF IC components and integrate them with Vari-L signal source components to create a multifunctional module. Bundling is essentially giving the customer a single course for Sirenza and Vari-L products, which increases volume, and allows us to reduce prices.
MRF: What were some of the other advantages Sirenza felt it would gain by acquiring Vari-L?
Van Buskirk: Well first, we were very impressed with Vari-L's responsiveness to customers. Vari-L's is truly adept at delivering custom products in a remarkably short time, usually in two weeks from the time they receive the customer specification. About 80 percent of Vari-L's sales are custom products designed to meet specific customer specifications. Vari-L brought us a customer base that complemented our own, and if you interleave Vari-L commercial customers with ours, they fit. For example, Vari-L has a long relationship with Nokia and Motorola and we have similar relationships with Lucent and Ericsson. Vari-L also has manufacturing expertise in low-cost hybrids and multifunction modules that we did not have, so they brought us an established manufacturing core competence and a strong technical management team.
MRF: Vari-L has a presence in the defense market, which Sirenza did not have. Was this an important consideration as well?
Van Buskirk: It was extremely important to us. Vari-L has considerable experience in the defense market, and long-term relationships with defense contractors. About 20 percent of Vari-L's sales are in the defense area. This is an entirely new market opportunity for Sirenza, and Vari-L's relationships should allow us to introduce Sirenza's products into the defense industry.
MRF: What organizational changes are taking place now that the acquisition is complete?
Bland: Vari-L will be rapidly integrated into Sirenza, and the Vari-L name will disappear over time. When we announced completion of the acquisition, we also announced that Sirenza's corporate headquarters, as well as its manufacturing activities, will be consolidated in the Denver area. Sirenza has a small semiconductor test and packaging operation in Sunnyvale, and manufacturing facilities in Tempe, AZ, both of which will move to the new location. We have leased two 35,000-sq.-ft. facilities, one for manufacturing and one for administration at the Interlocken Advanced Technology Environment in Broomfield, CO. The facilities in Tempe and Sunnyvale will continue as design centers, along with others in Dallas and Torrance, and we closed our facilities in Ottawa on April 28 as a cost-cutting effort. Dallas and Denver will share support for the Ottawa product lines.
MRF: How will the new company be structured?
Van Buskirk: The company now has two divisions, the amplifier-products division, which contains the core Sirenza capabilities, and the signal-source division, which contains the core Vari-L competency with the addition of some of Sirenza's signal-processing capabilities.
MRF: How is this affecting your work force?
Van Buskirk: Before we acquired Vari-L, Sirenza had about 135 employees and Vari-L about 205. When our move is complete, there will be about 260 employees. We did provide financial support for Sirenza employees in a potential relocation to Colorado.
MRF: What was the appeal of Denver?
Van Buskirk: Denver is an excellent area from both personal and financial perspectives. It costs less to operate and live there than in California, and Interlocken is a beautiful 963-acre hi-tech campus in an area that is rapidly becoming Denver's technology corridor. The campus is surrounded by nice communities, a golf course, bike and hiking trails, and a new 1.2-million-sq.-ft. mall near the entrance to the park. It's a growing community that has placed strong emphasis on the environment. Vari-L has also developed a more highly-developed information technology infrastructure than we have at Sirenza, and it is easier to relocate Vari-L's manufacturing locally.
MRF: Can you tell us about any new products you will soon introduce that utilize the capabilities of both companies?
Bland: We're working on a commercial mixer line that lets us combine Vari-L's manufacturing and process engineering expertise with Sirenza's design capabilities. These mixers should be available 60 days after we consolidate. We will also expand the PLL line, which has been focused on the base-station infrastructure market, with models for other commercial segments.
MRF: Sirenza has recently entered the optical components market with transimpedance amplifiers (TIAs). Considering this market is currently even more depressed than the wireless market, why did you choose to enter it?
Van Buskirk: We feel that this market has excellent potential in the long term. When this market turns up, which I believe it will, there will be few component suppliers left that can supply high-performance amplifiers. Sirenza will be well positioned to capitalize on this upturn. It is important to remember that we are not interested in photonics, clock recovery circuits, or other optical components. We will make components such as TIAs, limiting amplifiers, and modulator driver amplifiers, all of which are well centered in our core of high-performance amplifiers. And we are learning a lot about higher-frequency techniques that we can spin off to non-fiber applications.
MRF: How about millimeter-wave
Van Buskirk: We made the right move by not putting much investment into applications like LMDS, which has essentially disappeared, at least for now. There is some cellular backhaul activity, ultrawideband at 60 GHz, radar at 77 GHz, and some other applications. However, we are interested in all applications that can benefit from high-performance very-broadband amplifiers in the 20-to-40-GHz range. In particular, more than 20 GHz with SiGe and more than 20 GHz with InP.
MRF: Is there any chance Sirenza will move up the "food chain" into manufacturing subassemblies?
Van Buskirk: No, we're very comfortable being a component supplier. People are asking us to integrate more and more functions into multicomponent modules, and that is appealing to us, but subassemblies are not. It's always tempting to start gazing upward in the value chain because the top line moves up fast. However, margin can slip away just as quickly. Can we grow a billion-dollar component business in the next few years? Probably not, but we can build a very profitable smaller one. Sirenza has had five consecutive quarters of 50 percent or higher margins.
MRF: What is your view of the current market conditions?
Bland: The microwave-components market is awash with oversupply, and there are just too many companies selling similar products. Competition is fierce and prices are dropping. The price of VCOs is half of what it was three years ago, and we're still working down the price curve. I think you'll see a shakeout in the industry, as the big contractors retain only suppliers that deliver the most versatile design solutions, greatest ability to integrate functions, fastest delivery, best performance, and of course, the lowest cost. We see signs of this already, where once we had several viable competitors for a program, today there is often only one.
Van Buskirk: The large wireless infrastructure manufacturers have undertaken major cost cutting, and I think the process of getting lean and mean is mostly behind them now. Their next challenge is to battle it out to see who will survive. We see some stability returning, and although our order patterns are still close in, our customers are beginning to talk several quarters out, which simply has not been the case over the last two years. We see more stability in other areas too, and some of the applications that simply vanished are coming back. Our book-to-bill has been above 1 in the last few quarters, and firm orders entering a new quarter are creeping upward.
MRF: How about the wireless LAN market, which seems to be a frenzy of activity?
Van Buskirk: Frenzy is definitely the key word there. We looked at 2.4-GHz power amplifiers, and in the two quarters it took to analyze the market, the price went down 30 to 40 percent, with many suppliers trying to get into the same socket. We have some catalog product SiGe amplifiers used in WLAN applications, but we are not putting a lot of R&D into this market.
MRF: Sirenza proclaims itself as focused on infrastructure. However, based on your comments, is that selling the company a bit short?
Van Buskirk: The impression is that we are an infrastructure company. But if you look at our design wins over the last year, about half are for wireless infrastructure and half are in other RF applications. A good example is X-10, the company whose pop-up ads for wireless video equipment splash across your screen. We've been selling to them for several years. They're coming out with a 5.8-GHz version with better resolution, and we'll be in that too. Sirenza components are also in set-top boxes, vehicle monitoring/tracking systems, RFID systems, and WLL repeaters. With Vari-L's hi-rel capability we'll be in the defense market too. We firmly believe in diversity, and it's helped us withstand the lean times and prepare ourselves for the prosperous ones.
MRF: How is the integration of the two companies progressing?
Bland: In the acquisitions I have participated in, we always identified a list of expected synergies, both operational and financial, between the two companies, and once the integration began we often discovered that we had overestimated. But in this case, we have found greater synergy between the two, which was a pleasant surprise. It is critical after an acquisition that you create an environment that fosters a shared vision and this is well underway at Sirenza.