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RF Monolithics is watching their gross
profit go up as they have successfully executed on their plan to lower manufacturing cost
Electronics Instruction & Controls
RF Monolithics, Inc.
4441 Sigma Rd
Dallas, TX 75244
David M. Kirk
Chief Executive Officer
Interview Conducted By:
Bio of David Kirk, President
David Kirk was named President and CEO, as well as a
member of the Board of Directors, in November 1999. Prior to this appointment,
David had been Vice President of Marketing since June 1998. His goal is to use his
engineering expertise and marketing talents to provide leadership for the company.
Prior to joining RFM, David was a successful marketing executive for fourteen years,
holding various positions at Murata Electronics North America, Inc. David holds a
Bachelors degree in electrical engineering from Clemson University in South
Celebrating its 25th anniversary, RFM,
headquartered in Dallas, Texas, is a leading developer, manufacturer and supplier of a
broad range of radio frequency components and modules based on surface acoustic wave and
other technologies for the automotive, consumer, distribution, industrial, medical and
telecommunications markets worldwide.
CEOCFOinterviews: Mr. Kirk, please give us a brief background
on RF Monolithics.
Mr. Kirk: RF Monolithics is a wireless component and
module manufacturing company. We are located in Dallas, Texas. We have wafer
fabrication here in Dallas and we have four assembly partners in Asia. The products
we make are SAW based products, surface acoustic wave products. For some of our products,
we blend the SAW device and RFIC chips to produce module. The components are
our base business and serve markets such as the automotive market for keyless entry, and
tire pressure monitoring. Our filters go into GPS and satellite radios, which is one of
the stronger of our emerging markets. Our Virtual WireŽ product family serves markets
including automated meter reading, wireless fish finders, and a variety of other
commercial and consumer applications. For the last few years, weve gone through a
fairly extensive restructuring program but we are currently quite profitable; we are
practically debt free; we have a very strong positive operating cash flow; and we are
beginning to see growth in many of our markets.
is the core technology here?
Mr. Kirk: The core technology is surface acoustic wave,
SAW technology. Basically this is the use of piezoelectric phenomenon where you put
electrical signal in one end of the SAW dye. It produces mechanical vibration that ripples
down the surface of the material and is picked up by metal pattern at the other end,
effectively you turn electrical into mechanical and back into electrical and use those
characteristics for filtering and producing a variety of different products. We do, in
fact, combine these products with our patented Virtual WireŽ devices using RFICs to
make low power transmitters, receivers and transceivers.
CEOCFOinterviews: As far as research and development is
concerned, how much time and money and effort is spent in this area?
Mr. Kirk: R&D
is a very important part of our business as you can imagine. It is somewhere around 7% or
8% of our business. Last year we came up with over 50 new products and many of those are
our custom products, our patented products. Some of the most recent development we
are currently working on is our third generation Virtual WireŽ product which we will have
ready for sampling to our customers in this years fourth quarter.
us about your approach to sales and marketing.
Mr. Kirk: We use
manufacturers representatives and distributors, selected for their technical and RF
expertise since we are a fairly detailed technical sell. On the OEM side, we seek to
have our products designed into markets including various automotive accounts, typically
the tier one automotive supplier like Delphi, TRW and those types of suppliers. On the
telecom side we seek design-ins for suppliers like Nokia, Nortel and Motorola. For many of
the other markets like automated meter reading there are a variety of companies providing
radios and meters for wireless applications. Distribution obviously serves a variety
of markets; probably the biggest market we serve through distribution is the medical
CEOCFOinterviews: How do
you oversee the offshore assembly of products and the quality?
Mr. Kirk: Quality
is very important to us. Our main market which is automotive has strict quality
requirements. The international quality standard QS9000 is what all of our
facilities, both in Dallas and Asia adhere. That was why we took two years to transition
production offshore. We couldnt simply move offshore to the lowest cost producers.
We had to make sure each partner had their quality standards in place. We selected
partners that were QS9000 qualified and we established consultants at each location
to oversee production and we continue training and education of those partners through
frequent visits from our quality department located here in Dallas.
CEOCFOinterviews: How do you control the inventory?
Currently we have set-up one inventory location in the Philippines. We ship
from the Philippines basically into hubs including North America, Europe and Asia.
We do maintain some inventory here in North America.
orders come in, do you fill the amount of the order only or do you produce a little extra
in case there is an additional need?
Mr. Kirk: It
really depends customer by customer. Typically we build to order and we do not maintain a
lot of finished good. The automotive business typically gives us good visibility
with forecasts and lead times and that are fairly solid business. We usually
contract the automotive business on an annual basis or multi-year contracts. In that case
prodcution is fairly planned out. However in some of the newer markets that we
are getting into, like the satellite radio and some of the consumer applications, they
give you an order and you have to quickly react to try and fill that order. Lead-time for
our products is typically 6-8 weeks or sometimes to stretch a little bit on the 8-10 week
sales offices are in California, Minnesota, Georgia and some in Europe, do you see
yourselves expanding on that as you grow?
Mr. Kirk: We
continually look at our sales organization. In October added an additional
distributor, Richardson Electronics, here in North America. We continue to seek the best
way to market in the different areas of the world. One area we are looking into now
is China. And, of course, we will keep monitoring what is going on in the different
parts of the world in view of what works best for RFM.
CEOCFOinterviews: As the
demand grows, especially in automotive and wireless, are you going to have enough
facilities and sales force to meet the demand?
Mr. Kirk: One of
the things we did with the restructuring and the move offshore was to put into place
backup capabilities. We have wafer fabrication capability here and wafer
fabrication backup in Taiwan, which increased our capability tremendously. With the
manufacturing partners overseas we have backup capability in different countries for each
of the different products lines. We believe we do have both front end wafer fab and
assembly capability now to support the growth that we are seeing and we will continue to
analyze our requirements as we move forward. Right now we are in good shape with the
good low cost structure that we have put into place.
CEOCFOinterviews: This Company was originally founded in
1979. Since that time what was the biggest hurdle that this company had to overcome?
Mr. Kirk: Originally RFM went into a different area of
the market than others in the SAW business. They went right after the high volume
cellular handset business. RFM went after the markets for low power components including
keyless entry, tire pressure monitoring and others in that particular area. As a result,
we had a harder time explaining what our markets actually were. Weve recently formed
a campaign called the Wireless Is campaign to try and explain the variety of
opportunities for low power wireless applications. There are other applications out there
other than cellular and I think that we are starting to get that message across. There is
a good marketplace in tire pressure monitoring, keyless entry and emerging markets such as
mesh networking and a variety of other similar applications. There are numerous wireless
opportunities in the medical community as well. Thats probably the only hurdle
we have continuously work on-- constantly explaining what marketplaces our products
CEOCFOinterviews: Do you see acquisitions playing a roll in
the growth of this company?
Mr. Kirk: Right now we have positioned ourselves for
growth with the products that we already have developed. We are beginning to see that
growth ramping at this particular time. We will always look for any opportunities
including mergers, acquisitions, and partnerships that will benefit the shareholders.
Currently we are probably at a better position than we have ever been for something to
take advantage of such opportunities.
CEOCFOinterviews: What are you looking for in a company?
Mr. Kirk: Our base technology is SAW technology. We do
have some RFIC capability, so someone would have to be in the low power side of it. On the
sensor side a lot of our low power applications are transmitting and receiving information
they are receiving and there are usually sensors, temperature sensors, and pressure
CEOCFOinterviews: Out of the four product lines that you
carry, where is the biggest growth?
Mr. Kirk: There is very strong growth right now out of
the communications product group, especially the filters, which has been driven by
satellite radio growth. Weve designed in filters for both satellite service
providers. The satellite radio subscriber rate is growing very strongly. That
is probably our strongest growth followed very closely by the Virtual WireŽ product
family, which is driven by the automated meter reading market. These are the strong
drivers at this particular time. Going forward, we have formed a new group called the
module group which is somewhat of an extension to the Virtual WireŽ family, to provide a
higher value added module that we believe would accelerate growth for that product line
CEOCFOinterviews: What would you say is your competitive
Mr. Kirk: Our competitive edge is comprised of a couple
of things. First, weve got a very good patent position with about 40 patents.
Specifically we have three in the Virtual WireŽ group that give us a very good
edge in low powered components. The other thing that we do very well is RF. RF is
really black magic to a lot of people and RFM works very closely with the customers
in this area. In fact, we often bring customers in for a full day of
engineering work where we will thoroughly review their product and make sure it meets all
of the FCC requirements. We have very, very close customer relationships with our clients
and a strong patent position sets us apart from our competitors.
CEOCFOinterviews: You did mention automotive which is your
strongest division right now, but you also mentioned the medical community. How is this
affecting your company?
Mr. Kirk: Automotive is a very solid market for us.
Its a good base business. Its very high volume and very
price competitive, but basically if it there is a good year or bad year there is still
about 16 million cars built in North America and that is good solid base to build on. The
medical market, as far as wireless is concerned, is really just starting to emerge. There
is a new frequency been allocated called the WMTS (Wireless Medical Telemetry Standards),
and we do see some opportunities for growth there, but this is still just an emerging
market at this time.
CEOCFOinterviews: So, it could be very exciting for the next
two years to come.
Mr. Kirk: I believe so. Weve been very effective
setting up a very low cost structure and we are expect to see10%-12% growth in our third
quarter over our second quarter which is fairly good, solid revenue growth. We are into
some exciting new applications, satellite radio, automated meter reading, tire pressure
monitoring. Therefore, I believe you are correct when you say you see some really
good growth in the next couple years.
CEOCFOinterviews: When you first joined this company back in
1998 you were in marketing. Then you became CEO in 1999. From that point on, personally,
what was your biggest hurdle that you had to overcome?
Mr. Kirk: I think the key thing for me since becoming
CEO was to get a low cost manufacturing structure in place. We had three assembly
factories here that were working seven days a week, twenty-four hours per day and could
not be competitive. All of our competitions had moved offshore several years prior to us.
A major hurdle was finding manufacturing partners, qualifying them,
completing the transition and keeping our customers while we did that. It was a two-year
process that I believe the team actually executed very, very well. Our gross profit has
gone from 11% to the low 30s. We are profitable and basically debt free at this
particular time with strong positive cash flows. So, I think that the offshore transition
was the biggest, single hurdle that weve actually overcome. Weve done other
good things including changing our product mix from being very heavily dependent on low
power components for the automotive market to a mix containing our higher value products.
Weve actually executed very well on that product mix change as well. I guess
the offshore thing was the biggest hurdle weve had, however.
CEOCFOinterviews: In the news lately there is a lot of
mention regarding manufacturers overseas taking the place of jobs here. Does this affect
your company at all?
Mr. Kirk: We did make a significant deduction in our
workforce. We had over 600 employees here in North America and we are
currently at 200 employees. I would take a slightly different look at the reduction,
however. Rather than focusing on moving 400 jobs offshore, weve
focused on the fact that we have actually saved the company and have 200 solid jobs.
We are focused on our core competency, we are profitable, debt free and a much
stronger company for the restructuring. We are really competing in a global marketplace.
If we were just competing against US companies or just Dallas based companies then we
would have been fine, but our competitors had long since moved offshore. It may be
unfortunate, but we live in a global economic environment.
CEOCFOinterviews: In closing, what would you say to a
potential investor who is asking you, why RF Monolithics?
Mr. Kirk: If you look at our history, weve done
what we said we were going to do over the last 4-5 years. You look at the different
products we have and the markets that we serve, there are some nice emerging areas. The
satellite radio has caught a lot of peoples attention for example. We are
profitable, and debt free. Were starting to look down the road at whats next.
We are starting to see other marketplaces emerging such as Mesh Networking and wireless
and medical opportunities. I think if you look at the whole package, there are some
positive things going on here at RFM.
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