Standard Microsystems Corporation Business Information, Profile, and History

History of Standard Microsystems Corporation

Since being incorporated in 1971, Standard Microsystems Corporation has evolved from a semiconductor supplier to a leader in standards-based networking technology. In 1994 the company ranked as one of the world's largest suppliers of products that businesses and individuals use to connect personal computers over local area networks (LANs). The firm's System Products Division--which accounted for 82 percent of Standard Microsystem's revenues in 1994--designs, produces, and markets a variety of LAN switches, hubs, LAN adapters, and network management software. The company's Component Products Division designs and produces innovative complementary metal oxide semiconductor, large scale, and very large scale integrated circuits for the personal computer market. The company ranks number two in worldwide Ethernet adapter market share and boasts the number one spot in unmanaged hubs. With its growing share in Token Ring adapters and Ethernet intelligents hubs, SMC also figures as a major player in the rapidly expanding switch market.

In 1971 Paul Richman, educated as an engineer at Massachusetts Institute of Technology (MIT), and three other men interested in the rapidly growing and very lucrative field of computer technology formed Standard Microsystems Corporation as a spin-off of a company then owned and run by Herman Failkov. Failkov, an extremely successful venture capitalist, became the company's part-time chairman, and Richman headed its engineering and technological development unit. Though its headquarters were in Hauppauge, New York, the company opened a calculator microchip manufacturing facility in Silicon Valley to take advantage of the booming computer microchip market. Unfortunately, one of the company's major customers, a Japanese firm, decided to cancel its order for chips in 1973. In addition, the company lost most of its investment in the West Coast venture and, as a consequence, revenues began to plummet. Standard Microsystems's stock, already trading on the OTC market, dropped precipitously to 40 cents a share.

In 1973 and immediately afterward, Standard Microsystems devoted itself to recapturing lost business. The focus of the company's activity was on designing and manufacturing metal oxide semiconductor large scale integrated (MOS⁄LSI) and very large scale integrated (MOS⁄VLSI) circuits, primarily employed in data transmission and telecommunications products. Developing this technology allowed the firm to begin licensing a number of major patents it received for breakthroughs in MOS and LSI circuitry. Hitachi, IBM, Fujitsu, and Western Electric started licensing Standard Microsystems's increasing portfolio of high-technology patents. In addition, by selling the company's ROM operation in Silicon Valley and deciding to remain on the East Coast, management also built an impressive base of eastern customers, including Digital Equipment Corporation, Data General Corporation, Burroughs, and Honeywell. Despite these accomplishments, the company lost approximately $1 million on revenues of only $3 million and reported total debts amounting to almost $1 million.

To correct its financial problems, Standard Microsystems appointed Morton Brozinsky, an executive with a long history of turning a profit, to the position of chief executive officer and chairman of the company. Brozinsky took over just as an especially intense price war in the semiconductor industry had ended. Brozinsky immediately brought small company tactics to the problems confronting Standard Microsystems. Paul Richman, still head of research and development at the company, had created a fundamental breakthrough in the industry with his COPLAMOS technology. The COPLAMOS process was used in designing N (Negative) channel metal oxide semiconductor (MOS) chips, which were significantly smaller and much quicker than the standard but older P (Positive) channel metal oxide semiconductor chips. Brozinsky licensed Richman's revolutionary technology to large companies that subsequently manufactured the product for the booming memory market in high volume numbers. With numerous companies signing agreements with Standard Microsystems to license its technology, Brozinsky shifted his attention to concentrate on smaller markets in which the company could easily compete.

Standard Microsystems also realigned its internal operations to provide more services to customers. Brozinsky's rationale was to let the larger companies provide standardized products in large volume, while Standard Microsystems would stress product innovation and customization. Most important, Richman and his team of engineers were able to conceive enough innovative product designs to keep ahead of other firms in an industry known for intense competition. Under Richman's direction, Standard Microsystems was the first company to manufacture a CRT controller and a synchronous data link controller.

Standard Microsystems had not only regained its old business, but it was also one of the few companies to experience a meteoric rise in the semiconductor industry during the mid- and late 1970s. From the time he was hired as chairman in December of 1974 until January of 1980, Brozinsky had reduced the company's debt to ten percent of its capitalization. Additionally, he had achieved an average return on equity of over 43 percent and had increased revenues to 3 times more than when he first took over. Revenues at the end of fiscal 1979 were a reported $11.4 million. Licensing agreements were finalized with such giants as General Motors, ITT, and Texas Instruments to use Richman's highly innovative and lucrative COPLAMOS process. Stockholder equity had increased from $140,000 to $9 million during Brozinsky's tenure, and the company's stock was trading 24 times 1979 earnings on the OTC market. From the late 1960s through 1980, more than 40 start-up companies like Standard Microsystems had entered the semiconductor industry, but as the large corporations jockeyed to acquire semiconductor technology only 17 companies remained independent.

Although Standard Microsystems was spending a significant amount of money on research and development, Richman thought that it was imperative to commit even more funds to designing innovative products. In late 1979 and early 1980, however, it appeared that Brozinsky ran afoul of Richman when he indicated a reluctance to approve the increase in expenditures for research and development. Previous to this disagreement, Brozinsky had been stripped of his title as chief executive officer and Richman was appointed president of the company. In effect, Brozinsky and Richman were working in an uneasy partnership. By May of 1980, Brozinsky had stepped down as chairman of the company. Standard Microsystems was going through a management reorganization, Richman told the business press, and the slight decrease in both revenues and earnings had nothing to do with Brozinsky's departure.

As president and new chief executive officer of Standard Microsystems, Richman continued the policies that Brozinsky implemented, except he committed more money to research and development. The company concentrated on providing supplies for the minicomputer and microcomputer markets and built upon its reputation as a high-quality, dependable manufacturer of circuit controls for CRT video displays, local area networks, keyboards, printers, floppy disk drives, and floppy disk data separators. Nearly 75 percent of the firm's circuits were standard products during this time, while the remaining 25 percent were custom made circuit boards. Through its ability to specialize in such products, Standard Microsystems was able to avoid the deleterious price wars and intense competition that destroyed many firms in the semiconductor industry during the early 1980s. Revenues in 1982 jumped to $27 million, an increase of almost $8 million over the previous year. The company's stock, trading at $7 per share near the end of 1981, shot up to $18 per share by November of 1982. This prompted Richman to make a public stock offering in May of 1983. In just one month, Standard Microsystem stock was trading at $37 per share.

Much of the investor optimism was due to Richman's continuing commitment to expanding the company's research and development division and to the licensing of its technologies to other companies. Standard Microsystems was able to increase its royalties while spending its own money to design new products. In 1982 the company introduced 19 new products. Expenditures for research and development increased from $2.3 million in 1982 to $2.9 million in 1983. Just as important, in January of 1983, the company signed a licensing contract with National Semiconductor Corporation, and in February of the same year SMC and Nippon Electrical Corporation reached an agreement to cross-license their own patents of semiconductor products. Although the agreement with NEC took over four years to conclude, it was the most beneficial licensing arrangement that Standard Microsystems had ever finalized with a major semiconductor producer.

Although the early 1980s seemed to indicate that Standard Microsystems would continue its meteoric rise, this was not the case throughout the remainder of the decade. Revenues increased modestly from year to year largely on the strength of the company's domestic and foreign licensing agreements. But its stock price was overvalued and dropped to under $10 per share by the end of the decade. The company's lackluster financial performance, and the slowdown of new product introductions, led to an attempted hostile takeover in 1989 by SMC Acquisition Corporation. SMC Acquisition Corporation was a combination of investment firms, including C.B. Equities, Oxford Capital Management, both located in New York, and HSG Equities Limited Partnership from Chevy Chase, Maryland, that banded together with the purpose of purchasing Standard Microsystems. Fortunately for Richman, SMC Acquisition Corporation's tender of $9 per share for Standard Microsystems was ruled invalid under the auspices of a Delaware law that made hostile takeovers extremely tedious and very expensive. Standard Microsystems was protected by the ruling since it was originally incorporated in the state of Delaware.

Standard Microsystems reported revenues of $71.6 million for fiscal 1989, and early in 1990 the company signed manufacturing agreements with the Japanese companies Sharp and Sanyo Electric. But the firm had lost $2.5 million and appeared to be at a standstill in the semiconductor market. Having been with Standard Microsystems from its inception, Paul Richman stepped aside for new leadership to take control of the company, although he remained as chairman of the board of directors.

The new president and chief executive officer, Victor F. Trizzino, refocused the company's operations on supplying products for the rapidly growing field of local area networks (LANs), which link together personal computers, printers, disk drives, and other equipment and software. Even though the company had already entered the LAN market as one of the original suppliers of ARCNET products, Standard Microsystems had neither the product line nor the sales distribution to carve out a significant portion of the LAN market. Trizzino therefore decided to embark on a campaign to acquire companies that would provide Standard Microsystems with both the products and sales network it needed to become a major supplier for local area networks.

In October of 1991, Standard Microsystems purchased Western Digital's LAN business. In one move, Standard Microsystems more than doubled its size, expanded its share of the LAN market, incorporated newer technologies, and lowered its manufacturing costs through economies of scale. The company also implemented a strategy of vertical integration by acquiring the ability to produce its own semiconductor chips, whereas most of its competitors were purchasing theirs. The acquisition was immediately profitable. Standard Microsystems expanded Western Digital's Ethernet business by 40 percent in less than one year, and the firm's revenues dramatically increased to almost $133 million for the fiscal year ending 1992.

Continuing its acquisition strategy, Standard Microsystems purchased Sigma Network Systems in December of 1992. Sigma was known for its manufacture of a high-end enterprise switching hubs, and the acquisition allowed Standard Microsystems to move beyond adapters and hubs and provide an even broader range of products to its customers. The company's product line now included such items as network adapter cards, hubs/concentrators, network management software, and transceivers; Token Ring STP and UTP passive and intelligent multi-station access units; LAN switches; and ARCNET, one of the original LAN technologies including bus topology, unshielded twisted pair cabling operation, and supporting products including adapters, hubs, links, and various software products. Revenues for fiscal 1993 reached $250.5 million, an increase of 89 percent over the previous year. Revenues for fiscal 1994 reached $322.6 million.

By 1994 Standard Microsystems had developed into one of the world's largest providers of networking products. The company designs, manufactures, and markets network interface cards, hubs, LAN switches, and networking software for the Token Ring, Ethernet, FDDI, and its own ARCNET markets. Much of the company's success, however, can be attributed to a comprehensive realignment of its marketing and distribution strategy. With offices in Canada, Japan, Germany, Britain, Australia, France, and Singapore, international operations provided 44 percent of the company's total revenues. With its new Japanese subsidiary, Toyo Microsystems Corporation, and its forays into Latin America and Eastern Europe, Standard Microsystems is looking to increase its share of the LAN market.