U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 30, 1995
California Micro Devices Corporation
(Exact name of registrant as specified in its charter)
California 33-399-77 94-2672609
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
215 Topaz Street, Milpitas, CA 95035-5430
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408)263-3214
Not Applicable
(Former name or former address, if changed since last report)
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Item 5. Information Released
On October 30, 1995, California Micro Devices Corporation (the "Company")
released certain information regarding the Company's history, products, and
future direction.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 16, 1995 CALIFORNIA MICRO DEVICES CORPORATION
By: /s/ John Trewin
John Trewin
Vice President, and Chief Financial Officer
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California Micro Devices
OVERVIEW
I BACKGROUND OF CALIFORNIA MICRO DEVICES (CMD)
California Micro Devices is the world's leading manufacturer of thin film
passive circuits. CMD was started in 1976 as a thin film on silicon
manufacturer. CMD continued to develop thin film technology for several
years, but did not create substantial sales volume. In 1980, CMD was
acquired and funded by a venture capital financed entrepreneur.
The Company targeted the military components market and grew throughout the
1980s in that market. In 1986, the Company went public and has been traded
publicly since then (Nasdaq CAMD). CMD is headquartered at 215 Topaz
Street, Milpitas, California, 95035, which includes the finance,
manufacturing, research and development, and marketing and sales departments.
In 1987, CMD purchased the semiconductor operations of General Telephone and
Electronics (GTE). This operation is located in Tempe, Arizona, and is now
a major manufacturing site for CMD. This site has a Class 10 cleanroom and
semiconductor manufacturing down to 1.25 microns.
CMD's products include arrays of resistors; resistors and capacitors; and
resistors, capacitors and active elements such as diodes, transistors, analog
amplifiers, drivers, and moderate amounts of logic. CMD's products do not
require submicron technology, but do benefit from using steppers, ion
implanters, and other advanced semiconductor equipment used in the
manufacture of its products.
CMD's strength is in it's Thin Film technology. It has been developing
proprietary technology in thin film manufacturing for many years. Thin film
networks have many intricate processes which are required to achieve the
performance, yield and reliability required by CMD customers. The Company
has developed a wealth of this technology over the last nineteen years.
In the 1980s, CMD's thin film products were purchased predominantly by the
military market. In the 1990s, CMD transitioned itself into the commercial
market, and now generates very little of its revenue from military
activities. CMD's present customers include many major manufacturers,
including Sun Microsystems, DSC, Motorola, Cardiac Pacemakers, Apple
Computer, Dell Computer and Texas Instruments.
In 1994, CMD developed a relationship with Hitachi Metals, Ltd. (HML), a $4
billion subsidiary of Hitachi Ltd. HML invested in CMD and acquired a 10%
equity stake and the rights to manufacture thin film products with CMD's
technology in Japan, as well as non-exclusive sales rights worldwide. CMD
developed this partnership to enhance its position in Japan, where they had
little penetration of the market and to provide a second source for its
products.
CMD has a strong presence in the USA and Southeast Asia marketplaces and the
partnership with HML is taking CMD into the Japanese marketplace. CMD is
exploring similar partnerships with major European companies to increase its
penetration in the European market and to further the selection of Thin Film
passives as the technology choice of the future.
CMD achieved a revenue level of over $9.6M in the September quarter of 1995,
and achieved a book-to-bill ratio of greater than 1.1. CMD has performed
well in the computer and communications markets, as well as in a few
specialty markets. CMD is looking to achieve growth rates comparable to the
growth of the thin film market. The forecasts by major market research firms
indicate that the thin film market is small compared to thick film passives,
but that the growth potential exceeds the thick film market (forecasted to be
(50% per year).
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II VALUE PROPOSITION OF CMD
PASSIVE COMPONENTS
Passive components have been around for a long time. Hundreds of billions of
them are produced annually. Standard values and physical configurations were
established many years ago, and the manufacturing equipment to handle the
components automatically is well established. In general, the functional
characteristics of the current product satisfy most customers, although this
is changing, due to higher clock rates in PCs and higher RF frequencies in
wireless communications. An industry infrastructure for providing customized
products is established. The costs are extremely low, and the reliability is
satisfactory for most applications. Passive components are available on a
worldwide basis. The industry has, in fact, experienced substantial
consolidation in recent years, indicating its maturity.
It is extremely unlikely that any new technology could compete on a pure "per
component" cost basis or on a service basis with this established
infrastructure. However, as thick film technology fails to keep up with the
functional requirements of newer higher performance systems, ways are found to
absorb costs beyond those of the raw component (for example by significantly
reducing assembly costs, reliability costs, etc.), new vendors of thin film
products can take over large segments of the market beyond the traditional
specialty niches.
SPECIFIC VALUES ASSOCIATED WITH CMD IPECs(TM)
With these issues in mind, CMD can create a strong value proposition for
customers? Existing passive components, in general, seem to satisfy the
existing needs. So CMD is focused on providing passive component solutions
to the leading market forces of higher performance, smaller size, and lower
total system costs, not just component costs.
The traditional strategy for wedging into a market is to find opportunities
that value unique characteristics of the new product; leverage the initial
successes into higher volumes, lower costs, improved service and distribution
alternatives, and gradually expand market share. While the percentage growth
of a new market entry can be high, it can take a very long time to obtain
significant overall market share when attacking a pre-existing market with
new technology (as opposed to creating a whole new market opportunity as
personal computers did). In order to create CMD's identity in the market and
convince the financial community that we have a truly unique opportunity, we
must demonstrate our newness and uniqueness. From an execution standpoint,
we have to keep in mind that existing users of passive products think they
are by and large satisfied with what they have. It is up to us to demonstrate
the reasons why these customers need our product.
An analysis of our current product line follows:
1. FUNCTIONALITY
CMD has functional/ technical advantages with its enhanced product technology.
Better high frequency characteristics - All passive components have
parasitic effects. For instance, resistors and capacitors inherently
have small inductance in series with them, as well as parasitic
capacitance to other components. As clock frequencies of systems
increase, these parasitics can dominate the characteristics of the base
component. CMD's thin film devices exhibit true component behavior to
higher frequencies than traditional thick film discretes. This can be
a significant advantage for the customer in controlling system
characteristics and improving system performance and reliability,
especially in today's higher frequency systems.
Smaller size - As a general rule, CMD products will take less space than
equivalent discrete solutions on a board. Whether CMD components have a
size advantage depends on the specific package in question, the number
of discrete components involved, and the competitive packaging. For
instance, for small numbers of components (8-16) there are very small
discrete devices in the "0402" package
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that can take up less space than some equivalent CMD products. Many
customers, however, do not have the equipment for handling these small
devices and assembly problems with them can be quite pronounced.
Therefore, these customers who are cramped for board space (most leading
edge applications) and require the reduced size advantage combined with
ease of assembly, will see this as a significant value-added benefit.
Combined technologies - While discrete passive devices have been extremely
well optimized over the year, they have been generally optimized as
separate technologies for resistors, capacitors, inductors and networks.
The nature of thin film passive technologies is such that they can be
combined and integrated together without significant compromise to the
individual components. In fact, their close proximity on a chip will
almost always produce even better combinations than through the use of
highly optimized discrete devices.
Improved RF characteristics - Since the late 70's and early 80's, the
Federal Communications Commission (FCC) and similar international
organizations have required more and more controls on radio frequency
emissions. Without these controls, individual electronic systems
interfere with each other. Emissions originate when high frequency
signals operate over wires which function as antennae. They can be
controlled by reducing the size of the antenna or physically containing
the radiation with shielding (packaging). As a general rule, the higher
the frequency and longer the wires, the more radiation and the greater
difficulty in controlling it. The ability to combine passive components
together to filter out such frequencies, to make them small so that they
can be placed near mechanical radiation barriers, and to have very short
wires (small antennae) between the components themselves, makes thin
film passive networks (IPECs) ideal high frequency filters. When users
can properly filter radiation at its source, they can often reduce the
size, weight, and cost of the whole product.
Better component matching and tracking - The matching and tracking of one
component vs. another is required in a variety of applications, usually
analog in nature. With discrete components, users achieve these
characteristics by buying ultra precise components at a much higher price.
When components are batch fabricated on I.C. chips (as CMD's are),
matching and tracking between components is inherent in the process, and
costs no more to produce. Even loose tolerance components can be
matched on a given die, so that a solution can be provided at a much
lower cost.
Lower noise characteristics - There are a class of applications that
require very low noise components of every category. Products such as
instrumentation amplifiers and medical diagnostic equipment fall
into this category. This is a small, traditional, and highly profitable
thin film business segment.
Better temperature coefficients - There are applications which require
very low drift characteristics of passive components with temperature.
These are usually applications that require calibration of an instrument
with the assurance that it will not drift with temperature or time.
Instrumentation applications most often fall in this category. This too
addresses a small but profitable segment of thin film business.
Presently, CMD boasts functional advantages of frequency, size, combined
technology and improved RF. Historically, these advantages have not
been significant door openers to the large potential customers outside
of the military, but they have become significantly more successful in
recent years. These functional attributes would seem to be the best
focus for our technical efforts and serve as sales entry points.
Remaining options such as precision resistors and full custom networks
are interesting niche opportunities, and could be somewhat profitable,
but will never result in big business.
2. SERVICE
The CMD value-added proposition in the service dimension is very different from
that of the traditional passive vendors. As noted before, the traditional
passives business is broad based, dealing in huge volumes. In lieu of the
that size-conferred system, we must carefully match our capabilities with
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customer requirements. It is better for CMD to address each service issue
directly so that the solution that each customer requires can be provided.
The following represent the current differences:
Availability Passive components have been around for a long time.
They are used in enormous volumes, stocked in a wide variety of values
and physical configurations, and thereby available from most
distributors around the world. Our IPECs are not yet that widely used.
They are stocked in fewer places and in limited values and
configurations. This is something we have to counteract by planning the
customer's needs and making arrangements with the local distributors when
appropriate.
Alternate Sources The lack of an alternate manufacturing source for
our products and technologies is seen negatively from the customer's
perspective. It means additional risk, as well as the inability to
play multiple vendors off against each other to get a lower price. We
have to sell the Company in such situations. Sometimes management
visits can do much to alleviate concerns.
Customization Our ability to customize values, configurations,
tolerances, etc. is of added-value to most customers. However, this is
a strength that must be played cautiously as some customers react
negatively and incredulously to the suggestion that a Company can provide
a custom product without introducing unacceptable risks.
3. QUALITY
CMD has a unique quality proposition for it's customers. Taking the simple
quality metric of defective parts per million, CMD devices are extremely
competitive with, if not superior to, traditional passive components.
However, a point that often gets missed is that the higher level of
integration of CMD devices requires the use of fewer competitive parts. So
at the system level, the customer will see substantially fewer defective
parts, just because there are fewer to start with. This can be as much as a
factor of 20:1 - a strong value-added benefit.
With some thick film package types there is another dimension to the "parts
defective" equation. This is particularly true with the very small "0402"
package types which provide density levels that compete with CMD's parts.
These devices are extremely difficult to place on the PC boards. Their
use results in relatively high defect levels and substantial board rework
problems. So, when the customer goes in this direction to save space, he
is sacrificing quality for size, something not inherent in the CMD solution.
Additionally, there it is well-documented evidence that traditional thick film
parts suffer from failure modes such as ceramic cracking, and silver
migration. The high level of integration of CMD products and the absence of
these traditional reliability problems, provides even further value-added
benefits. There have been many instances over the years when thick film
component manufacturers have lost control of their process parameters and the
resulting non-delivery has shut down customers around the world.
4. COST
CMD's cost advantage derives from its ability to eliminate costs a customer
would normally pay for things other than the component itself. It costs
money to procure, inventory, handle and assemble components, and repair
assembly defects. For very cheap components, this can far exceed the cost of
the component itself. The best numbers we have today suggests that in the
United States the "cost to use" of a thick film resistor assembled on a board
is on the order of $.030 to $.035, six to eight times the cost of the raw
component itself (exclusive of the component cost). A $.02 capacitor ends
up costing $.05 to $.06 when all the factors are included. The "cost to use"
an I.C. package is about the same, perhaps $.04 to $.06 cents for a package
that could contain 20 to 30 components. So while a thin film network may
cost more at the material level, it usually represents a cost savings at the
system level.
This situation is very similar to that which existed in the I.C.
business in the late 60's. The material costs of I.C.'s were
higher than those of discrete components, but the total systems
costs were less. To quote a representative of Apple Computer,
one of CMD's primary customers, "We (Apple Computer) have been
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getting into network resistors in a big way. It's a trend toward
cost-effective technology. When you look at the total overall cost of a
multifunction or integrated device vs. stand-alone devices in terms of board
real estate, pick and place, inventory, etc., the 10% price increase can be
deemed a more competitive cost option." (Electronic Buyers' News, 9/18/95)
III SUMMARY
CMD is positioned at the forefront of thin film technology today and is the
industry's leading investor in ongoing thin film research and development.
Many Fortune 100 electronic companies are already using this technology in
high volume products. CMD will continue to maintain its' leadership position
in the thin film business segment, which is on its' way to becoming a major
market factor.
(c)CMD Corp. All rights reserved
California Micro Devices Corp.
215 Topaz Street
Milpitas, CA 95035
Tel: (408) 263-3214 ( Fax: (408) 263-7846
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