Merix Corp. (MERX)
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A strategy of investing in capacity,
technology and people was the key to a significantly faster growth rate than the
competition for Merix Corp.
Hollinger joined Merix Corporation as Chief Operating Officer in 1997 and in May of 1999 he became President. In September of 1999 he assumed the responsibilities of Chief Executive Officer and was elected Chairman of the Board in September 2001. Before coming to Merix, Hollinger worked for more than a decade at IBM, followed by three years as Vice President of Operations at Continental Circuits Corporation of Phoenix.
Hollinger holds a Bachelor of Arts degree in
Marketing from Capital University and an MBA from Ohio State University. He is a member of
the President's Council of the IPC; the Board of Director's for Simple Technology; the
Board of Trustees for Pacific University; and serves on the Oregon Chapter of the Board of
Directors for the Juvenile Diabetes Research Foundation. He resides with his family in
CEOCFOinterviews: Mr. Hollinger, you have been CEO since 1999. What was your vision when you took over Merix and how has that played out?
Mr. Hollinger: The vision that we established for the company when I took over was to become the premiere high technology printed circuit board supplier to leading OEMs on a global basis. While it has been difficult the last couple of years, I think we have executed on our strategy, continued to grow our customer base and continued to be recognized as a leading provider of high technology printed circuit boards.
CEOCFOinterviews: Please tell us more about your products.
Mr. Hollinger: Our circuit boards would be characterized as being different than normal circuit boards in two areas. One is high layer counts, so the average number of layers that end up on a circuit board that we manufacture is significantly higher than the balance of the industry. If you use a metric, our average layer count is about 15.0; most boards that go into a cell phone or a computer are in the four to six layer range. That gives you an idea of the order of magnitude. Second, our boards require the use of sophisticated materials, especially those used in wireless communications infrastructure, which involves high-speed and high operating temperature materials.
CEOCFOinterviews: You have a new facility; where are you making these and how are you making them?
Mr. Hollinger: The new facility for us is our new Wood Village facility, located in Wood Village Oregon. It is set up as a key facility for us to run inner layers. Half of our inner layer production utilizes a new technology liquid photo resist, which we believe will give us higher yields in our existing manufacturing process. The new facility is set up to run high volumes of very high technology inner layer product and then transfer the product to our Forest Grove facility for finish.
CEOCFOinterviews: Is all of your manufacturing done in the U.S.?
Mr. Hollinger: That is correct; we have a facility at Forest Grove and then a second facility in Wood Village Oregon that opened in March.
CEOCFOinterviews: Isnt that rather unusual these days?
Mr. Hollinger: It is unusual! We believe that there is a requirement for high-tech manufacturing in the United States, and the two areas we focus on are very high-tech boards as well as quick turn boards, which is a new offering for us over the last few years that allows us to increase our efforts with our customers designers, to be able to provide very complex boards, very quickly.
CEOCFOinterviews: As there is so much outsourcing today that it is nice to see a company doing the manufacturing here in the United States.
Mr. Hollinger: Correct! It is nice to see somebody expanding not only in the U.S. but also in Oregon, which has been hard hit as of late.
CEOCFOinterviews: Will you tell us a bit about the industry in general, and how you have worked through difficult times.
Mr. Hollinger: You cant really talk about the industry without talking about what has happened since 2000. Our belief is that since 2000, close to three billion dollars or about 30% of the capacity that was in-place in the U.S. has been closed permanently. During that time, we had taken a contrary view that we had invested in capacity, technology and people and we think that has been the key strategy that has enabled us in the last year to grow at a significantly faster growth rate than our competitors or the industry overall.
CEOCFOinterviews: Will you tell us about the financial condition of the company and how you have been able to do this expansion?
Mr. Hollinger: The Company has probably the strongest balance sheet in our industry. We did a secondary stock offering back in 2000, and we generated a lot of cash in 2000, so we entered the downturn with a strong balance sheet. We recently completed another secondary stock offering in January of this year that gave us additional growth capital to expand not only in our Wood Village facility but also to contemplate further expansion and or consolidation of the industry.
CEOCFOinterviews: Are there new uses for your product?
Mr. Hollinger: We have looked at other markets; the medical and military markets, and while there will be some niche applications, it will not be a significant driver for our business. We have focused on the higher end portion of the market, which for us means key markets such as data and wireless communications, test and measurement equipment, which for us is primarily semi conductor test equipment, and then the high-speed computing as well as storage.
CEOCFOinterviews: Where is growth coming from?
Mr. Hollinger: The growth for us is coming from the existing customers that we have had long-term relationships with and also a series of new customers that we have added over the last three years. We have expanded through investing in our people and part of that came through growth in our sales and field application engineering organizations that allowed us to add some significant new customers over the year. Those have been key catalysts to our growth.
CEOCFOinterviews: Do you design specific products for specific companies or are they buying standard items and do you need to maintain much inventory?
Mr. Hollinger: We do not do any actual product design; we actually work with customers on their design to maximize the capability of the system that they are trying to design and also trying to maximize yield as it runs through our process and minimize cost for our customers. Every one of the products that we produce for our customers is unique to their specific end applications. Therefore, we do not hold much inventory; we essentially fulfill customer orders on a build to order basis.
CEOCFFOinterviews: That is a real plus for you!
Mr. Hollinger: Yes, that is a real plus; we are not required to manage large inventories. It is a challenge given the diversity of our product mix.
CEOCFOinterviews: What are the challenges on the horizon and how are you ready?
Mr. Hollinger: I think with the new facility, we are definitely poised to grow. The challenge for us is to make sure we are in position to continue to meet our customers expectations and needs. The next challenge for us is to look at expansion internationally; we are getting interest from our customers in our next avenue of growth. As you look at growing regions of the world, our customers are certainly focused on growth in Asia and China specifically. We want to be there in order to support our customers long-term growth but also take advantage of growth in the local markets. That is what I am working on and probably the biggest challenge that the company faces over the next few years.
CEOCFOinterviews: How do you sell your products, and are people coming to you at this point?
Mr. Hollinger: We sell our product through a direct sales force, with a few manufacturers representatives and we have eight field based applications engineers that work with our customer on their end systems design. Ours is more of a technical sell; we dont have a catalog. We work with our customers on their products and then translate that into their high-tech circuit boards.
CEOCFOinterviews: You mentioned that your new facility takes advantage of some newer technologies; how do you stay on top of that, to know what really works?
Mr. Hollinger: We have a strong engineering organization and a strong development organization that works with our customers on their technology and their tech road maps to make sure we are staying on the leading edge with regard to new developments in our industry. The thing that is on the horizon is the greater use of imbedded components where resistors or capacitors will actually come off the surface of the board and get imbedded into layers through the use of advanced materials. That is one area that we are continuing to develop and work on. Microvias, which are very small vias or connections between the layers on the board, is another area of technology where we are also doing development work.
CEOCFOinterviews: What sets you apart from your competition or is there much competition?
Mr. Hollinger: For us there is competition, but we try to differentiate our selves first and foremost on technology then on speed; the ability to do quick turns and volume production inside the same facility. We back it up with what we think are superior operating measures such as on-time delivery and quality to our customers. We repeatedly hear that our quality is above where our competition is and we certainly think that is a differentiating factor in a complex industry such as ours.
CEOCFOinterviews: What do you do to maintain that quality?
Mr. Hollinger: Within our organization we have continuous improvement programs that focus on yields and making sure that we continue to improve the quality of our internal processes as well as the quality of the product that we are shipping to our customers.
CEOCFOinterviews: Is it difficult to control that with an additional facility?
Mr. Hollinger: It shouldnt be; we ported out all of our systems to our new facility, so we hope our new facility will be a higher yielding facility based on automation and the material handling as well as the new technology. It is important to make sure that we do the right job as far as training our new employees but we are anticipating that the systems will make it such that we will actually achieve higher yields in the new facility vs. the existing facility.
CEOCFOinterviews: Do you anticipate continued sales growth?
Mr. Hollinger: We have seen our sales grow essentially 100% over the last three quarters, however we dont anticipate continual growth at that rate. We have seen the industry pick up and we have seen quite a rebound, and we are anticipating continued sales growth in the future.
CEOCFOinterviews: As CEO, what are you functions throughout the day?
Mr. Hollinger: The
things I focus on primarily are our customers, investor communications, and strategic
initiatives around where the company is headed. As we continue to grow, I review our
strategy to help ensure that we have the right approach to address the growth of the
company in the future.
Mr. Hollinger: I believe investors should focus on the differentiated position we have in the market and the fact that we are in the highest technology portion of the printed circuit board industry. We have high technology as well as speed or a velocity component that does differentiate us. We believe we have a great set of customers so if people are trying to understand the communications end market in both data as well as wireless, we are a good proxy for that business. In summary, we have a management team that has done a great job managing through a difficult environment and has invested and positioned the company very well. As end-market demand continues, we believe we can grow at rates that are going to be faster than our competition or faster than the industry overall.
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