Technologies
Electronics Instruction & Controls
(RFMI-NASD)

RF Monolithics, Inc.

4441 Sigma Rd
Dallas, TX 75244
Phone: 972-233-2903



David M. Kirk
President
Chief Executive Officer

Interview Conducted By:
Diane Reynolds
Associate Publisher

CEOCFOinterviews.com
June 2004

Bio of David Kirk, President & CEO

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 Bachelor’s degree in electrical engineering from Clemson University in South Carolina.

Company Profile:

Celebrating its 25^th 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, we’ve 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.”

CEOCFOinterviews: What 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 RFIC’s 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 year’s fourth quarter.”

CEOCFOinterviews: Tell us about your approach to sales and marketing.

Mr. Kirk: “We use manufacturer’s 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 market.”

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 couldn’t 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?

Mr. Kirk: “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.”

CEOCFOinterviews: When 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 time frame."

CEOCFOinterviews: Your 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. We’ve 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.  That’s probably the only hurdle we have continuously work on-- constantly explaining what marketplaces our products serve.”

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 sensors”???????

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. We’ve 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 also.”

CEOCFOinterviews: What would you say is your competitive edge?

Mr. Kirk: “Our competitive edge is comprised of a couple of things.  First, we’ve 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.   It’s a good base business.   It’s 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. We’ve 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 30’s. 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 we’ve actually overcome. We’ve 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.   We’ve actually executed very well on that product mix change as well. I guess the offshore thing was the biggest hurdle we’ve 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, we’ve 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, we’ve 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 people’s attention for example.  We are profitable, and debt free. We’re starting to look down the road at what’s 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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