Back to GetFilings.com
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _______________
COMMISSION FILE NUMBER 0-16538
MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2896096
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 San Gabriel Drive
Sunnyvale, California 94086
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (408) 737-7600
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of August 1, 1997 was approximately $3,100,000,000.
Number of shares outstanding of the registrant's Common Stock, $.001
par value, as of September 15, 1997: 64,276,009.
2
DOCUMENTS INCORPORATED BY REFERENCE:
Part II - Annual Report to Stockholders for the fiscal year ended
June 30, 1997
Part III - Proxy Statement for the 1997 Annual Meeting of Stockholders
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
Amendment to this Form 10-K._______
* Excludes the Common Stock held by executive officers, directors and
stockholders whose ownership exceeds 5% of the Common Stock outstanding at
August 1, 1997. Exclusion of such shares should not be construed to indicate
that each of such persons possesses the power, direct or indirect, to control
the Registrant, or that each such person is controlled by or under common
control with the Registrant.
2
3
PART I
This Annual Report on form 10-K and the documents incorporated herein by
reference contain forward-looking statements that have been made pursuant to and
in reliance on the provisions of the Private Securities Litigation Reform Act of
1995.
Forward-looking statements may include (a) projections relevant to
future revenue, income, earnings, capital expenditures, capital structure or
other financial items (b) statements of plans or objectives of the Company's
management for future operations, including plans or objectives relating to the
Company's products or services, (c) statements of future economic performance,
and (d) statements of any assumptions underlying or relating to any of the
foregoing. Words such as "anticipates," "expects," "intends," "plan," "believe,"
"seeks," "estimates," and variations of such words and similar expressions
relating to the future operations are intended to identify forward-looking
statements.
All forward-looking statements are based on the Company's current
expectations, estimates, projections, beliefs and plans or objectives about its
business and its industry. These statements are not guarantees of future
performance and are subject to risk and uncertainty. Actual results may differ
materially from those predicted or implied in any such forward-looking
statement.
Risks and uncertainties that could cause actual results to differ
materially include those set forth throughout this Form 10-K and in the
documents incorporated herein by reference. Particular attention should be paid
to the section entitled "Risk Factors" at pages 12 through 17 below and to the
section entitled Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's Annual Report to Stockholders, which is
incorporated herein by reference.
The Company undertakes no obligation to update any forward-looking
statement, whether as a result of new information relating to existing
conditions, future events or otherwise. However, readers should carefully review
future reports and documents that the Company files from time to time with the
Securities and Exchange Commission, such as its quarterly reports on Form 10-Q
(particularly Management's Discussion and Analysis of Financial Condition and
Results of Operations) and any current reports on Form 8-K.
ITEM 1. BUSINESS
Maxim Integrated Products, Inc., ("Maxim" or the "Company") designs,
develops, manufactures, and markets a broad range of linear and mixed-signal
integrated circuits, commonly referred to as analog circuits. The Company also
provides a range of high-frequency design processes and capabilities that can be
used in custom design. The analog market is highly fragmented and characterized
by many
3
4
diverse applications, a great number of product variations, and relatively long
product life cycles. Maxim's objective is to actively develop and market both
proprietary and industry-standard analog integrated circuits that meet the
increasingly stringent quality standards demanded by customers. Maxim operates
two Class 10 wafer fabrication facilities capable of producing 0.8 and 1.2
micron CMOS and bipolar products (see "Manufacturing" below). In addition, the
Company subcontracts the fabrication of a small portion of its silicon wafers
to outside silicon foundries. Based on product announcements by its competitors,
Maxim believes that in the past 14 years it has developed more products for the
analog market, including proprietary and second-source products, than any of
its competitors over the same period.
THE ANALOG INTEGRATED CIRCUIT MARKET
All electronic signals fall into one of two categories, linear or
digital. Linear (or analog) signals represent real world phenomena, such as
temperature, pressure, sound, or speed, and are continuously variable over a
wide range of values. Digital signals represent the "ones" and "zeros" of binary
arithmetic and are either on or off.
Three general classes of semiconductor products arise from this
partitioning of signals into linear or digital. There are those, such as
memories and microprocessors, which operate only in the digital domain. There
are linear devices such as amplifiers, references, analog multiplexers, and
switches, which operate primarily in the analog domain. Finally, there are
mixed-signal devices that combine linear and digital functions on the same
integrated circuit and interface between the analog and digital worlds. Maxim
targets the combined linear and mixed signal market, often collectively referred
to as the analog market.
The Company believes that, compared to the digital integrated circuit
market, the analog market has generally been characterized by a wider range of
standard products used in smaller quantities by a large number of customers;
longer product life cycles; less competition from Japanese and other foreign
manufacturers; lower capital requirements as a result of using more mature
manufacturing technologies; and relatively more stable growth rates that are
less influenced by economic cycles. The Company believes that the widespread
application of low-cost microprocessor-based systems has affected the market for
analog integrated circuits by increasing the need for interfaces with the analog
world.
The analog market is a highly fragmented group of niche markets, serving
numerous and widely differing applications for instrumentation, industrial
control, data processing, communications, military, video, and selected medical
equipment. For each application, different users may have unique requirements
for circuits with specific resolution, accuracy, linearity, speed, power, and
signal amplitude capability, which results in a high degree of market
complexity. Maxim's products can be used in a variety of applications but serve
only certain segments of the total analog market.
4
5
PRODUCTS AND APPLICATIONS
The Company initially entered the analog market with a relatively narrow
portfolio of products as second sources for industry standard parts for which
there was an existing customer base. After establishing a position in the
market, the Company began to introduce technically innovative proprietary
products. Although second-sourcing continues to be a component of the Company's
product development program, current research and development emphasizes
development of proprietary circuits. The Company believes it addresses the
requirements of the market by providing competitively priced products that add
value to electronic equipment with superior quality and reliability.
As of June 30, 1997, Maxim has introduced over 1,200 products. These
products are available with numerous packaging alternatives, including packages
for surface mount technology.
The following table illustrates the major industries served by the
Company and typical applications for which the Company's products can be used:
Industry Typical Application
- -------- -------------------
Communications.............................Phones
* Cellular
* Cordless
Broadband Networks
Fiber Optics
Direct Broadcast TV
Cable System
Satellite Communications
Video Communications
Wireless Communications
Pagers
Central Office Switches
PBX
Transmission Systems
Industrial Control.........................Control of
* Temperature
* Flow
* Pressure
* Velocity
* Position
Robotics
Instrumentation............................Testers
Analyzers
5
6
Data Recorders
Measuring Instruments
* Temperature
* Pressure
* Speed
* Electrical
* Sound
* Light
Automatic Test Equipment
Data Processing............................Workstations
Personal Computers
Printers
Point of Sale Terminals
Bar-code Readers
Minicomputers
Mainframes
Disk Drives
Tape Drives
The Company also sells products for military and selected medical
equipment.
While Maxim's proprietary products have received substantial market
acceptance, Maxim has experienced additional competition as Maxim's competitors
have developed second sources for Maxim's successful innovative proprietary
products. Typically in the semiconductor industry, when a proprietary product
becomes second sourced, the credibility of the original design is enhanced, and
there is an opportunity to increase total revenues as the potential customers'
reluctance to design in a sole source product is removed, but gross margins may
be adversely affected due to increased price competition.
PRODUCT QUALITY
Maxim places strong emphasis on product quality from initial design
through final quality assurance. In the product design phase, Maxim applies a
set of circuit design rules that it believes results in enhanced product
reliability. Upon receipt from Maxim's own fabrication facilities, or from
silicon foundries, a majority of processed wafers are tested for conformance
with specific parameters. Products are individually tested using specialized
test equipment and complex programs to ensure that they meet data sheet
performance levels. In addition, long-term operating life and mechanical stress
tests are performed on samples routinely to assure continued consistency.
MANUFACTURING
Once a product has been designed and released to production, Maxim uses
its
6
7
own wafer fabrication facilities and to a small extent silicon foundries to
produce wafers. The majority of processed wafers are subjected to parametric and
functional testing at the Company's facilities. As is customary in the industry,
the Company ships most of its processed wafers to foreign assembly
subcontractors, located in the Philippines, Malaysia, and South Korea, where
wafers are separated into individual integrated circuits and assembled into a
variety of packages.
During fiscal 1997, Maxim completed construction of a 141,000 square
foot manufacturing facility in the Philippines. At the present time, this
facility is operating as Maxim's offshore test facility, testing the majority of
Maxim's packaged units. The rest of the packaged units are tested at Maxim upon
receipt from an assembly subcontractor. At some time in the future the
Philippines facility may also be used for part of Maxim's assembly requirements
in addition to, or in place of, assembly subcontractors.
The broad range of products demanded by the analog integrated circuit
market requires multiple manufacturing process technologies. Nineteen different
process technologies are currently used for wafer fabrication of the Company's
products. Historically, wafer fabrication of analog integrated circuits has not
required the state-of-the-art processing equipment necessary for the fabrication
of advanced digital integrated circuits although newer processes do utilize and
require some of these facilities and equipment.
In addition, hybrid products are manufactured using a complex multi-chip
technology featuring thin-film, thick-film, and laser-trimmed resistors.
For redundant supply for the majority of these technologies in multiple
fabrication lines, the Company relies on its two geographically remote
fabrication facilities and, to a small extent, manufacturing subcontractors. The
Company currently uses 4 subcontract silicon foundries which represent less than
8% of wafer production. Each of the subcontractors currently used by Maxim is
unrelated to Maxim.
In December 1989, the Company acquired a wafer fabrication facility
capable of producing 3 micron CMOS and bipolar products. Maxim leased the
building housing the facility and purchased all manufacturing assets required
for its manufacturing operations. In May 1994, the Company acquired a
mixed-class wafer fabrication facility capable of producing CMOS and bipolar
products (see "Item 2. Properties" below).
As is typical in the semiconductor industry, the Company has experienced
disruptions in the supply of processed wafers due to quality problems or failure
to achieve satisfactory electrical yields. Procurement from foundries is done by
both purchase orders and long-term contracts. If the foundries used by the
Company and its own internal wafer fabs are unable or unwilling to produce
adequate supplies of processed wafers conforming to the Company's quality
standards, the Company's
7
8
business and relationships with its customers may be adversely affected.
SALES AND MARKETING
In the United States and Canada, the Company sells its products through
a direct sales and applications organization comprised of 10 regional sales
offices and through distribution. The distribution portion is through 4 national
and 5 regional and/or specialist distributors with a combined total of
approximately 155 locations. As is customary in the industry, domestic
distributors are entitled to certain price rebates and limited product return
privileges.
International sales are conducted by 10 Maxim sales offices and 33 sales
representative organizations and distributors consisting of 46 office locations.
The Company sells in both United States dollars and local currency. Over half of
the Company's international sales are billed and payable in United States
dollars and are therefore not directly subject to currency exchange
fluctuations. A portion of the sales in UK, French, and German affiliates are
denominated in the local currencies. The majority of the sales to customers and
distributors located in Japan are denominated in the Yen. The Company places
foreign currency forward contracts to protect the United States dollar value of
its firm commitments and net monetary assets. Changes in the relative value of
the dollar, however, may create pricing pressures for Maxim's products. In
addition, various forms of protectionist trade legislation have been proposed in
the United States and certain foreign countries. A change in current tariff
structures or other trade policies could adversely affect the Company's foreign
marketing strategies. In general, payment terms for foreign customers,
distributors and others, are longer than for U.S. customers, and certain major
foreign customers habitually pay for product well beyond the payment dates.
As is customary in the semiconductor industry, the Company's domestic
distributors may market products competitive with Maxim's. The Company's
independent sales representatives and international distributors may not
represent competitive product lines, although they are permitted to sell
non-competing products for other companies.
International sales accounted for approximately 49%, 57% and 57% of net
revenues in fiscal 1995, 1996 and 1997, respectively. See Note 9 of "Financial
Information - Notes to Consolidated Financial Statements" set forth in the
Company's Annual Report to Stockholders for the fiscal year ended June 30, 1997.
The Company also sells product directly to certain customers. In
particular, the Company has a long-term supply arrangement with Tektronix, Inc.
for the supply of products manufactured by Tektronix prior to its sale in May
1994 of its integrated circuits operation ("ICO") to the Company and for new
designs created by Tektronix.
Due to the relatively lengthy manufacturing cycle, the Company builds
some of
8
9
its inventory in advance of receiving orders from its customers. As a
consequence of inaccuracies inherent in forecasting, inventory imbalances
periodically occur that result in surplus amounts of some Company products and
shortages of others. Such shortages can adversely affect customer relations;
surpluses can result in larger than desired inventory levels.
As of June 30, 1997, the Company's backlog was approximately $152
million as compared to approximately $140 million at June 30, 1996. The Company
includes in its backlog customer released orders with firm schedules for
shipment within the next 12 months. As is customary in the semiconductor
industry, these orders may be canceled in most cases without penalty to the
customers. In addition, the Company's backlog includes its orders from domestic
distributors as to which revenues are not recognized until the products are sold
by the distributors. Such products when sold may result in revenue lower than
the stated backlog amounts as a result of discounts that are authorized by the
Company at the time of sale by the distributors. Accordingly, the Company
believes that its backlog at any time should not be used as a measure of future
revenues.
The Company warrants its products to its customers generally for 12
months from shipment, but in certain cases for longer periods. Warranty expense
to date has been minimal.
RESEARCH AND DEVELOPMENT
The Company believes that research and development is critical to its
future success. Objectives for the research and development function include
definition and design of innovative proprietary products that meet customer
needs, development of second-source products, design of parts for high yield and
reliability, and development of manufacturing processes to support an expanding
product line.
Research, development, and engineering expenses were approximately $42.4
million, $47.5 million and $51.3 million in fiscal 1995, 1996 and 1997,
respectively.
COMPETITION
The analog integrated circuit industry is intensely competitive, and
virtually all major semiconductor companies presently compete with, or
conceivably could compete with, some segment of the Company's business. Maxim's
primary competitors are Analog Devices, Inc. and Linear Technology Corporation.
Other competitors with respect to some of the Company's products include
Burr-Brown Corporation, Harris Corporation, Lucent Technologies, Micrel, Inc.,
Motorola, Inc., National Semiconductor Corporation, Philips Electronics N.V.,
Siliconix Incorporated, Sipex Corporation, TelCom Semiconductor, Inc., and Texas
Instruments Incorporated. While Japanese and other foreign manufacturers have
not played a major role in
9
10
markets from which the Company currently derives the bulk of its revenue, they
possess the necessary technical and financial capabilities to participate in
these markets, and there can be no assurance that significant foreign
competition will not develop in the future. Many of Maxim's competitors have
substantially greater financial, manufacturing, and marketing resources than the
Company, and some of Maxim's competitors have greater technical resources. The
Company believes it competes favorably with these corporations primarily on the
basis of technical innovation, product definition, quality, and service. There
can be no assurance that competitive factors will not adversely affect the
Company's future business.
PATENTS, LICENSES, AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily upon know-how, rather than on patents, to
develop and maintain its competitive position. There can be no assurance that
others will not develop or patent similar technology or reverse engineer the
Company's products or that the confidentiality agreements with employees,
consultants, silicon foundries and other suppliers and vendors will be adequate
to protect the Company's interests.
Maxim currently owns 54 U.S. patents and 22 foreign patents with
expiration dates ranging from December 1997 to March 2015. In addition, the
Company has applied for 42 U.S. patents, a large number of which have
corresponding patent applications in multiple foreign jurisdictions. It is the
Company's policy to seek patent protection for significant inventions that may
be patented, though the Company may elect, in appropriate cases, not to seek
patent protection even for significant inventions if other protection, such as
maintaining the invention as a trade secret, is considered more advantageous.
There can be no assurance that any patent will issue on pending
applications or that any patent issued will provide substantive protection for
the technology or product covered by it. In addition, the Company has registered
certain of its mask sets under the Semiconductor Chip Protection Act of 1984.
The Company believes that patent and mask work protection are of less
significance in its business than experience, innovation, and management skill.
Maxim has registered several of its trademarks with the U.S. Patent and
Trademark Office and in foreign jurisdictions.
Maxim is a party to a number of licenses, including patent licenses and
other licenses obtained from Tektronix in connection with its acquisition of
Tektronix's ICO in May 1994.
Due to the many technological developments and the technical complexity
of the semiconductor industry, it is possible that certain of the Company's
designs or processes may involve infringement of patents or other intellectual
property rights held
10
11
by others. From time to time, the Company has received, and in the future may
receive, notice of claims of infringement by its products on intellectual
property rights of third parties. If any such infringements were to exist, the
Company might be obligated to seek a license from the holder of the rights and
might have liability for past infringement. In the past, it has been common
semiconductor industry practice for patent holders to offer licenses on
reasonable terms and rates. Although in some situations, typically where the
patent directly relates to a specific product or family of products, patent
holders have refused to grant licenses, the practice of offering licenses
appears to be generally continuing. However, no assurance can be given that the
Company will be able to obtain licenses as needed in all cases or that the terms
of any license that may be offered will be acceptable to Maxim. In those
circumstances where an acceptable license is not available, the Company would
need either to change the process or product so that it no longer infringes or
else stop manufacturing the product or products involved in the infringement.
ENVIRONMENTAL REGULATION
Federal, state, and local regulations impose a variety of environmental
controls on the storage, handling, discharge and disposal of certain chemicals
and gases used in semiconductor manufacturing. The Company's facilities have
been designed to comply with these regulations, and it believes that its
activities are conducted in material compliance with such regulations. There can
be no assurance, however, that interpretation and enforcement of current or
future environmental regulations will not impose costly requirements upon the
Company. Any failure of the Company to control adequately the storage, use and
disposal of regulated substances could result in future liabilities.
Increasing public attention has been focused on the environmental impact
of electronic manufacturing operations. While the Company to date has not
experienced any materially adverse effects on its business from environmental
regulations, there can be no assurance that changes in such regulations will not
impose costly equipment or other requirements.
EMPLOYEES
As of June 30, 1997, Maxim had 2,444 employees, of which 320 were in
engineering, research and development, 1,346 in manufacturing and operations,
265 in marketing and sales, 67 in finance and administration, and 446 temporary
employees, principally in manufacturing and operations.
The supply of skilled analog designers and other engineers required for
Maxim's business is limited, and competition for such personnel is intense. The
Company's growth also requires the hiring or training of additional middle-level
managers. If the Company is unable to hire, retain, and motivate qualified
technical and management personnel, its operations and financial results will be
adversely
11
12
affected.
None of the Company's employees is subject to a collective bargaining
agreement. The Company believes that its relations with its employees are good.
MAXTEK COMPONENTS CORPORATION
In connection with Maxim's 1994 purchase of the integrated circuits
business of Tektronix, Inc., Maxim and Tektronix jointly formed a new company,
which is equally owned, to operate Tektronix's hybrid circuit business. This
company, named Maxtek Components Corporation, is an independent company devoted
to design and production of multichip modules and hybrids. Maxtek's principal
customer, Tektronix, accounts for over 50% of its revenue. Under Maxtek's supply
agreements, all of its costs related to the Tektronix supply agreement are
reimbursed on a cost plus profit basis. High-frequency designs often require a
multitude of component technologies, and there are no monolithic IC processes
currently available that can combine the performance advantages of all disparate
technologies. High-frequency modules and hybrids are intended to combine the
optimum technologies and deliver maximum performance.
RISK FACTORS
An investment in the securities of Maxim involves certain risks. In
evaluating the Company and its business, prospective investors should give
careful consideration to the factors listed below, in addition to the
information provided elsewhere in this Annual Report on Form 10-K, in the
documents incorporated herein by reference and in other documents filed with the
Securities and Exchange Commission.
The statements contained in this Annual Report on Form 10-K which are
not purely historical are forward looking statements, including statements
regarding the Company's beliefs, expectations, plans, or intentions regarding
the future. All forward looking statements included in this document are made as
of the date hereof, based on information available to the Company as of the date
hereof, and the Company assumes no obligation to update any forward looking
statement. It is important to note that the Company's actual results could
differ materially from those in such forward looking statements. Forward looking
statements in this Annual Report on Form 10-K involve risk and uncertainty,
including risk factors discussed below.
Factors Affecting Future Operating Results
The Company's future operating results are difficult to predict and may
be affected by a number of factors.
The semiconductor market has historically been cyclical and subject to
significant economic downturns at various times. The semiconductor industry
experienced increased demand during the period through fiscal 1995, and
production
12
13
capacity constraints affected the industry's, including Maxim's
ability to meet that demand. Then during fiscal 1996, customer demand in the
industry declined. Although more recently demand has increased again, it is
uncertain what level of demand will prevail in the future for the industry and
for the markets targeted by the Company.
Other key factors affecting the Company's revenues and operating results
that could cause actual results to differ materially from past or predicted
results include the timing of new product announcements or introductions by the
Company and its competitors, competitive pricing pressures, fluctuations in
manufacturing yields and manufacturing efficiency, adequate availability of
wafers and manufacturing capacity, changes in product mix, and economic
conditions in the United States and international markets. As a result of these
and other factors, there can be no assurance that the Company will not
experience material fluctuations in its future operating results on a quarterly
or annual basis.
The Company's ability to realize its quarterly revenue goals and
projections is affected to a significant extent by its ability to match
inventory and current production mix with the product mix required to fulfill
orders on hand and orders received within a quarter for delivery in that quarter
(referred to as "turns business"). This issue, which has been one of the
distinguishing characteristics of the analog integrated circuit industry,
results from the very large number of individual parts offered for sale (in
Maxim's case, in excess of 10,000 separate line items) combined with limitations
on the ability to forecast orders accurately and relatively lengthy
manufacturing cycles. Because of this extreme complexity in the Company's
business, no assurance can be given that the Company will achieve a match of
inventory on hand, manufacturing and shippable orders sufficient to realize
quarterly revenue goals.
Dependence on New Products and Technologies
The Company's future success will depend in part on its continued
ability to introduce new products and to develop new process technologies.
Semiconductor design and process technology are subject to rapid technological
change, requiring a high level of expenditures for research and development.
Design and process development for the analog portion of the market, in which
the Company participates, are particularly challenging. The success of new
product introductions is dependent on several factors, including proper new
product selection, timely product introduction, achievement of acceptable
production yields, and market acceptance. From time to time, Maxim has not fully
achieved its new product introduction and process development goals. For
example, increasing manufacturing capacity and efficiency in its high-frequency
processes has advanced at a slower rate than planned. There can be no assurance
that the Company will successfully develop or implement new process technologies
or that new products will be introduced on a timely basis or receive substantial
market acceptance.
13
14
In addition, the Company's growth is dependent on its continued ability
to penetrate new markets such as the high-frequency communications segment of
the electronics market where the Company has limited experience and competition
is intense. There can be no assurance that the markets being served by the
Company will continue to grow; that the Company's existing and new products will
meet the requirements of such markets; that the Company's products will achieve
customer acceptance in such markets; that competitors will not force prices to
an unacceptably low level or take market share from the Company; or that the
Company can achieve or maintain profit in these markets.
Manufacturing Risks
The fabrication of integrated circuits is a highly complex and precise
process. Minute impurities, contaminants in the manufacturing environment,
difficulties in the fabrication process, defects in the masks used to print
circuits on a wafer, manufacturing equipment failures, wafer breakage, or other
factors can cause a substantial percentage of wafers to be rejected or numerous
die on each wafer to be nonfunctional. The Company has from time to time in the
past experienced lower than expected production yields, which have delayed
product shipments and adversely affected gross margins. There can be no
assurance that the Company will not experience a decrease in manufacturing
yields or that the Company will be able to maintain acceptable manufacturing
yields in the future.
The number of shippable die per wafer for a given product is critical to
the Company's results of operations. To the extent the Company does not achieve
acceptable manufacturing yields or experiences delays in its wafer fab, assembly
or final test operations, its results of operations could be adversely affected.
During periods of decreased demand, fixed wafer fabrication costs could have an
adverse effect on the Company's financial condition, gross margins, or results
of operations.
The Company manufactures over 90% of its products at two internal wafer
fabrication facilities. One of those fabs is currently operating at capacity.
Given the nature of the Company's products, it would be difficult to arrange for
independent manufacturing facilities to supply such products. Any prolonged
inability to utilize one of the Company's manufacturing facilities as a result
of fire, natural disaster or otherwise, would have a material adverse effect on
the Company's results of operations.
Competition
The Company experiences intense competition from a number of companies,
many of which have significantly greater financial, manufacturing and marketing
resources than the Company and some of which have greater technical resources
than the Company. To the extent that the Company's proprietary products become
more successful, competitors will offer second sources for some of those
products, possibly
14
15
causing some erosion of profit margins. Although Japanese and other foreign
manufacturers have not played a major role in the markets from which the Company
currently derives the bulk of its revenue, they possess the necessary technical
and financial capabilities to participate in these markets, and there can be no
assurance that significant foreign competition will not develop in the future.
See "Business-Competition."
Dependence on Independent Foundries and Subcontractors
Although the Company has an internal capability to fabricate most of its
wafers, Maxim remains dependent on outside silicon foundries for a small but
important portion of its wafer fabrication. Each of the foundries currently used
by Maxim is unrelated to Maxim and are relatively small operations. As is
typical in the semiconductor industry, from time to time the Company has
experienced disruptions in the supply of processed wafers from these foundries
due to quality problems, failure to achieve satisfactory electrical yields and
capacity limitations. Procurement from foundries is done by purchase order and
long-term contracts. If these foundries are unable or unwilling to produce
adequate supplies of processed wafers conforming to the Company's quality
standards, the Company's business and relationships with its customers for the
limited quantities of products produced by these foundries would be adversely
affected if the Company were unable to find alternate sources of supply or
successfully produce the required wafers itself.
Maxim relies on subcontractors located in the Philippines, Malaysia and
South Korea to separate wafers into individual integrated circuits and package
them. The Company also performs final testing for the majority of its products
at a facility owned by the Company that is located in the Philippines. In the
past, South Korea and the Philippines have experienced relatively severe
political disorders, labor disruptions, and natural disasters. Although the
Company has been affected by these problems, none has materially affected the
Company's revenues to date. However, similar problems in the future or more
aggravated consequences of current problems could affect deliveries to Maxim of
assembled, tested product, possibly resulting in substantial delayed or lost
sales and/or increased expense. See "Business-Manufacturing."
Availability of Materials, Supplies, and Subcontract Services
The semiconductor industry has been in the midst of a very large
expansion of fabrication capacity and production worldwide. As a result of
increasing demands from semiconductor manufacturers, availability of certain
basic materials and supplies, such as polysilicon, silicon wafers, lead frames
and molding compounds, and of subcontract services, like epitaxial growth and
ion implantation, which are essential to a large portion of Maxim's production,
and assembly of integrated circuits into packages, have, within the past few
years, been in short supply and may be expected to come into short supply again
if overall industry demand increases. Maxim devotes continuous efforts to
maintaining availability of all required materials, supplies and subcontract
15
16
services. However, Maxim does not have long-term agreements providing for all of
these materials, supplies and services, and shortages could occur as a result of
capacity limitations or production constraints on suppliers that could have
materially adverse effects on Maxim's ability to achieve its planned production.
Dependence on Independent Distributors and Sales Representatives
A significant portion of the Company's sales are realized through
electronics distributors and independent sales representatives that are not
under the direct control of the Company. These independent sales organizations
generally represent product lines offered by several companies and thus could
reduce their sales efforts applied to the Company's products or terminate their
representation of the Company. As noted above, payment terms for foreign
distributors are substantially longer, either according to contract or de facto,
than for U.S. customers, and the inability to collect open accounts could
adversely affect the Company's results of operation. One of Maxim's most direct
competitors, Analog Devices Inc., has attempted in past years and recently to
cause U.S. distributors to stop distributing Maxim products. Additional
terminations by significant distributors or representatives could have a
material adverse impact on the Company. See "Business-Sales and Marketing."
Protection of Proprietary Information
The Company relies primarily upon know-how, rather than on patents, to
develop and maintain its competitive position. There can be no assurance that
others will not develop or patent similar technology or reverse engineer the
Company's products or that the confidentiality agreements upon which the Company
relies will be adequate to protect its interests. Other companies have obtained
patents covering a variety of semiconductor designs and processes, and the
Company might be required to obtain licenses under some of these patents or be
precluded from making and selling the infringing products. There can be no
assurance that Maxim would be able to obtain licenses, if required, upon
commercially reasonable terms. See "Business-Patents and Licenses."
Foreign Trade and Currency Exchange
Many of the materials and manufacturing steps in the Company's products
are supplied by foreign companies or by the Company's operations abroad, such as
its test operations in the Philippines. Approximately 57% of the Company's net
revenues in fiscal 1997 were from foreign customers. Accordingly, both
manufacturing and sales of the Company's products may be adversely affected by
political or economic conditions abroad. In addition, various forms of
protectionist trade legislation have been proposed in the United States and
certain foreign countries. A change in current tariff structures or other trade
policies could adversely affect the Company's foreign manufacturing or marketing
strategies. Currency exchange fluctuations could also increase the cost of
components manufactured abroad and the cost of the Company's
16
17
products to foreign customers or decrease the costs of products from the
Company's foreign competitors. See "Business-Manufacturing" and "Business-Sales
and Marketing."
Dependence on Key Personnel
The Company's success depends to a significant extent upon the continued
service of its president, John F. Gifford, its other executive officers, and key
management and technical personnel, particularly its experienced analog design
engineers, and on its ability to continue to attract, retain and motivate
qualified personnel.
The Company does not maintain any key person life insurance policy on
any such person. The competition for such employees is very intense. The loss of
the services of Mr. Gifford, or of one or more of the Company's executive
officers, design engineers, other key personnel, or the inability to continue to
attract qualified personnel, could have a material adverse effect on the
Company.
17
18
ITEM 2. PROPERTIES
Maxim's headquarters are located in a 63,000 square foot building in
Sunnyvale, California, which the Company purchased in October 1987. Between
December 1989 and June 1997, the Company purchased 6 buildings adjacent to its
headquarters building in Sunnyvale with an aggregate of 95,000 square feet of
space. These buildings serve as the executive offices of the Company and also
provide space for engineering, manufacturing, administration, customer service
and other uses. In fiscal 1996, the Company acquired an approximately nine acre
parcel in Sunnyvale, California, to build a wafer fabrication facility on this
site, and construction is expected to start in fiscal 1998. In December 1989, in
connection with acquiring one of its wafer fabrication facilities, Maxim assumed
the operating lease of the 30,000 square foot building housing these assets in
Sunnyvale, California. This lease extends through November 2003 and has a
five-year lease extension option. In May 1994, Maxim purchased the Tektronix
integrated circuit operation. This facility, located in Beaverton, Oregon, on 21
acres, totals 226,000 square feet and contains 71,000 square feet of wafer
fabrication areas as well as engineering, manufacturing, and general office
space. A portion of the space is leased to unrelated parties. The Company
expects these buildings and the contiguous land to be adequate for its purposes
through fiscal 1998.
In 1997, the Company completed construction of an approximate 141,000
square foot facility at Gateway Business Park in Cavite Province, Philippines.
The facility is now operating as the Company's principal final test operation,
and in addition, it provides capacity for future assembly and other
manufacturing operations for the Company.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is incorporated by reference from
the Company's Form 10-K for the fiscal year ended June 30, 1995, under the
heading "Item 3. Legal Proceedings" and Form 10-Q for the quarterly period
ended March 31, 1996, under the heading "Item 1: Legal Proceedings."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the headings "Financial Information - Financial Highlights by
Quarter" and "Corporate Data, Stockholder Information."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the heading "Financial Information - Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the heading "Financial Information - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
the Company's Annual Report to Stockholders for the fiscal year ended June 30,
1997 under the headings "Financial Information - Consolidated Balance Sheets, -
Consolidated Statement of Income, - Consolidated Statements of Stockholders'
Equity, - Consolidated Statement of Cash Flows, - Notes to Consolidated
Financial Statements, - Report of Ernst & Young LLP, Independent Auditors and
- - Financial Highlights by Quarter."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
19
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Other than as follows, the information required by this item is
incorporated by reference from the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders under the headings "Proposal 1 - Election of Directors"
and "Compliance with Section 16(A) of the Securities Exchange Act of 1934."
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
John F. Gifford 56 President, Chief Executive Officer and
Chairman of the Board
Frederick G. Beck 60 Vice President
Ziya G. Boyacigiller 45 Vice President
Michael J. Byrd 37 Vice President and Chief
Financial Officer
Tunc Doluca 39 Vice President
Richard C. Hood 47 Vice President
Kenneth J. Huening 36 Vice President
William N. Levin 56 Vice President
Nasrollah Navid 48 Vice President
Pirooz Parvarandeh 37 Vice President
Robert F. Scheer 44 Vice President
Richard E. Slater 46 Vice President and Chief
Accounting Officer
Vijay Ullal 39 Vice President
20
21
Mr. Gifford, a founder of the Company, has served as Maxim's President,
Chief Executive Officer and Chairman of the Board since its incorporation in
April 1983.
Mr. Beck, a founder of the Company, has served as Vice President since
May 1983, except for a medical leave between December 1991 and January 1994.
Mr. Boyacigiller joined Maxim in June 1983 and was promoted to Vice
President in April 1995. Prior to April 1995, he served in business management
and integrated circuits design positions.
Mr. Byrd joined Maxim in February 1994 as Vice President and Chief
Financial Officer. Prior to joining Maxim he was with Ernst & Young LLP from
August 1982 to February 1994 where he held various positions, including partner.
Mr. Doluca joined Maxim in October 1984 and was promoted to Vice
President in July 1994. Prior to July 1994, he served in a number of integrated
circuit development positions.
Mr. Hood, a founder of the Company, joined the Company in June 1983 and
was promoted to Vice President in February 1997.
Mr. Huening joined Maxim in December 1983 and was promoted to Vice
President in December 1993. Prior to December 1993, he served in a number of
quality assurance positions.
Mr. Levin joined Maxim in August 1990 as Vice President. From 1987 and
until joining Maxim, he was Vice President, Program Management, for Shugart
Corporation.
Dr. Navid joined Maxim in May 1997 as Vice President. Prior to joining
Maxim, he was with Philips Semiconductors where he held various named positions.
Mr. Parvarandeh joined Maxim in August 1988 and was promoted to Vice
President in July 1997. Prior to July 1997, he served in a number of
intergrated circuits development positions.
Mr. Scheer joined Maxim in June 1983 and was promoted to Vice President
in June 1992.
Mr. Slater joined Maxim in March 1984, has served as Controller since
1986 and was promoted to Vice President in August 1990.
Mr. Ullal joined Maxim in December 1989 and was promoted to Vice
President in March 1996.
21
22
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders under
the headings "Executive Compensation" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders under
the heading "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The following financial statements are included in the Company's
1997 Annual Report to Stockholders and are incorporated herein by
reference pursuant to Item 8.
Consolidated Balance Sheets at June 30, 1997 and 1996.
Consolidated Statements of Income for each of the three years in the
period ended June 30, 1997.
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended June 30, 1997.
Consolidated Statements of Cash Flows for each of the three years in the
period ended June 30, 1997.
Notes to Consolidated Financial Statements
(a) (2) The following financial statement schedule is filed as part of this Form
10-K.
Schedule II - Valuation and Qualifying Accounts
22
23
All other schedules are omitted because they are not applicable, or
because the required information is included in the consolidated
financial statements or notes thereto.
(a) (3) Exhibits. See attached Exhibit Index.
(b) Reports on Form 8-K. None
23
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 25, 1997 MAXIM INTEGRATED PRODUCTS, INC.
By /s/ MICHAEL J. BYRD
Michael J. Byrd, Vice President
and Chief Financial Officer (For
the Registrant and as Principal
Financial Officer)
By /s/ RICHARD E. SLATER
Richard E. Slater, Vice President
and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ JOHN F. GIFFORD President, Chief September 25, 1997
- ----------------------- Executive Officer and
John F. Gifford Chairman of the Board
(Principal Executive
Officer)
/s/ JAMES R. BERGMAN Director September 25, 1997
- -----------------------
James R. Bergman
/s/ ROBERT F. GRAHAM Director September 25, 1997
- -----------------------
Robert F. Graham
/s/ B. KIPLING HAGOPIAN Director September 25, 1997
- -----------------------
B. Kipling Hagopian
/s/ A.R. WAZZAN Director September 25, 1997
- -----------------------
A.R. Wazzan
24
25
MAXIM INTEGRATED PRODUCTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS
(amounts in thousands)
Additions
Charged
Balance at to Costs Balance at
Beginning and End
of Period Expenses Deductions(1) of Period
--------- -------- ------------- ---------
Allowance for doubtful accounts:
Year ended June 30, 1995 $ 379 $ 805 $ 39 $1,145
Year ended June 30, 1996 $ 1,145 $ 154 $ 9 $1,290
Year ended June 30, 1997 $ 1,290 $ 54 $ 0 $1,344
(1)Uncollectible accounts written off.
25
26
EXHIBIT INDEX
Exhibit Sequentially
Number Numbered Page Description
- ------ ------------- -----------
3.1 0 Restated Certificate of Incorporation of the
Company as filed with the Delaware Secretary
of State on September 21, 1995
3.3 Amendment to Certificate of Incorporation
of the Company as filed with the Delaware
Secretary of State on November 28, 1995
3.4 Amended and Restated Bylaws of the Company,
as amended
10.1 X Form of the Company's Domestic Distributor
Agreement
10.2 # Form of the Company's International
Distributor Agreement
10.3 # Form of the Company's Domestic Sales
Representative Agreement
10.4 # Form of the Company's International Sales
Representative Agreement
10.5 0 Agreement dated as of July 14, 1987, amended
and restated February 1994 between John F.
Gifford and the Company(1)
10.6 X Agreement dated as of March 7, 1991 between
John F. Gifford and the Company(1)
10.8 * Form of Indemnity Agreement
10.9 Z Asset Purchase Agreement by and between the
Company and Tektronix, Inc., dated as of
March 31, 1994, as amended, with certain
- ----------
(1)Management contract or compensatory plan or arrangement.
26
27
attachments(2)
10.10 0 Technology Transfer Agreement dated May 27,
1994 by and between the Company and
Tektronix, Inc.(2)
10.11 0 Incentive Stock Option Plan, as amended(1)
10.12 0 1987 Supplemental Stock Option Plan, as
amended(1)
10.13 0 Nonemployee Stock Option Plan, as amended(1)
10.14 0 1987 Employee Stock Participation Plan, as
amended(1)
10.15 P 1988 Nonemployee Director Stock Option Plan,
as amended(1)
10.16 P 1996 Stock Incentive Plan(1)
10.17 Lease Agreement with Mathilda Development
L.P., dated September 30, 1993
11.1 Statement re Computation of Income Per Common
and Common Equivalent Share
13.1 Portions of the Annual Report to Stockholders
for the fiscal year ended June 30, 1997
incorporated by reference into the Form 10-K
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent
Auditors
27 Financial Data Schedules
- ----------
(2)Schedules and certain attachments omitted pursuant to Item 601(b) of
Registration S-K. The Company hereby undertakes to furnish supplemental copies
of any of the omitted schedules upon request by the Commission. Certain material
omitted pursuant to the request for confidential treatment by the Company.
27
28
* Incorporated by Reference to the Company's Registration Statement on
Form S-1 No. 33-19561.
X Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1991.
# Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992.
Z Incorporated by Reference to the Company's Form 8-K filed with the
Commission on June 11, 1994.
0 Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1995.
P Incorporated by Reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996.
28