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, 1996
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, 1996 was approximately $1,349,000,000*.
Number of shares outstanding of the registrant's Common Stock, $.001
par value, as of June 30, 1996: 61,445,519.
2
DOCUMENTS INCORPORATED BY REFERENCE:
Part II - Annual Report to Stockholders for the fiscal year ended June 30, 1996
Part III - Proxy Statement for the 1996 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, 1996. 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
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 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 13 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
3
4
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.
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, 1996, Maxim has introduced over 1,000 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
Video Communications
Pagers
Central Office Switches
PBX
Industrial Control . . . . . . . . . . Control of
* Temperature
* Flow
4
5
* Pressure
* Velocity
* Position
Robotics
Instrumentation . . . . . . . . . Testers
Analyzers
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
5
6
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 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 before being sent to subcontractors, where they are cut into
individual circuits and assembled into a variety of packages. Products
accounting for approximately 50% of the worldwide revenue of the Company are
functionally tested by a subcontractor located in the Philippines. The Company
owns the test equipment used by the subcontractor and pays a fee for the
operation of the test facilities. Units from these lots are then sample tested
and inspected for final quality assurance. The rest of the products are fully
tested at Maxim upon receipt from the subcontractor.
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 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 three subcontract silicon foundries which represent less than 8%
of wafer production. Each of the subcontractors currently used by Maxim are
unrelated to Maxim.
In December 1989, the Company acquired 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 purchase order rather than long-term contracts and Maxim's
foundries could decline additional
6
7
purchase orders at their discretion. There can be no assurance that material
disruptions in supply will not occur in the future. 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 business and relationships with its customers may be
adversely affected.
As is customary in the industry, the Company ships most of its
processed wafers to foreign assembly subcontractors, located in the Philippines,
Malaysia, Thailand, South Korea and Japan, where wafers are separated into
individual integrated circuits and packaged.
SALES AND MARKETING
In the United States and Canada, the Company sells its products through
a direct sales organization comprised of 12 regional sales offices and through
distribution. The distribution portion is through four national and three
regional and/or specialist distributors with a combined total of approximately
115 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. 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 in Japan are denominated in
the Yen. The Company placed 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 foreign distributors may not represent
competitive product lines, although they are permitted to sell non-competing
products for other companies.
International sales accounted for approximately 52%, 49% and 57% of net
revenues in fiscal 1994, 1995 and 1996, respectively. See Note 12 of "Financial
7
8
Information - Notes to Consolidated Financial Statements" set forth in the
Company's Annual Report to Stockholders for the fiscal year ended June 30, 1996.
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 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 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, 1996, the Company's backlog was approximately $140
million as compared to approximately $199 million at June 30, 1995. 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. 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
$22.6 million, $42.4 million and $47.5 million in fiscal 1994, 1995 and 1996,
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
8
9
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 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 55 U.S. patents and 22 foreign patents with
expiration dates ranging from December 1997 to March 2015. In addition, the
Company has applied for 34 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.
9
10
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 fiscal 1994.
Because of the many technological developments and the technical
complexity 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 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, 1996, Maxim had 1,987 employees, of which 279 were in
engineering, research and development, 983 in manufacturing and operations, 252
in
10
11
marketing and sales, and 60 in finance and administration. In addition, the
Company retained 413 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 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 new
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 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 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.
11
12
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's future operating results are difficult to predict and may
be affected by a number of factors including 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. In addition, 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
1995 and production capacity constraints affected the industry's, including
Maxim's, ability to meet that demand. More recently, demand on the industry has
declined and it is uncertain what level of demand will prevail in the future for
the industry and the Company. As a result of these and other factors, there can
be no assurance that the Company will not experience material fluctuations in
its projections and future operating results on a quarterly or annual basis.
The Company's ability to realize its revenue goals and projections is
affected by its ability to match current production mix with the product mix
required to fulfill 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 7,000 separate line items) combined with limitations
on the ability to forecast orders accurately. Because of this extreme complexity
in the Company's business, no assurance can be given that the Company will
achieve an optimum match of manufacturing and shippable orders.
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 newer processes
supporting the Company's most advanced CMOS products and the Company's products
manufactured on 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.
12
13
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
13
14
successful, competitors will offer second sources for some of those products,
possibly 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 is a relatively small operation. As is
typical in the semiconductor industry, the Company has experienced from time to
time 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 rather than
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 primarily on subcontractors located in the Philippines,
Malaysia and South Korea to separate wafers into individual integrated circuits
and package them. The Company also relies on an outside subcontractor to operate
a captive test facility in the Philippines which is responsible for testing
approximately 60% of the Company's unit shipments. 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 is essential to a large portion of Maxim's production,
and assembly of integrated circuits into packages, have been in short supply.
Maxim devotes continuous efforts to maintaining availability of
14
15
all required materials, supplies and subcontract 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 to successfully
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."
FUTURE REVENUE FROM ACQUIRED BUSINESS
During fiscal 1994, the Company acquired the integrated circuit
operation ("ICO") of Tektronix, Inc. The Company's ability to successfully
exploit the acquisition is dependent upon a number of factors, including
completion of development of manufacturable processes acquired from Tektronix,
development of new high-frequency processes, development of new products
designed on the acquired high-frequency processes for Tektronix and its former
customers and, to a large extent, for customers that have not historically
purchased high-frequency products from the Company or Tektronix. In addition,
the Company's ability to meet its sales commitments to existing customers and to
expand its sales to those and to new customers depends on the Company's ability
to achieve acceptable yields and production levels. While the Company has
devoted substantial attention to production issues associated with the acquired
facility, the Company continues to experience lower than satisfactory
manufacturing yields to meet customer demand. The high-frequency business is a
potentially large growth area for the Company, and the Company's inability to
successfully address one or more of these challenges could materially adversely
affect its business.
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
15
16
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, and approximately 57% of the Company's net
revenues in fiscal 1996 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 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.
16
17
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 1996, the Company has purchased 6 buildings adjacent to
its headquarters building in Sunnyvale with an aggregate of 94,800 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 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 60,000 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 1997.
In 1996, the Company began construction of an approximate 130,000
square foot facility in the Philippines. The facility is currently planned to be
completed in the first half of 1997 and would initially be used for test
operations.
In 1996, the Company acquired an approximate nine acre parcel in
Sunnyvale, California. The Company plans to build a wafer fabrication facility
on this site in the future as demand dictates.
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
17
18
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,
1996 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,
1996 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,
1996 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,
1996 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
18
19
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 1996 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 55 President, Chief Executive Officer and Chairman of
the Board
Frederick G. Beck 59 Vice President
Ziya G. Boyacigiller 44 Vice President
Michael J. Byrd 36 Vice President and Chief
Financial Officer
Stephen R. Combs 46 Vice President
Tunc Doluca 38 Vice President
Kenneth J. Huening 35 Vice President
William N. Levin 55 Vice President
Robert F. Scheer 43 Vice President
Richard E. Slater 45 Vice President and Chief Accounting Officer
Vijay Ullal 38 Vice President
19
20
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 IC 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 from August
1982 to February 1994 where he held various positions, including partner.
Dr. Combs, a founder of the Company, has served as Vice President since
May 1983.
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. 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.
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.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders under
the headings "Executive Compensation" and "Performance Graph."
20
21
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 1996 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
1996 Annual Report to Stockholders and are incorporated herein by
reference pursuant to Item 8.
Consolidated Balance Sheets at June 30, 1996 and 1995.
Consolidated Statements of Income for each of the three years in the
period ended June 30, 1996.
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended June 30, 1996.
Consolidated Statements of Cash Flows for each of the three years in
the period ended June 30, 1996.
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
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
21
22
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, 1996 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, 1996
- -------------------
John F. Gifford Executive Officer and
Chairman of the Board
(Principal Executive Officer)
/s/ James R. Bergman Director September 25, 1996
- --------------------
James R. Bergman
/s/ Robert F. Graham Director September 25, 1996
- --------------------
Robert F. Graham
/s/ A.R. Wazzan Director September 25, 1996
- --------------------
A.R. Wazzan
22
23
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
3.2 0 Bylaws of the Company
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 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)
10.7 + Deferred Compensation agreement dated as of March 13, 1994
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
- ---------------------
(1) Management contract or compensatory plan or arrangement.
23
24
of March 31, 1994, as amended,
with certain 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 1988 Nonemployee Director Stock Option Plan, as amended(1)
10.16 1996 Stock Incentive Plan(1)
11.1 Statement re Computation of Income Per Share
13.1 Portions of the Annual Report to Stockholders for the fiscal
year ended June 30, 1996 incorporated by reference into the
Form 10-K
21 List of Subsidiaries
23 Consent of Ernst & Young LLP, Independent Auditors
* Incorporated by Reference to the Company's Registration Statement on Form
S-1 No. 33-19561.
- ---------------------------
(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.
24
25
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.
+ Incorporated by Reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1993.
Z Incorporated by Reference to the Company's Form 8-K filed with the
Commission on June 11, 1994.
0 Incorporation by Reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1995.
25
26
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, 1994 $ 378 $ 35 $ 34 $ 379
Year ended June 30, 1995 $ 379 $ 805 $ 39 $1,145
Year ended June 30, 1996 $ 1,145 $ 154 $ 9 $1,290
- ---------------
(1) Uncollectible accounts written off.
26