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
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
* 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
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.
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.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
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.
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.
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.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III ITEM 10.
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:
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.
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."
ITEM 12.
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14.
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
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.
EXHIBIT INDEX
- --------------------- (1) Management contract or compensatory plan or arrangement.
* 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.
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.
MAXIM INTEGRATED PRODUCTS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)
- --------------- (1) Uncollectible accounts written off.