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 develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. Maxim operates two wafer fabrication facilities (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 16 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, that operate only in the digital domain. There are linear devices such as amplifiers, references, analog multiplexers, and switches that 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 both the linear and mixed-signal markets, 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 foreign manufacturers; lower capital requirements as a result of generally 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 emphasize 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 the Company's product introduction year ending July 24, 1999, Maxim has introduced over 1,780 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:
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 routinely performed on samples to assure continued consistency.
MANUFACTURING
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 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, Thailand and South Korea, where wafers are separated into individual integrated circuits and assembled into a variety of packages. The Company assembles some integrated circuits at its 141,000 square foot manufacturing and test facility located in the Philippines.
The broad range of products demanded by the analog integrated circuit market requires multiple manufacturing process technologies. Many 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 multichip technology featuring thin-film, thick-film, and laser-trimmed resistors.
For the majority of these technologies in multiple fabrication lines, the Company relies on its fabrication facilities in San Jose, California and Beaverton, Oregon and, to a small extent, manufacturing subcontractors. A third fabrication facility located in Sunnyvale, California was phased out during fiscal 1999. The Company currently uses four subcontract silicon foundries that represent less than 5% of wafer production. None of the subcontractors currently used by Maxim is affiliated with Maxim.
Most of the wafers produced in fiscal 1999 were manufactured at one of the Company's three wafer manufacturing facilities. In December 1989, the Company acquired a wafer fabrication facility in Sunnyvale, California 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 in Beaverton, Oregon capable of producing CMOS and bipolar products. In November 1997, the company acquired a sub-micron wafer fabrication facility in San Jose, California. The Company transferred production from the Sunnyvale facility to the Beaverton facility and suspended wafer production at this facility in December 1998. (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 1999, 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 December 1989, in connection with acquiring one of its wafer fabrication facilities, Maxim assumed the operating lease of the 30,000-square-foot building 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, which is located in Beaverton, Oregon, on 21 acres, totals 226,000 square feet and contains 80,000 square feet of wafer fabrication areas as well as engineering, manufacturing, and general office space. A portion of the space is leased to an unrelated party. In fiscal 1996, the Company acquired an approximately 9-acre parcel and a 30,000-square-foot building in Sunnyvale, California, to support future expansion. The Company currently is utilizing the 30,000 square feet as office space. 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 it also provides other related manufacturing operations for the Company. In November 1997, the Company acquired a 67,000-square-foot building including a sub-micron wafer fabrication facility in San Jose, California. The Company expects these buildings and the contiguous land to be adequate for its business purposes through fiscal 2000.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Linear Technology Corporation vs. Maxim Integrated Products, Inc. et al., Action No. C-98-1727 FMS in the Federal District Court for the Northern District of California. On June 26, 1997, a complaint was filed by Linear Technology Corporation ("LTC") naming the Company and certain other unrelated parties as defendants. The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and contributorily infringed LTC's United States Patent 5,481,178 relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified amount.
The complaint further alleges that the Company's actions have been, and continue to be, willful and deliberate and seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and attorneys fees.
The Company answered the complaint on October 20, 1997, denying all of LTC's substantive allegations and counterclaiming for a declaration that LTC's patent is invalid and not infringed. The parties are still involved in discovery proceedings. The case has been bifurcated into separate liability and damages trials, with the issues of liability and willfulness likely to go to jury trial in calendar year 2000.
The Company has asserted in its answer, and continues to believe, that the allegations in the complaint are without merit.
Although the outcome of a jury trial involving patents and intellectual property is inherently uncertain, the Company does not believe that the ultimate outcome of the matter will have a material adverse effect on the Company's financial position.
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 26, 1999 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 26, 1999 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 26, 1999 under the heading "Financial Information - Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 26, 1999 under the subheading "Interest Income" under the heading "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 26, 1999 under the headings "Financial Information - Consolidated Balance Sheets, - - Consolidated Statements of Income, - Consolidated Statements of Stockholders' Equity, Consolidated Statements 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
Not Applicable
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 1999 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."
The officers of the Company, including executive officers and other Vice Presidents, 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 integrated circuits design positions.
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.
Dr. Gal joined Maxim in April 1999 as Vice President. Prior to joining Maxim, he was with Applied Micro Circuits Corporation where he served as Vice President of Engineering from January 1997 to April 1999. Before joining Applied Micro Circuits Corporation, Dr. Gal's tenure included 11 years at Unisys (1983-1994) and 3 years at Motorola (1994-1997) in various technical and management positions.
Mr. Hood, a founder of the Company, joined the Company in June 1983 and was promoted to Vice President in February 1997. Prior to February 1997, he served in a number of engineering and manufacturing 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. Jasper joined Maxim in May 1998 and was promoted to Principal Accounting Officer in June 1998 and to Vice President and Chief Financial Officer in April 1999. Prior to joining Maxim, he was with Read-Rite Corporation from November 1995 to April 1998 where he held the position of Vice President, Corporate Controller and prior to that was with Ernst & Young LLP from September 1983 to November 1995.
Dr. Navid joined Maxim in May 1997 as Vice President. Prior to joining Maxim and since 1980, he was with Philips Semiconductors where he served in a number of wireless communications product line management 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 integrated circuit development positions.
Mr. Rigg joined Maxim in August 1996 as managing director and general counsel and was promoted to Vice President in April 1999. Prior to joining Maxim, he was with Ropers, Majeski, Kohn and Bentley from 1970 to 1996 where he held various positions, including director.
Mr. Scheer joined Maxim in June 1983 and was promoted to Vice President in June 1992.
Mr. Ullal joined Maxim in December 1989 and was promoted to Vice President in March 1996. Prior to March 1996, he served in a number of wafer fab operation positions.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the Company's Proxy Statement for the 1999 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 1999 Annual Meeting of Stockholders under the heading "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the heading "Certain Relationships and Related Transactions."
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 1999 Annual Report to Stockholders and are incorporated herein by reference pursuant to Item 8.
Consolidated Balance Sheets at June 26, 1999 and June 27, 1998.
Consolidated Statements of Income for each of the three years in the period ended June 26, 1999.
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 26, 1999.
Consolidated Statements of Cash Flows for each of the three years in the period ended June 26, 1999.
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 24, 1999 MAXIM INTEGRATED PRODUCTS, INC.
By /s/ Carl W. Jasper ----------------------------------------- Carl W. Jasper, Vice President and Chief Financial Officer (For the Registrant and as Principal Financial 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.
(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.
- --------------- * 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.
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.
R Incorporated by Reference to the Company's Annual Report on Form 10-K for the year ended June 27, 1998.
S Incorporated by Reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 1998.
MAXIM INTEGRATED PRODUCTS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands)
- ---------------- (1) Uncollectible accounts written off.