Jazz Technologies Inc.’s Gil Amelio is back in a role he knows well,the turnaround man.
Back in 1983, Amelio took over the chip making arm of aerospace company Rockwell International Inc. He helped steer the unit to profitability after it lost money for nearly a decade.
Amelio’s looking to repeat history at the same Newport Beach-based operation today, albeit with a different name: Jazz Semiconductor.
After Amelio left Rockwell for stints running National Semiconductor Corp. and Apple Inc., Rockwell spun off its chip unit as Newport Beach’s Conexant Systems Inc. in 1999. Three years later, Conexant split off the chip plant as Jazz Semiconductor.
Enter, Amelio and Apple alums Steve Wozniak and Ellen Hancock. Earlier this year, they bought Jazz after raising money from investors in 2006.
Jazz runs one of only two plants that actually make chips in Orange County,most companies, including Irvine’s Broadcom Corp., design chips here and have them made at factories in Asia. Irvine-based Microsemi Corp. is the other with a plant here, in Garden Grove.
The spinoff of Jazz from Conexant proved to be the start of a downward spiral for the chip plant operator, which now is in red ink.
Amelio said he saw a chance to turn the floundering operation around and bought the company with $260 million of investor money in February.
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“We think we hit bottom in April” |
“It takes a while to build a mature company,” he said. “That process wasn’t yet complete at Jazz. The company, at least from my perspective, is young and somewhat underdeveloped. It nonetheless is really promising.”
Amelio hopes that his 25 years of experience can turn the tide for Jazz, which has five years under its belt as an independent company. He now heads both the parent company (Jazz Technologies) and the chip plant operator (Jazz Semiconductor), as a result of the buyout that took the chip plant public in February.
Jazz had a recent market value of about $60 million.
Some Gains
Amelio is making some strides.
For the second quarter, Jazz lost about $13 million, half of the $21 million loss it reported in the first quarter.
The lessened loss is notable given an industrywide chip glut that has hit just about all players. Taiwan Semiconductor Manufactur-ing Co., one of Jazz’s big contract chipmaker rivals, reported a 25% drop in second-quarter profit.
Producing and stocking chips to meet demand,or lack thereof,is a perennial problem for chipmakers, whose businesses rely heavily on projections for sales and market share, Amelio said.
“These things come in about three- or four-year cycles,” he said. “The euphoria builds for a few years, and then everyone slams on the brakes. We think we hit bottom around April and now it’s starting to ease its way back up again. Everyone is still being real cautious. But in a year from now it will probably be a free-for-all.”
Amelio said he wants to make sure Jazz is in fighting shape when that happens.
He’s launched a cost-cutting program that’s expected to save the company $10 million to $15 million a year. The first phase involved job cuts and defining roles for remaining workers to make them more efficient.
“If I can make my people 1% more productive than the guy down the street, given enough time, I’m going to beat him,” Amelio said. “I don’t care how techie you are. Our ambition here is not just to have a bunch of superstars that we fawn over, but rather to have everybody contributing to the success of the business.”
After improving production, Amelio said he wants to better the product, with a goal of getting more sales from bigger chipmakers, those with $1 billion or more a year in sales.
Jazz’s fabrication plant, or “fab,” churns out silicon wafers imprinted with hundreds,and sometimes thousands,of chips. The highly automated manufacturing process can take as many as 600 individual steps to make each wafer, which look like flat metal disks.
The company ships the wafers to its customers, who cut them into chips and assemble them onto circuit boards for makers of cell phones and computers.
Customers Conexant and Skyworks Solutions Inc., a Massachusetts company formed from Conexant’s former wireless chip business, are among Jazz’s biggest customers. Others include Marvell Technology Group Ltd. of Santa Clara, RF Micro Devices Inc. of North Carolina and Austin, Texas-based Freescale Semiconduc-tor Inc., Motorola Inc.’s former chip unit.
Jazz turns out about 17,000 wafers a month, according to the company’s Web site, and wants to increase that by expanding into chips for autos, digital TV tuners, cell phones and portable media players. That could bring business with bigger companies.
“Those larger companies have an opportunity to give us a nice chunk of business,” Amelio said. “Their size tends to mean they have pretty good control of their markets, so their demand tends to be more stable. They tend not to be the guys that cause the inventory oscillations.”
Plant Acquisition
Amelio also is looking to expand Jazz this year by buying another chip foundry, most likely in Asia.
“We’ve been looking to buy another fab offshore in a low-cost area that can help make us more cost-competitive,” he said.
Amelio is targeting two types of companies for a buyout, he said. One is a struggling company that is getting beat out by competitors, which could be turned into what industry insiders call an “AIMS” company, which makes analog chips that pack in several functions onto the same piece of silicon.
“We can probably buy them cheap, and transform them into an AIMS company, and make them successful,” Amelio said.
The other profile he would target is a company that’s looking to get rid of an older plant to raise cash for a new one, he said.
Amelio, 64, doesn’t show any signs of slowing down.
“I feel younger and more energetic when I’m working,” he said.
