Microsemi Corp. Chief Executive Jim Peterson weathered a humbling year at the Irvine chipmaker and has come through relatively unscathed.
The maker of chips for military and industrial uses struggled with the biggest industry downturn since 2001, a monopoly probe by the government and a scandal surrounding Peterson’s education.
The jolts sent Microsemi’s stock plummeting and raised some tough questions for the company.
It put longtime leader Peterson in the spotlight.
Microsemi now seems to have put the most difficult times behind it.
Peterson credits his supporters at the company and his staff for getting through the dark days by being “extremely professional,” he said.
“We got through it like we do for everything here,” he said. “We did it through friendship and love.”
Microsemi makes what’s known as high-reliability chips that go into devices that need to perform under extreme conditions where failures can be costly. The chips are used in satellites, medical devices and industrial machinery.
The troubles of the past year brought Microsemi to a sort of reckoning point where it was forced to regroup.
“When you go through these tough times it gives you the opportunity to reposition the company,” said Steve Litchfield, chief strategy officer.
Microsemi launched an internal effort, dubbed “Project Next Level,” that’s designed to help the company focus on its goals.
“What we did at the bottom, in the darkest hour, is start Project Next Level,” Peterson said. “It gave us the ability to retrench and look at ourselves anew and ask, ‘Where are we going as company?’ That’s the best thing to come out of this.”
What likely was the darkest hour for Peterson personally came in December when an investor charged he didn’t hold degrees from Brigham Young University as claimed on his official biography.
The investor, San Diego’s Barry Minkow, is known for digging up dirt on executives and companies, shorting their shares and then going public with his findings and profiting when the stocks fall.
Minkow, who held a short position in Microsemi, spent seven years in prison for fraud, embezzlement and other financial crimes after his carpet cleaning company ZZZZ Best collapsed in 1987.
Peterson initially “categorically denied” misrepresenting the degrees.
Probes by Brigham Young and Microsemi later confirmed Peterson didn’t hold degrees from the school in Provo, Utah.
Microsemi’s board backed Peterson.
“I don’t know if lucky is the word for it,” Peterson said. “Grateful is a good word. The board had a lot of confidence in my ability to run Microsemi. They said, ‘Get back to work.’”
The board, after doing its own investigation, handed down a list of penalties to Peterson. He paid a $100,000 fine and is expected to forgo his bonus for the year, among other things.
Separately, Peterson stepped down from his director’s seat at Santa Ana’s STEC Inc., a maker of a new type of data storage drive.
While Peterson and Microsemi were dealing with the diploma issue, the Justice Department in December sued the company over its July 2008 acquisition of Costa Mesa’s Semicoa Semiconductors Inc.
Microsemi paid $25 million for Semicoa, a longtime rival chipmaker.
Regulators sought to undo the deal based on claims that Microsemi would monopolize a corner of the market for highly specialized chips used by the military and other government agencies.
The suit was a “surprise,” Peterson said, because the deal was small and didn’t require government approval beforehand.
“Being a nonmaterial deal, we didn’t even give it a second or even a third thought,” he said. “There were several other competitors in the same space. In my mind, we still had more runway in this case.”
Ultimately, Microsemi opted not to fight and settled. Part of the settlement involved selling off Semicoa to Los Angeles-based private equity firm Vance Street Capital LLC in a government-facilitated deal. Terms weren’t disclosed.
Bad Timing
The government suit and “diplomagate” took their toll on Microsemi, coming amid the Wall Street meltdown and larger economic downturn that started in late 2008.
“The timing couldn’t have been any worse,” Litchfield said. “At the time, we were hearing about companies that hadn’t seen an order in months. The market was tanking every day and to add this was really frustrating.”
Microsemi’s shares fell harder than the rest of the declining chip sector, losing 55% of their value between when the diploma news broke in December and their low point at the end of January.
It was tough watching the company’s value take a hit, Peterson said.
“No one likes to see dwindling market caps for companies,” he said. “We have historically been a billion-dollar-plus market cap company. Watching the market cap and some of the shareholder value go down was difficult.”
Now that the furor has died down, Microsemi is back in favor among Wall Street analysts.
“Microsemi is working its way back into the good graces of the investment community through sound execution and a quick earnings recovery,” said Craig Berger, an analyst at FBR Capital Markets & Co. in New York. “The firm is on the road to recovery with the investment community.”
Microsemi has gone back to its slow and steady pattern of growth.
“We’ve never been an extreme growth company, but we are a constant growth company,” Peterson said.
Microsemi sees consistent orders from its military and aerospace contracts, even during downturns.
On the flipside, it sees slower growth than other chip companies during boom times.
There’s a lot to like about Microsemi, according to analyst Berger.
“Microsemi’s business model has many attractive elements, including its robust operating margins, its sole-source supplier status into growing end markets, its ability to raise prices on certain products and managements’ track record of execution,” Berger said in a note to clients.
Berger has an “outperform” rating on the stock and a price target of $22 per share.
Last week, Microsemi was trading at around $14 per share on a market value of roughly $1.2 billion.
Shares are up more than 80% since the stock’s low point on Jan. 22.
Peterson has played a big role at Microsemi after coming to the company by way of an acquisition. In the 1990s, Peterson ran Garden Grove’s LinFinity Microelectonics Inc., a unit of San Jose-based SymmetriCom Inc. that was sold to Microsemi in 1999 for $24 million.
Peterson was promoted to the top spot in 2000.
Peterson, sounding humbled, said he continues to plug away.
“It’s shoulder to the wheel,” he said. “We just keep going.”
