Pond ponders acquisition strategy: CEO of fairchild semi ready to expand in China market - Semiconductors

Electronic News, Feb 4, 2002 by Ed Sperling

The economy still may be struggling to regain its footing, but that isn't stopping chipmakers from planning for the future.

Fairchild Semiconductor has been particularly active in planning for future acquisitions. In fact, CEO Kirk Pond says acquisitions are part of the core strategy. It's just a question of which companies should be acquired, when exactly that will happen and where they will be located.

"We are actively pursuing that [acquisition] strategy," Pond said.

At least part of that strategy is a focus on new products, and one of the fastest ways of acquiring new technology to make new products is by acquiring other companies. In the last quarter, new products accounted for 36 percent of Fairchild's total revenues.

The big question for Fairchild is exactly where it should acquire those companies. The company has a major emphasis on Asia in general and China in particular. In fact, it just built an 800,000-square-foot production facility in Shanghai and has big plans to grow its presence there.

"Power products are a major part of that market," Pond said. "We were the number one discrete vendor in Asia last year, and last quarter more than 50 percent of our revenue was in Southeast Asia and Japan and another 20 percent was in Korea. We are accelerating growth in China, too."

Fairchild is far from alone in its quest for China expansion. The one very bright spot in the world economy these days is the Chinese market, which is growing at about 8 percent annually. Moreover, that growth is expected to continue because most of the uptick is from internal demand. With a population of 1.3 billion people and one of the highest savings rates on the planet, most economists expect that growth to continue for years to come.

But Pond says the problem isn't only where to commit resources--it's also where to restrain them and to be alert to negative signals despite the general consensus.

"Our bookings dropped below one in May and June of 2000," he said. "We were all shipping backlogs, but those backlogs were disappearing. In November and December of 2000, we were told there was a new way of doing business. Compaq was planning to grow 30 percent next year (in 2001) and Solectron wanted to respond with a 10 percent upside so their capacity would grow 40 percent. We ended up taking actions to reduce our costs."

Pond says that companies that reined in their costs on those signals have fared relatively well in the downturn. Others that listened to the gospel are still reeling from inventory and sudden cost-cutting moves.

And the ones that managed their businesses well are now in an excellent position to acquire the ones that missed the signals.