Elmos delivers stellar results, in memory of Kurt Heinrich

Elmos Semiconductors AG, based out of Dortmund, Germany, reported stellar financial results, in tribute to the late Hr. Kurt Heinrich, who passed away in this month. Hr Heinrich, was one of the leading technology entrepreneurs to come out of Germany and had previously started and owned various technology businesses before joining Elmos, where he was managing director for 20 years.

Elmos reported an 18% increase in revenues to €143 million. Earnings before interest and tax (EBIT) increased by 36% to €28.7 million and net income grew by a massive 63% to €16.3 million.

Elmos fnanzholdings (EFH) owns 57.7% of the company’s current stock. EFH is jointly owned by the estate of the late Hr. Kurt Heinrich (21%), the current chairman of the board, Dr Klaus Weyer (21%), and Professor Dr Gunter Zimmer (16%).

Elmos Semiconductor is a specialist mixed signal ASIC (application specific integrated circuit) vendor, predominantly supplying the automotive and consumer electronics sector. Its shares are listed on TecDAX30, of the German Stock Exchange.

The Chilli perspective
The company has won 29 new design wins, which gives it a designed in backlog of 142 design wins and €340 million, up from the previous €227 million last year. The company recently scored a strategic design win with a major Japanese automotive manufacturer, a formidable achievement due to exacting quality standards and cultural barriers posed for non-Japanese vendors.

Successful execution and delivery of this and other projects will open doors for additional design wins in this difficult and hard to penetrate market. The design backlog comfortably puts it on its strategic plan to grow by at least 15% per annum, achieve its 2005 guidance of €165 million, 50% gross margin and hit a target of €240 million in 2007.

Many European companies, were prematurely IPO’d during the tech bubble, due to pressure from investors looking for quick exits. Some of these were not ready for prime time on the unsuspecting public and have consistently delivered poor results, thus creating a negative image of technology companies, especially in Germany.

Elmos, which IPO’d in October 1999, has been a bright spot in a lacklustre performance list of many of these technology companies in Europe. Elmos had revenues of €86.6 million when it IPO’d, and weathered the tech crash period of 2000-02, when it held on to almost flat revenues to come out stronger with its customised product portfolio and designed in backlog.

Elmos has enough operational cash flow (€34.9 million) to finance most of its capital expenditure from its in-house resources. Its gross margins of 51.3% would have been much higher were it not for its two operating subsidiaries -one in packaging assembly and the other in micro-machined sensors - which produced lower margins. Its employs over 900, a substantial increase from the 514 employed when it IPO’d in 1999. Shareholder equity rose slightly to 62%, and gearing (net debt/shareholder) dropped to 28%, from 46% in 2002.

Many pre-IPO semiconductor companies and new startups should draw some important lessons from the Elmos story, namely that there is a strong automotive, telecoms and consumer electronics sector in Europe, and that differentiated, customisable products can provide a steady revenue growth, better gross margins and customer loyalty, as opposed to standards based commodity products.

Some entrepreneurs who have reached middle age may be wondering if it is worth risking into a new venture. But as the Elmos story demonstrates, you can leave a substantial legacy to your estate. Hr Heinrich’s legacy is estimated to be €32.62 million on the assumption of €8 a share, some of which may get redistributed through the local economy.

Regional development agencies, government policy makers, early stage venture funds can draw some comfort from the fact that the semiconductor business, both fabless and IDM (integrated device manufacturers), can produce long-term, sustainable benefits if they are given the right infrastructure support and a degree of patience.

© Chilli Publishing Ltd 2005

21MAR2005