Valin strategy: Invest in employees & counter-cyclical industries

There are thousands of companies based in Silicon Valley, but not all of them focus on the long-term play. Valin Corp. does have that focus, however, intentionally balancing their product portfolio across a range of industries, and investing in their employees with equal intensity.

Company President & CEO Joe Nettemeyer told me in a recent phone call that this strategy has allowed Valin to grow non-stop over the last half-decade: “We’ve achieved growth through a combination of internal development and acquisition, averaging 20-percent growth or more, per year, over the last 5 years, even in spite of a slight hiccup in 2009. We like to invest in industries that are counter-cyclical to each other. When there’s a slow-down in one area, we can cover the slack with revenue in another.

“We’re an infrastructure company working in the wafer-fab-equipment end of the semiconductor industry, designing and building system solutions for companies around the world that make semiconductor-based products. We just completed a project with AKT that makes equipment for large flat-screen panels to retrofit 30 systems for Samsung.

“We’ve also expanded our capabilities in other industries over the years, particularly as a strategic global distributor for Applied Materials. We’re recognized as one of the top 40 industrial distributors in the nation based on our sales revenue, and have just been recognized as one of INC Magazine’s 500/5000 fastest growing companies in America.

“In addition, we also have a business unit that specializes in oil and gas, building custody transfer systems that are installed at wellheads to measure and separate the oil and gas that comes off of wells, so companies have an accurate measurement of the well’s output.”

Though Valin prides itself on its involvements in these diverse industries, Nettemeyer said, “We continue to have a significant presence in fabrication facilities, specifically at Intel in Oregon and Arizona, and we do a lot of business with Samsung and TI. These companies have provided counter-balance for us as well. When they’re going to add a new fab, or retrofit an old one, we have a portfolio of products and services which we provide to contractors for tooling install.

“Original equipment sales have been very soft since fall 2011, but the plant expansions and retooling at Intel and Samsung have been good so far this year. As I said, when one part of the revenue slows down for us, another one picks. We’ve intentionally designed our business to participate in both cycles.”

Joe noted that the evolution in wafer size from 100 millimeters, through 200 to 300 millimeters, has provided a lot of business for Valin: “We’ve done very well throughout supporting those platforms, with a significant amount of product getting specified at the various design stages. Though the leadership continues to be at 300 millimeters, we’re beginning to see 450-millimeter platform development teams. It’s very expensive to develop these manufacturing tools and requires multiple iterations until you get reliability in the process.

“In addition, at 450 millimeters there is a much smaller group of potential customers. Only Intel and Samsung, and perhaps a few others, have the global manufacturing volume that can actually use those tools – even though these larger platforms, 300 and 450 millimeters, bring cost reductions and are easier to support. They require a significant capital investment that only a few people have the wherewithal to provide. Since 2006, new platform designs have slowed appreciatively. ”

Instead, Joe said the tool manufacturers have done a good job of reducing line widths to keep up with Moore’s Law: “Even those fabs using 200-millimeter platforms are able today to pack more chips onto the wafer and therefore extend the life of their tools.

“Apple, in fact, seems to buy a lot of those chips. Many of those types of volumes actually run better at 200 millimeters. Although they run large volumes, they tend to be specialty applications, with smaller volumes per application. Nonetheless, some of their chips are on 300-millimeter platforms.

“The fabs are under tremendous pressure to keep producing, with the burden of putting the chips on the best platform falling to the manufacturers like Intel and TSMC. I don’t have intimate knowledge about the purchasing practices of Apple – I’m more of an observer – but I’m quite sure that Apple is a significant user of 300-millimeter platforms, as well as 200. I’m also sure that the chip producers are under so much pressure, they’re giving Apple their best prices.”

I asked Joe about the trend to Asia for semiconductor manufacturing. He said, “For a variety of reasons, including tax incentives, that seems to be the case. We’ve had discussions with many individuals who tell us that the cost of building a fab is of a marginal cost differential [U.S. versus Asia].

“Tax policy and environmental policy are impacting the decision instead. It’s a challenging topic – our corporate tax rate versus the rest of the world. California, for instance, has the largest microprocessor company in the world headquartered here, but they don’t manufacture chips here.

“Environmental regulations and the cost of energy, among other issues, are creating a competitive disadvantage, while countries like Taiwan offer a freer reign and tax incentives that are hard to ignore and therefore attract capital. There is also increased manufacturing in China, though the protection of IP is still a huge problem.

“Intel has a presence in places like China and Vietnam, yet they still they continue to invest here in North America – Arizona, Oregon and New Mexico, in particular – keeping their leading-edge chips here in the U.S. to protect the IP.

“At the end of the day, the concern is not the labor cost in manufacturing. The gains are in the innovations, not the cost of labor.”

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Employee-driven success

Ten years ago, 90 percent of Valin’s focus was in semiconductors; today they are down to 25 percent, thanks to a deliberate strategy of diversification. Joe Nettemeyer’s own experience provided some of the motivation for that strategy; before coming to Valin in 2001, he spent 21 years at Emerson Electric, a place Nettemeyer said was “obsessed with planning.”

“After I took over at Valin,” he said, “I brought other Emerson people here as well. Emerson was a good, forward-thinking company where we were trained well. We were always encouraged to see where things were going, rather than simply reporting on where things had been.

“The group that came here to Valin with me brought that kind of Fortune 200 Company type of thinking to this much smaller company, and gave us the ability to focus on the future. We’ve grown very quickly since then and expect this year to be up about 20 percent over last year.

“We’re really optimistic, maintaining tight cost controls and preparing carefully for any slow downs through tight asset management. I’m not overly concerned, in fact, about slowdowns. We may see growth flatten out in one area, but we’ll continue to make money in another and will keep investing that money across the company.

“Valin is a 100-percent employee owned company. We continue to re-invest in our business and, more importantly, in our employees – aggressively subscribing to having a well-trained organization. Although we only have 240 employees, we actually have a full-time director of education who’s entire job is to help train our employees. It’s this kind of thinking that gives us a distinct competitive edge.

“I don’t like the boom and bust employment practices here in Silicon Valley. I view it as my responsibility to spend every effort to establish a stable business platform that allows everyone to grow. That’s the way I was trained, that’s what I believe in, and it’s been very beneficial for all of us. In fact, we’re moving to a larger facility because we’re outgrowing our current space.

“We provide an environment for people to realize their aspirations. As a result, we get a great deal of commitment and loyalty out of our team, and productivity. Our people take responsibility for their work and attempt to hit deadlines and bring a project in on time in a way you don’t often see in other firms.

“It’s always a moment of pride for me when I see our employees pitching in. I take great pride in the people I work with.

“I talk to a lot of employee-owned business about our organizational model, and I always stress that good business is not all about grubbing to put that last dollar in our pockets. Instead, it’s about something that’s very uplifting, the idea of people taking responsibility for their work and sharing in the success that comes from that.

“I feel there’s a ground swell out there in this direction, and I’m very encouraged about the future because of it.”

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Tags: AKT, Apple, Applied Materials, Emerson Electric, Intel, Joe Nettemeyer, Samsung, TI, TSMC, Valin Corp.

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