Aavid Thermal Technologies, Inc. History

Company Perspectives:

Aavid Thermal Technologies, Inc., through a total commitment to excellence in customer service, will be the leading global provider of thermal solutions, creating extraordinary value to our customers, employees and shareholders. Our target market is electronic products where design, performance, functionality, and reliability are constrained by the physics of heat dissipation.

Company History:

Aavid Thermal Technologies, Inc., founded in 1993, is the world's technology and market leader in thermal management. Headquartered in Concord, New Hampshire, Aavid and its three subsidiaries provide thermal management products that dissipate unwanted heat in electronic and electrical components and systems--such as microprocessors and integrated circuits (ICs) for digital and power applications. The company is the oldest and largest business devoted exclusively to solving thermal problems and carries the broadest range of products in the thermal management industry; Aavid holds approximately 25 percent of the North American market. The company's products include computational-fluid-dynamics (CFD) software, aluminum and copper heat sinks and fan combinations, heat pipes, conductive adhesives, compliant interface materials, and liquid-cooled cold plates. Aavid supports its customers with an experienced applications and thermal engineering staff that analyzes customer thermal problems, recommends design changes in the customer's product, and designs a thermal solution. Through its highly integrated network of software, development, manufacturing, sales, and distribution centers located throughout North America, Europe, and the Far East, Aavid services a highly diversified base of more than 4,000 national and international customers, among which are original equipment manufacturers (OEMs), distributors, and contract manufacturers. The company operates manufacturing facilities in New Hampshire, California, Texas, Canada, China, Taiwan, and the United Kingdom. Aavid also supports an advanced research development center in Texas and another in New Hampshire. The company's total sales soared from $37.61 million in 1992, to $61.62 million in 1994, to $107 million in 1996 (the year Aavid went public), and to $209.1 million in 1998.

The Early Years: 1964-95

During the second half of the 20th century, designers of electronic systems responded to consumer demands and increasing competition by offering new products in smaller form factors having improved performance (functionality and speed), greater reliability, and lower prices. System designers relied principally on system integration, a strategy that necessitated overall system designs with fewer, smaller, and lighter components, circuit boards, and structural components. In fact, successful system integration for electronics was enabled in large part by increasing levels of silicon-circuit integration that, in turn, generated high levels of heat and created significant challenges for thermal management. Excessive heat degraded system performance and reliability and could cause system failure.

At first many engineers selected off-the-shelf fans and heat sinks (simple aluminum devices that helped dissipate heat from electronic devices, much as radiators do for automobile engines) to treat "hot spots" that occurred around electrical components. These after-the-fact designs of thermal management, however, were not very efficient at shedding heat; finished products had to operate at a fraction of their peak capability to minimize failure-causing heat loads. Major challenges surfaced for solutions to heat generated by digital products, power supplies, motor controls, and traction drives as well as methods to guarantee uninterruptable power supplies. It was in this challenging technological climate that Aavid Thermal Technologies made its first appearance.

According to Laurie Ann Toupin's story "Hot Company in the Cooling Business," published in the November 16, 1998 issue of Design News, Aavid Thermal Technologies' roots go back to the early 1960s when Ken St. Jacques and an associate interviewed engineers at Digital Equipment Corp. to discuss thermal problems. After several months of working through weekends, Ken and his partner designed a special heat sink that removed heat from semiconductors by providing a cooler temperature for the heat to flow upward, a success that in 1964 led to the formation of Aavid Engineering Co. Toupin said that the founders had "named the company Arvid Engineering, using a family name," but the printer who prepared materials to announce the company's opening substituted an a for the r. There was no time for a reprint before the scheduled market release--and Aavid Engineering remained the company's name.

In 1985 entrepreneur Alan F. Beane, who later served as president and chief executive officer at Aavid Thermal Technologies, bought Aavid Engineering and began to implement a national expansion plan. By 1993, however, Aavid Engineering was highly leveraged, suffered severe liquidity problems, and could not pay scheduled principal and certain interest obligations on its subordinated debt. In October 1993, Alan Beane and Sterling, Oak Investment Partners, in a leveraged buyout, acquired Aavid Engineering, which became a wholly owned subsidiary of newly formed Aavid Thermal Technologies, Inc.

In 1992 Aavid implemented a Synchronous Flow and Constraint Management system that significantly shortened the time of manufacturing cycles. Furthermore, in 1994 the company opened its advanced thermal laboratory for characterizing the thermal properties of products and prototypes. In this laboratory, the company's proprietary modeling software analyzed thermal conditions in three dimensions in just minutes; a wind tunnel simulated air flow in customer applications; and an isothermal bath facilitated and characterized liquid cooling, thereby providing real-time testing of a customer's thermal solutions.

The company's international expansion accelerated in August 1995 when Aavid acquired Lebanon, New Hampshire-based Fluent Inc., a leading developer and marketer of computational-fluid-dynamics (CFD) software. Fluent became Aavid's second wholly owned subsidiary (the first was Aavid Thermal Products), and the company planned to leverage Fluent's international presence to accelerate penetration into international markets. Fluent's international sales were 56.2 percent of its total revenues.

Microchip Explosion and Market Expansion: 1996

On January 29, 1996, Aavid completed its initial public offering (IPO) by completing the sale of an aggregate of 2,645,000 shares of common stock at $9.50 per share. The company then was traded on the NASDAQ national market under the symbol AATT and began an aggressive campaign for national and international expansion.

On May 16, 1996, the company purchased all the stock of Chicago-based Fluid Dynamics International Inc. (FDI) and absorbed it into the Fluent subsidiary. Prior to the acquisition, FDI had been a major competitor of Aavid's software operations. FDI was a provider of computerized design and simulation software used to predict fluid flow, heat and mass transfer, chemical reaction, and related phenomena. Also in May came Aavid's purchase of Polyflow S.A., a small Belgian software company focusing on the flow of polymers (naturally occurring or synthetic substances consisting of giant molecules formed from polymerization) in the plastics industry. Then, on September 16, 1996, Aavid acquired substantially all of the assets of Franklin, New Hampshire-based Alumax Extrusion's aluminum-extrusion manufacturing facility. During the same month, Aavid established a joint venture with Birchtek Engineering Co. Limited, located in Taiwan. In September 1996 Aavid also unveiled its United Kingdom headquarters for sales and manufacturing.

Next, on December 24, 1996, Aavid purchased all of the assets of Toronto-based Beaver Precision Products, Inc. According to a Business Wire issued May 5, 1997, this acquisition "paired Aavid's extensive array of heat-dissipation products and advanced technology development capabilities with Beaver's turn-part manufacturing capabilities and established a Canadian distribution network for thermal products." Aavid's Canadian branch moved into a new facility in Ontario and thereby was enabled to expand not only its "fabrication and precision-manufacturing capabilities" but also to "respond more rapidly and flexibly to regional-product and delivery demands," commented Robert Soucy, general manager of the branch.

As new generations of microprocessors--such as Intel's Pentium and Pentium Pro chips and the IBM/Motorola Power PC chip--became faster and more complex they generated more heat. Likewise, advancements in semiconductor packaging (for example, area array and flip-chip technologies), smaller form factors, more sophisticated power requirements, and other advances in chip technology created excessive heat in microprocessors and ICs in electronic and electrical components and systems. Heat was an absolute constraint in electronic system design because microprocessors and ICs operated efficiently only in a narrow temperature band. The excessive heat generated within the component not only degraded semiconductor and system performance and reliability, but also could cause semiconductor and system failure.

In short, the problems caused by excessive heat drove the demand for innovative thermal solutions and products for digital electronics applications. This "turning point in the computer industry 'validated' Aavid's importance. Although Aavid had, all along, been providing heat solutions for digital electronics, the industry at large was reluctant to admit that heat generation was 'a limiting factor' in production," said Stephen Eldred, Aavid's chief financial officer, when interviewed by Hope Jordan for a story in the March/April 1998 issue of Northeast Export Magazine. But that changed, wrote Jordan, "when the November 28, 1996 issue of Electric News quoted Andrew Grove, Intel's president and chief executive officer, as saying 'Problems facing the industry include testing, validating and heat generation."'

By year-end 1996, Aavid believed it had the broadest range of products in the thermal management industry. The company's customers included Allen-Bradley, AT&T, Chrysler, General Electric, Hewlett-Packard, IBM, Intel, Motorola, COMPAQ, and Packard Bell. Net revenues increased by 47.6 percent from $61.62 million in 1994 to $90.94 million in 1995 and, in 1996, increased by 17.6 percent to $107.0 million.

Engineering, Outsourcing, Globalization: 1997

Aavid's method of product design incorporated thermal engineering, that is, engineers incorporated cooling solutions from the very start of the product's development process. The result was maximum cooling performance, increased flexibility in finished product design, and increased revenue resulting from elimination of late-stage changes to deal with "hot spots." Many electronics manufacturers did not have the internal resources to solve their complex thermal management problems and turned to third parties to design thermal solutions.

To create solutions applicable to these thermal dissipation situations and to capitalize on the trend to outsourcing thermal management problems, Aavid defined a six-point strategy: 1) focus on leading markets and leading customers; 2) development of a more flexible, lower-cost infrastructure that would allow the company to make good profits as the market leader in heat dissipation for electronics; 3) forward integrate to increase value; 4) backwards integrate, sometimes, to lower costs; 5) international expansion; and 6) domestic expansion. Aavid positioned itself to be the Total Integrated Solution for Cooling Electronics by delivering world-class thermal design services, thermal-flow analysis software, and worldwide, quick-ramp, high-volume manufacturing--in short, Thermal Design, Thermal Analysis, Global Fabrication. Each one of Aavid's three wholly owned subsidiaries--Aavid Thermal Products, Fluent, and Applied Thermal Technologies&mdash+ayed its special part to implement this strategy.

At the center of the Total Integrated Solution was Aavid Thermal Products, with nearly 700,000 square feet worldwide dedicated to manufacturing and distributing thermal solutions. This subsidiary's experienced teams brought thermal solutions from CAD/CAM systems to loading docks in record time, implementing the most advanced methods in heat-sink manufacturing every step of the way. Their thermal management products--which operated by conducting, convecting, and radiating away unwanted heat--helped to maintain system performance and reliability and also helped to avoid premature component and system failure. Substantial engineering was required in the design of these products to maximize heat dissipation while minimizing assembly costs for customers. Aavid Products placed the company in a unique leadership position to provide its clients in the electronics and communications industries with the broadest available range of products in the thermal management industry. Aavid Thermal Products' customers included Allen-Bradley, Chrysler, COMPAQ, General Electric, Hewlett-Packard, IBM, Intel, Lucent, Motorola, and Packard Bell.

Fluent, the world leader in CFD software, enabled design engineers to produce virtual models of their products on their computers through a detailed simulation of fluid flow and heat transfer. Its software was used to predict fluid flow, heat and mass transfer, chemical reaction, and related phenomena. Fluent's software products and services helped engineers with detailed product development, design optimization, trouble-shooting, scale-up, and retrofitting. They significantly reduced engineering costs while improving the final design of products in applications ranging from design of electronic components and systems to automotive engineering, and from combustion system design to process plant troubleshooting. Fluent, headquartered in Lebanon, New Hampshire, had offices throughout the United States. Its European headquarters were located in Sheffield, England, with local offices in France and Germany. Fluent's software also was available around the world through joint ventures, partnerships, and distributors in Australia, Brazil, China, Japan, Korea, Taiwan, the Czech Republic, and most European countries. Fluent licensed its software to more than 1,800 customers worldwide, including Allen-Bradley, AT&T, Boeing, British Aerospace, Chrysler, Ford, Fujitsu, General Electric, Hewlett-Packard, IBM, Intel, Motorola, Packard Bell, and StorageTek.

California-based Applied Thermal Technologies' design center, established in the first quarter of 1997, integrated Aavid's technical strengths to solicit customer-funded research and development and to provide consulting and cutting-edge design. This subsidiary acted as a catalyst for technology and business development for Aavid's two other subsidiaries. Applied Thermal Technologies--leveraging on technical capabilities gained from both Aavid Thermal Products and Fluent to develop, test, and validate thermal solutions--worked as an extension of its clients' team for product design. Aavid believed that design centers would enhance its visibility as a technology leader and create earlier and closer ties to new and existing customers. Among Applied Thermal Technologies' clients were the following: Applied Materials, Bay Networks, Cisco Systems, Hewlett-Packard, Sony, Sun Microsystems, and many other high-level clients in Silicon Valley.

Among Aavid's other major accomplishments in 1997 were the following: the opening of a Manchester, New Hampshire plant (47,000 square feet) for high-volume thermal management products for the computer and networking markets; acquisition of the remaining 49 percent of Aavid Taiwan and launch of a 40,000-square-foot manufacturing operation in the Guang Dong Province of China; introduction of IcePak thermal analysis software for analyzing cooling problems at the component, board, and systems level; acquisition of the remaining 50 percent of Belgian-based Polyflow; and the successful integration of FDI into Fluent, thereby strengthening Aavid's CFD product offerings. In 1997 Aavid's sales jumped 57 percent to $167.75 million, earnings per share increased 106 percent to $0.97 per share, and shareholder value increased 156 percent to $218 million.

Toward the 21st Century: 1998 and Beyond

One of Aavid's first products was a specially designed heat sink that became the precursor of the many heat sinks that would follow as PC manufacturers and other designers of electronic products enhanced their products with an ever-increasing number of transistors. Performance rapidly improved, but so did the amount of heat generated by superfast and dense PC processors and other electronic components. None of the three basic approaches in use for thermal management--whether they were heat spreaders, heat sinks, or fans and blowers&mdash′oduced the desired results. For instance, as Aavid Thermal Products' Christopher Chapman commented in an interview with newswriter Mark Hachman, writing for the August 16, 1998 issue of Electronic Buyers News, "A well-designed PC will use a fluted or straight fin, channeling the air directly down the path of the air delivered by the intake fan. However, a heat sink extending 6 inches or more above any surface will create a nonuniform air flow." In June 1998 Aavid introduced "Pocket Coolers," a new family of fan-heat sinks designed to cool chips packaged in ball-grid arrays. These heat sinks were light and small, measuring 7 to 15 millimeters, and the fan had a minimum life of 50,000 hours at 25 degrees Celsius. Then in December, Fluent announced that IcePak, its thermal analysis and design software for cooling electronics, supported a direct interface with Pro/Engineer mechanical design software. With this interface users could export the IcePak model from within Pro/Engineer and avoid repetitive modeling.

Indeed, as Aavid Chairman and CEO Ronald F. Borelli had pointed out in his "1997 Letter to Shareholders," all indicators reflected that "heat dissipation as a persistent and growing problem for all sectors of the electronics industry" would intensify in the years ahead. Aavid's continuous initiatives to expand its capability for thermal analysis and thermal design&mdash well as its continuing global expansion--established the company as the world's technology and market leader in thermal management.

For fiscal 1998 Aavid reported record sales of $209.1 million, an increase of 24.7 percent over 1997 sales of $168.75 million. Net income for 1998 was $11.7 million, that is, 37 percent ahead of 1997 net income of $8.5 million. Earnings per share were $1.23 for 1998, an increase of 26 percent over the $0.97 per share for 1997.

As the 21st century drew near, Aavid Thermal Technologies, Inc. looked to the future with guarded confidence (increased competition from relatively large providers of thermal management products, interruption or reduction of raw materials, especially of the aluminum extrusion required for heat sinks, and so on, might prevent the company from meeting delivery schedules to clients) and creative enthusiasm based on its past and current performance. The company validated its technological expertise when it agreed to participate in EDN Magazine's Hands-on-Project to explore the thermal engineering aspects of a projected future desktop computer, dubbed the Year 2003 Computer. EDN Senior Technical Editor Bill Travis led the project and reported on it in a story titled "Keeping HAL Cool in 2003," published in EDN Magazine's October 8, 1998 issue.

To carry out this Hands-on-Project, Travis enlisted the help of system packaging experts from Palo Alto Products International, Inc. (Palo Alto) and of engineers from Aavid's three subsidiaries. Palo Alto designed "the Year 2003 Computer chassis and case, based on projections of the form factors of the various computer subsections." Aavid's Applied Thermal Technologies--staying within stipulated overall system constraints--generated possible cooling system models that used various fan, heat-sink, vent, and baffle configurations. Aavid Thermal Products "generated projected designs for the cooling-system hardware, including heat sinks, interfaces, fans, and attachment methods." Fluent used its CFD software to provide thermal analyses--or temperature profiles--of the various cooling configurations from Applied Thermal Technologies and from Aavid Thermal Products.

The Aavid Thermal Products/Fluent contributions were interactive. Without using CFD software it would have been necessary "to construct physical models ... and then use sensors, temperature-indicating wax or stick-ons, or infrared instrumentation to measure the local temperatures," Travis emphasized. He added that perhaps the most important result of the Hands-on-Project was that today's cooling techniques and devices could "be applied to tomorrow's systems in a cost-efficient way and that the simulation and thermal-engineering principles applied during the project would remain valid, regardless of the form assumed by future computers." In sum, Aavid Thermal Technologies, Inc. was developing the technology needed for thermal management in the upcoming millennium.

Principal Subsidiaries: Aavid Thermal Products, Inc.; Applied Thermal Technologies, Inc.; Fluent, Inc.

Further Reading:

• Hachman, Mark, "Heat Wave!--Today's Dense PC Chips Require Lots of Cool," Electronic Buyers News, August 16, 1998.
• Jordan, Hope, "Heating Up the Market in Global Cooling," Northeast Export Magazine, March/April 1998.
• Roos, Gina, "Thermal Management Plan Lights a Fire Under Aavid," Electric Buyers News, October 7, 1996, p. 34.
• Toupin, Laurie Ann, "Hot Company in the Cooling Business," Design News, November 16, 1998.
• Travis, Bill, "Keeping HAL Cool in 2003," EDN Magazine, October 8, 1998, cover story.

Source: International Directory of Company Histories, Vol. 29. St. James Press, 1999.

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