Anaren Microwave, Inc. History

Address:

6635 Kirkville Road
East Syracuse, New York 13057
U.S.A.

Telephone: (315) 432-8909
Fax: (315) 432-9121

Public Company
Incorporated: 1967 as Micronetics, Inc.
Employees: 290
Sales: $45.7 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: ANEN
NAIC: 334220 Wireless Communication Equipment Manufacturing; 334419 Other Electronic Component Manufacturing; 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Company Perspectives:

We believe that the wireless market, fueled by the rapid growth of the Internet, will continue to accelerate--with customers demanding more and higher quality voice, video, and data services. This move (from narrowband, voice-only applications to broadband voice, video, and data applications) will require the significant technology advancements that Anaren is known for. Moreover, the shift from narrow- to broadband wireless will drive demand for network buildouts--and with them Anaren products--for many years to come. Key Dates:

Key Dates:

1967:: Anaren Microwave is founded to design and manufacture complex microwave subsystems for the defense industry.
1995:: Anaren expands its capabilities to serve the emerging commercial wireless and satellite communications market.
1997:: Anaren reorganizes into three business units: the Wireless Group, the Satellite Communications Group, and the Defense Electronics Group.
1999:: Anaren combines its Satellite Communications Group and its Defense Electronics Group into one new group called the Space and Defense Group.

Company History:

Anaren Microwave, Inc. operates in three business segments: wireless communications, satellite communications, and defense electronics. Its operations are organized in two groups, the Wireless Group and the Space and Defense Group. Founded in 1967, the company historically designed and manufactured microwave components and subsystems for the defense industry. In 1994--95 it began serving the emerging commercial wireless and satellite communications market. Its customers are the leading wireless, satellite, and defense OEMs (Original Equipment Manufacturers). By 1999 commercial applications accounted for about two-thirds of Anaren's sales.

Manufacture of Microwave Components and Subsystems for Defense: 1967-94

The company was incorporated in New York in 1967 as Micronetics, Inc., but the name was changed to Anaren Microwave, Inc. in that same year. The company designed and manufactured complex microwave subsystems for the defense market. These included microwave stripline components for wireless communications, including hybrid couplers, power dividers, mixers, modulators, attenuators, phase discriminators, and custom assemblies.

In 1981 Anaren moved to a new facility in East Syracuse, New York, which housed all of the company's marketing, manufacturing, administrative, research and development, systems design, and engineering experimentation activities. The facility was expanded in 1985 to 105,000 square feet. During the 1980s the company developed technology that was used for defense applications involving radar tracking, identification, and jamming.

Began Serving Commercial Wireless Communications Markets: 1994-95

It was in 1994 that Anaren, a pioneer in surface mount stripline passive components, became the first to introduce high power 90-degree surface mount stripline hybrid couplers for the wireless market. These devices were ideal for building amplifiers used in cellular and PCS base stations. They quickly became an industry standard, with their small size, high performance, and delivery in production-ready tape and reels. Anaren soon was delivering these products in high volume and at competitive prices.

In fiscal 1995 (ending June 30) Anaren expanded its capabilities to serve the emerging commercial wireless and satellite communications market. Between fiscal 1995 and 1999, commercial applications grew from five percent of sales to 66 percent of sales. During this period the wireless market showed remarkable growth that was forecast to continue well into the future. Anaren made signal distribution assemblies that were installed in cellular base stations. Between 1995 and 1999 the number of Anaren's cell site installations grew from 32,000 to 89,000 and was predicted to increase to 235,000 by 2003. Its customers included nearly all of the leading wireless companies, including, among others, Ericsson, Nortel Networks, Motorola, Nokia, Lucent Technologies, Siemens, and Alcatel Telecom. Wireless revenues grew from $300,000 in fiscal 1995 to $21.5 million in fiscal 1999.

In May 1995 Lawrence Sala was promoted to president after having served as vice-president of marketing. Co-founder Hugh A. Hair remained as chairman and CEO until September 1997, when he announced his planned retirement for June 30, 2000. Sala then became president and CEO, while Hair remained as chairman until 2000.

Sala's promotion to president was announced as an effort to strengthen Anaren's ability to penetrate developing commercial markets, and a new Commercial Division was established to pursue opportunities in the commercial wireless and satellite communications markets. Sala began his career at Anaren as an engineer responsible for design and testing of military electronics. As vice-president of marketing he was instrumental in the development of Anaren's Commercial Division.

Anaren had just won a $6 million contract to manufacture satellite antenna feed networks for global cellular telephone systems from an existing customer. To win the contract, Anaren had developed technology that compressed large, cased single-layer stripline components into a caseless multilayer unit that was 90 percent smaller, 90 percent lighter, and 20 percent less costly. It was this contract that led to the establishment of the company's Commercial Division, which would capitalize on the multilayer concept and design other products for the cellular industry's land-based applications.

Known as the 'Anaren Solution,' these proprietary processes known as Multi-Layer Stripline (MLS) technology enabled Anaren to deliver more compact and lightweight microwave signal distribution and interconnection networks for wireless and satellite communication systems. The MLS process integrated multiple layers of microwave circuitry, thus eliminating discrete components and discrete microwave cables. The result was a dramatic reduction in size, cost, and weight as well as improved performance. By combining MLS technology with its proprietary design libraries and turnkey capabilities, Anaren was able to provide custom solutions for original equipment manufacturers (OEMs).

Changes Brought by Shrinking Defense Budgets: 1996

In March 1996 Anaren divested its electronic warfare simulator manufacturing operation in Frimley, England. The maintenance and repair facility was closed, and the electronic warfare simulator operation was sold in a management buyout. Anaren Microwave Ltd., the company's wholly owned subsidiary in the United Kingdom, would remain as a sales and marketing center for Europe. These changes came about as a result of severe downsizing of military budgets in Europe. For the first nine months of fiscal 1996, the operation reported a substantial reduction in new orders and losses of $577,000. By divesting the operation, Anaren was able to focus on its domestic operations in defense and the expanding wireless communications business.

Anaren reported an increase in domestic orders for 1995-96, especially for new global satellite systems such as Motorola's Iridium and TRW's Odyssey, for which Anaren had become a critical supplier of antenna beamforming equipment. In August 1996 Anaren won a multimillion dollar contract from Martin Marietta Overseas Corp. (later Lockheed Martin) for the design and production of satellite antenna beamforming networks for its Asia Cellular Satellite System (ACeS). ACeS was a space-based cellular communications system serving Asia via two geosynchronous satellites.

To celebrate its 30th anniversary, Anaren issued a new full-line catalog of its standard components, including the Xinger brand of surface mount couplers and power dividers, which were available in all cellular and PCS frequency bands. Also listed were caseless couplers and connectorized components such as power dividers, couplers, butler matrices, attenuators, mixers, modulators, and phase discriminators.

Reorganization into Three Business Units: 1996-97

In fiscal 1997 the company reorganized into three business groups: the Wireless Group, the Satellite Communications Group, and the Defense Electronics Group. The Wireless Group supplied low cost surface mount components and custom subassemblies to manufacturers of cellular and PCS power amplifiers, receivers, and base station equipment. It also supplied beamformers for signal distribution networks for advanced base station designs.

In the Satellite Communications Group, the company's beamformer technology was used in satellite communications to improve system capacity by allocating capacity based on demand, or population density. The Defense Electronics Group provided the technology for airborne radar jamming and targeting. Space and defense customers included Hughes Space and Communications, Lockheed Martin, ITT Defense, TRW, Raytheon, and others. Between fiscal 1996 and 1999 Space and Defense revenues increased from $14.9 million to $24.3 million.

In fiscal 1997 ending June 30, net sales were $24.2 million, up 42 percent from $17.1 million in 1996. Net earnings were $2.1 million, compared with a net loss of $1.1 million in fiscal 1996. For the year 61 percent of revenues came from commercial contracts in satellite and ground-based wireless communications, compared with 39 percent in fiscal 1996. The company received follow-up orders for the manufacture of microwave signal distribution networks for use in wireless infrastructure equipment from Motorola and Northern Telecom. The Wireless Group reported $7.6 million in revenues, while the Satellite Communications Group had $8.5 million in revenues and more than $16.5 million in orders. Fueling the growth in satellite communications was progress on several commercial satellite programs, including Motorola's Iridium, Hughes Space and Communications Company's ICO, and Lockheed Martin's ACeS programs. New commercial satellite projects such as Teledisc, Cyberstar, Celestri, Astrolink, and others made the future of this market very attractive. Applications included Internet access, interactive video, and other high-band uses.

On the other hand, the Defense Electronics Group reported a 14 percent decline in revenues to $8.1 million, while new orders exceeded $11 million. The group expected to return to revenue growth in fiscal 1998, when it would begin making shipments on the Airborne Self-Protection Jammer program (ASPJ) and the Integrated Defensive Electronic Countermeasures program (IDECM).

Strong Demand for Wireless Products: 1997-98

During fiscal 1998 sales of wireless products increased by 117 percent, while space and defense products increased by 26 percent. The wireless increase was attributed to continuing strong demand by the major wireless base station OEMs for Anaren's custom products and off-the-shelf surface mount components. Sales of space and defense products consisted of initial shipments of beamformers to Loral Space and Communications Ltd. as well as continued shipments to Lockheed Martin on the ACeS program and a program for Hughes. Sales of defense-oriented products rose by $4.2 million during fiscal 1998 as DRFMs (Digital Radio Frequency Memories) were shipped for foreign sales of the Airborne Self Protection Jammer (ASPJ) system, which entered full production in the second quarter.

Further Reorganization: 1999-2000

At the beginning of 1999 Anaren combined its Satellite Communications Group and its Defense Electronics Group into one new group called the Space and Defense Group. The combination allowed Anaren to more efficiently utilize its engineering, manufacturing, and marketing resources. The two groups had reached a level of sharing manufacturing processes and products that made it more economical to combine the two groups.

In the fourth quarter of fiscal 1999 the company dissolved its European subsidiary, Anaren Microwave Ltd., resulting in a $1 million tax benefit. In 1999 the company's major customers included the U.S. government, which accounted for 13 percent of sales; Motorola, Inc., with 18 percent of sales; and ITT Aerospace with 12 percent of sales. The company's sales were split 80-20 between U.S. and foreign shipments. Other major OEM customers included Raytheon, Lockheed Martin, and Racal Ltd. Net sales for fiscal 1999 increased 22 percent to $45.7 million compared with $37.4 million for 1998. Shipments of wireless products rose 29 percent, while space and defense product shipments rose 16 percent.

In July 1999 Anaren announced a development partnership with Motorola's Semiconductor Products Sector. The two companies had developed cutting edge technology to produce a high-power/high-performance Universal Mobile Telecommunications System (UMTS) power amplifier. Anaren introduced the new AdrenaLine splitter/combiner networks designed to work with Motorola's latest RF LDMOS power devices. The launch of the new AdrenaLine product contributed to record growth of the company's Wireless Group. The AdrenaLine product line was being used by Motorola to meet the unique requirements of Third Generation (3G) wireless systems.

In December 1999 Anaren captured the Spaceway program contract, an advanced satellite subsystem contract involving high frequency broadband technology, which resulted in record new orders of $38 million. The contract was awarded by Hughes Space and Communications Company, which was developing the advanced Spaceway Global Broadband Satellite Network to provide high-bandwidth, high-speed communications for broadband and multimedia applications via geosynchronous satellites.

The company's Wireless Group posted a 57 percent increase in net sales for the quarter ending December 31, 1999, due to capturing increasing dollar content on wireless base stations and new technologies for third generation base station applications. The company also achieved record profitability through improvements in operating efficiency, with operating margins improving to 18.6 percent.

With its stock hitting a new 52-week high at the end of 1999, Anaren continued to pursue the strategy that had brought it success. It included five goals: to increase dollar content per platform, to further expand into commercial markets, to maintain leadership in microwave technology, to leverage and expand customer relationships, and to focus on operating performance.

Principal Divisions: Wireless Group; Space and Defense Group.

Principal Competitors: Electromagnetic Sciences, Inc.; S.T. Microwave, Inc.; M/A-Com division of AMP, Inc.; Mini Circuits Inc.; Filtronic Comtek, Inc.

Anaren Microwave, Inc. History

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