Keithley Instruments Inc. History

Address:

28775 Aurora Road
Solon, Ohio 44139-1891
U.S.A.

Telephone: (216) 248-0400
Fax: (216) 248-6168

Public Company
Incorporated: 1955
Employees: 659
Sales: $109.58 million
Stock Exchanges: New York
SICs: 3825 Instruments to Measure Electricity; 3829 Measuring & Controlling Devices, Not Elsewhere Classified

Company History:

Celebrating its 50th anniversary in 1996, Keithley Instruments Inc. is one of the world's leading manufacturers of specialty electronic testing and measurement devices. While its sales are just a fraction of its primary competitor, multi-billion-dollar Hewlett Packard Co., Keithley Instruments has carved out a niche for itself in the high-margin, high-tech end of the electronic monitoring industry. The company's award-winning products are sold in more than 40 countries around the world and its stock began trading on the New York Stock Exchange in 1995. Under the direction of Joseph P. Keithley in the mid-1990s, Keithley Instruments shifted its primary focus to the fast-growing semiconductor testing market. This change in strategy was expected to rejuvenate the company's growth, which had stagnated in the early 1990s.

Postwar Origins

Keithley was founded in 1946 by Joseph F. Keithley, who graduated from the Massachusetts Institute of Technology with a master's degree in engineering in 1937. After working for Bell Telephone Laboratories in the late 1930s, Keithley served at the U.S. Naval Ordnance Laboratory during World War II. At the war's end, he moved to Cleveland to take a job with Massa Labs. But when the company relocated in 1946, Keithley elected to stay on in Cleveland and establish his own company.

His first product, the "Phantom Repeater," amplified low-level electric signals so that they could be measured by more standard equipment. The device was used by physicists, chemists, and engineers in the development of hearing aids and amplifiers, for example. Keithley later noted that the Phantom Repeater was only "a reasonable success," but it did win him a cost-plus fixed-fee contract with the U.S. Navy.

Keithley worked alone, assembling mostly outsourced components until 1950, when he hired his first employee. Keithley added to its product line that year as well. On the advice of war buddy and Bryn Mawr head of physics Dr. Walter Michels, Joseph Keithley developed a "high input impedance DC voltmeter." Dubbed the "Model 200," this device provided researchers with a convenient way to test and measure the performance of electrical insulators--the plastic covering on a copper wire, for example. Barron's writer William M. Alpert later explained that the Model 200 could measure "how good [an insulator] was at keeping the electrical juice from spilling into where it did not belong." Keithley later told Jeff Dorsch of Chilton's Electronic News that the machine brought his young company "reasonable prosperity."

Over the course of the 1950s, Keithley developed three primary lines of highly sensitive instruments: general purpose electrometers, microvolt meters, and picoammeters. Picoammeters, which measure electric currents in terms of picoamperes, provide a good example of the sensitivity of Keithley's devices. One picoampere equals a millionth of a millionth of an ampere, or a millionth of a millionth of the amount of current it takes to power a 100-watt light bulb.

Fueled indirectly by hefty governmental expenditures on research during the Cold War era, Keithley enjoyed 30 percent to 40 percent annual sales growth in the 1950s, surpassing $268,000 in annual sales in 1956 and $1 million in 1960. Keithley incorporated in 1955.

Product and Geographic ExpansionDuring the 1960s and 1970s

During the 1960s, Keithley shifted its focus somewhat to the development of products for America's growing space program, with a special emphasis on satellite research probes. These efforts evolved into Keithley's special products division, which served such diverse disciplines as oceanography, biomedicine, nuclear energy, geophysics, and analytical chemistry, as well as industrial quality control. The company's product line grew and evolved throughout the decade, adopting digital display, for example.

Keithley undertook foreign growth relatively early in its history. Having placed sales representatives throughout Europe by 1963, Keithley established its first overseas office in Lausanne, Switzerland. The company founded assembly and repair operations in Munich in 1966 and created a British subsidiary, Keithley Instruments, Ltd., in 1967.

Keithley made an initial public offering in 1964 and moved to a purpose-built headquarters in Solon, a suburb of Cleveland, in 1967. Sales increased from $1.3 million in 1960 to $4.9 million in 1970.

The company began to apply its expertise to the development of testing and measuring devices for medical and industrial applications in the 1970s. At the same time, Keithley devices were evolving to incorporate newly developed technologies like integrated circuits and micro-processors.

In 1973, a 58-year-old Joseph Keithley set his long-term plan for transfer of corporate leadership into motion by promoting Thomas G. Brick to president. Keithley retained the chair and chief executive office. The end of the decade brought a major transformation of Keithley's corporate culture. Indeed, the company's rapid growth had spawned several problems, including excessive labor expenses, a high rate of in-warranty repairs, and poor employee relations. Worse, some managers felt that the company was not prepared for the possibility of future growth. In order to combat these interrelated problems, the company adopted a "team manufacturing approach," forming 12-person squads of employees responsible for the production of specific devices from start to finish. This strategy, which was fully implemented by 1982, reduced in-warranty repairs by 15 percent, lowered absenteeism by 75 percent, increased employee productivity by 90 percent, and helped resolve labor-management relations.

Acquisitions in the 1980s

This fundamental culture shift set the stage for continued growth in the 1980s, fueled in part by acquisitions and overseas expansion. Keithley broadened its global reach with the creation of subsidiaries and sales offices in Austria, Switzerland, Hong Kong, and Japan during the decade. By 1988, the company had eight overseas subsidiaries and 23 international representatives, and foreign revenues constituted nearly half of annual sales. The decline of the U.S. dollar in the 1980s made Keithley's international operations evermore vital during this period of domestic recession. While much of the electronics industry suffered through one of its most difficult decades, Keithley's annual sales increased from $27.8 million in 1980 to $45 million in 1985 and $88.7 million in 1989. Profits more than quadrupled, from $1 million in 1980 to a high of over $5.4 billion in 1988.

During the mid- to late 1980s, Keithley paved the way to what would become a key avenue of growth. In 1983, the company created a joint venture with Boston's Data Acquisition Systems, Inc. to computerize data collected by Keithley instruments. Keithley acquired the remainder of the venture in 1984 and merged it into itself as the data acquisition and control division. Having accumulated $9 million in cash by early 1987, Keithley acquired three companies with interrelated products through 1989. That year the company merged these three firms--Adaptable Laboratory Software, Inc., Macmillan Software Co., and MetraByte Corp.&mdash the Keithley MetraByte division. This division created software and hardware that converted raw data into easily read and interpreted graphics and charts. Keithley MetraByte also made highly durable "field PCs" that could endure impacts of up to 100 times the force of gravity. According to Reed Abelson of Fortune magazine, by 1989 Keithley boasted "the broadest product line in personal computer hardware and software to collect and analyze scientific and engineering information."

The combination of acquisitions and internal growth more than doubled sales from $45 million in 1985 to over $100 million in 1990. But at the same time, profits peaked at $5.4 million in 1988, then started to slide in the waning years of the decade as defense and research cutbacks decimated the budgets of Keithley's primary customers. Annual sales eroded from $100.6 million in 1990 to $94.7 million in 1992, and net income plummeted to a loss of $12.5 million. With its core market declining, Keithley reduced its work force from 716 in 1991 to 625 in 1993. It seemed only a glitch among the mega-downsizings of the early 1990s, but put a significant damper on morale nonetheless.

Change in Leadership and Change inDirection in Early 1990s

In 1991 Joseph F. Keithley conferred voting control and the chairmanship over to his son, Joseph P. Keithley. The elder Keithley continued to work at his namesake firm under the simple title of "founder." He was widely recognized as "a pioneer in high-precision instrumentation." In 1992, he was inducted into the National Academy of Engineering, and in 1996 the American Physical Society created a cash award in honor of his contribution to the field of measurement and testing.

Realizing that he could not rely on defense and research budgets for long-term corporate growth, the younger Keithley sought a new direction for his company. He found it in Keithley's own systems division, a business segment that had developed and manufactured Automated Parametric Testers (APT), devices that examined semiconductor chips for quality control, since the early 1970s. The semiconductor production process involved the creation of eight-inch wafers, each of which held about 300 individual computer chips. APTs tested the chips near the end of the production process with sensitive electrical measurements.

In 1994, Keithley augmented that business with the $3.5 million acquisition of a new semiconductor testing technology from IBM. This new device, dubbed the Quantox Oxide Monitoring System, improved on older quality control methods on several levels. Quantox was designed to be implemented early in the production process, allowing for the disposal of inferior product before the manufacturer had invested too much in it. The device also reduced inspection time from up to five days to 15 minutes. And since it was a "contactless" process, it did not require the destruction of every wafer tested. In 1996, Joseph F. Keithley told Cleveland Magazine that "Every [integrated circuit] fabrication line in the world can benefit from this." Keithley agreed to pay IBM a royalty on each of the $500,000 machines.

The CEO made it clear that semiconductor process monitoring would become a key aspect of Keithley's future strategy. In 1994 alone, the company invested over $1 million in development of the new device. Chairman Keithley told Crain's Cleveland Business that he expected Quantox and similar devices to become the company's most important products, bringing in $10 million to $20 million in annual sales by the end of the decade. In 1995, products sold to semiconductor manufacturers constituted one-fourth of Keithley's sales. Although Keithley enjoyed a technological edge in the realm of semiconductor process monitoring, it faced a formidable competitor in Hewlett Packard, which controlled an estimated 66 percent of the global parametric testing market.

Investor confidence in the proprietary Quantox technology boosted Keithley's stock from less than $10 in the early 1990s to over $30 in 1995. But the stock was thinly traded; the family still owned a large proportion of the equity, and Keithley Instruments only had about 600 stockholders. In order to draw the attention of institutional investors and obtain access to more credit, the firm distributed two shares to each of its employees and encouraged existing shareholders to give their shares to a spouse in order to increase the company's float. In 1995, Keithley's shares earned a spot on the New York Stock Exchange.

Quantox wasn't the only promising development at Keithley in the mid-1990s. By this time, the company's MetraByte division had become a key player in the emerging market for "virtual instruments:" computer components that could measure current and/or voltage, then quantify the resulting data. Individual Investor's David Sterman called MetraByte a "golden goose" at Keithley. Even the venerable instruments division bounced back, registering double-digit sales growth in 1995.

Analyst Kevin Morrow of the Ohio Co. credited Joseph P. Keithley, who had assumed the additional responsibilities of president and chief executive officer upon the early retirement of Thomas G. Brick in 1994, with the company's newfound success. He told David Prizinsky of Crain's Cleveland Business that "There was no sales growth until J.P. took over the company a year ago. He lit a fire under everyone." That conflagration helped boost revenues to a record-high $109.6 million in 1995, when net income reached a near-record $4.9 million.

Principal Subsidiaries: Keithley International Investment Corp.; Keithley Foreign Sales Corp.; Keithley Instruments SARL (France); Keithley Instruments GmbH (Germany); Keithley Instruments Ltd. (U.K.); Keithley Instruments SRL (Italy); Keithley Instruments Far East KK (Japan); Keithley Instruments BV (The Netherlands); Keithley Instruments SA (Switzerland).

Principal Divisions: Test Instrumentation Group; Keithley MetraByte Division; Radiation Measurements Division.

Keithley Instruments Inc. History

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