Jeff Waters: Isola Updates


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During PCB West 2018, Nolan Johnson and Barry Matties sat down with Jeff Waters, Isola CEO, to catch up on company activities, including the recent sale of the factory in Chandler, Arizona, the plan to build a new facility, product developments, current market dynamics, a new CFO, and much more.

Nolan Johnson: Jeff, could you kick us off with a quick summary and update on Isola and what they do?

Jeff Waters: Yes. We provide advanced PCB laminates and prepregs to the PCB industry, and are the number one provider in both North America and Europe. We’re a global supplier with manufacturing, technical support, and R&D in all three of the major continents for electronics, and do our best to bring value to our market leading customers through this global footprint. We have local R&D where market leaders innovate, such as in Germany for the automotive market, or the West Coast of the US for the Cloud market.  We have local quick turn production and technical support to help them prototype new products faster, and low cost volume manufacturing wherever in the world they choose to ramp.

Further, we have an R&D lab and team in Germany. That group’s focus is primarily in the RF space, including automotive. That's where a lot of the market leaders are, so having a team of German-speaking engineers to work with employees from the Tier 1 companies is always a benefit. In the U.S., we have our main R&D lab in Arizona within spitting distance—and at least half the year in the same time zone—as the Bay Area. Again, we have a group of English-speaking people that are on the same time zone that could be here in a heartbeat and work with them. In Asia, we have a lab in Singapore where the focus is on how do we take what we do, work with the supply chain in Asia, and make those products more cost-effective.

Our premise has always been that if we can execute well, we will be of differentiated value to the market leaders because of our global footprint.  We have facilities where we can get them almost anything we produce promptly. Then, when it transfers to Asia at some point at the volume production, we work with them to follow it over, make that transition as smooth as possible, and support them locally with our plants in Huizhou, Suzhou, or Taiwan.  We’re making progress in execution but it is a work in progress.

Johnson: What are some of the newest events happening right now at Isola?

Waters: First, I’ll talk about what’s going on at the corporate level, and then I can get into some of the things on the product side. At the beginning of this year, we announced a major capital restructuring of the company. When I joined the company nearly three years ago, you could see that the capital structure needed to be reset because we were greatly over-leveraged. We greatly simplified our ownership structure, and decreased our quarterly principal and interest payments by 90%, which helps dramatically with cash flow and being able to invest in our factories.

We also have a strong set of owners led by Cerberus Capital out of New York - a bank that has a lot of investment into longer-term markets like automotive or industrials. They have the broader horizon that we like with our investors and see us as a great growth opportunity due to the opportunity in RF for  automotive and global internet, and high-speed digital going into communications and the cloud.

More recently, we announced the sale of our factory in Chandler, Arizona. In tandem with that, we announced that we're building a new facility in the same area, which was a tremendous step for us as a company. The plant in Chandler is good, but it was built in the ‘70s when the market and our business was high volume and low product mix. Our business today is very different, especially for the West Coast. Within eyeshot of where we're sitting, you can see companies that have a very high mix of products that they want—such as high-speed digital and RF products, or more traditional mid- to high-Tg products—and they need it quickly because they're racing to get to market quickly. Our Chandler factory was trying to service a very high-mix, low-volume market with a factory that just was not a good fit.  If I go back to our strategy, the foundation of it is being a great provider to the North American and European markets. In North America, we were not being a great provider when it came to the quick-turn model. With the sale of the factory to Rogers, we will take the proceeds and put a good chunk of that into building a new facility. It will be the right size for what we need for the market and targeted more toward pressing and finishing, so we'll bring in the front end, prepreg, or the B stage and store it in refrigerators.

It's a good thing for us. We were a bit hamstrung by the factory. It was underutilized, not performing well, and losing money for us. This has allowed us now to create a factory that will be a shot in the arm for us not just in North America, but globally.

Barry Matties: Sounds like a decision that should have been made years ago, realistically.

Waters: Realistically, yes. It's a decision that we've struggled with since I've been here. It was losing money, but QTA supply to our West Coast customers is critical and we can’t do that as effectively from our plant on the East Coast.  The sale of the factory gave us the capital we needed to solve the problem – it was a great for Rogers as well.

Matties: But it stems from your capital restructuring and all these pieces that are here in play. It also gives you an excellent opportunity to build a smart factory as well. I know it's going to be tuned for the market, but what sort of strategies are you bringing there?

Waters: Cerberus, which has a lot of automotive companies in their portfolio, also has a group of ex-Ford and ex-Danaher professionals that are very well-schooled in Lean manufacturing. In the design of this factory, we're targeting more cell-based manufacturing bringing in some of the latest thinking. It will be very Lean and quick-turn with low inventories and fast cycle times.

We're doing that from the ground up, which is not something you usually see in our industry.  I can't recall the last time somebody built a factory in North America for laminates. Being able to build it from scratch will be a Godsend for us.

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