Alexander Lidow, the 46-year-old chief executive officer of International Rectifier Corp. (IRF
), readily admits that his company's sliver of the $200 billion world semiconductor industry isn't a particularly glamorous one. IR is the leading maker of "power chips," which manage the flow of electricity in thousands of gizmos from antilock breaks to video cameras. "Nobody's making a sitcom about power management," Lidow deadpans.
Modest though they may be, IR's chips are helping to alleviate America's growing power problems. Demand for electricity is outpacing supply, and the push to build new generating capacity is gaining force across the country. While new plants are necessary, many companies are looking anew at ways to use existing power more efficiently. IR's business is getting a jolt from this trend.
Lidow points to his company's recent innovations in fluorescent lighting. Operators of commercial buildings have long known that fluorescent lights last about 10 times as long and use 25% as much electricity as their incandescent cousins. But residential consumers have generally been turned off by the high price of fluorescent bulbs. IR makes chips that go in the base of compact fluorescent bulbs, which screw into traditional light fixtures. The company's latest designs shave about 25% off the cost of those compact bulbs. "They're flying off the shelves," Lidow says.
OPTIMAL SPIN. Appliances are proving to be another hot market. IR's chips govern the motors inside a new generation of energy-saving household machines, such as washing machines, dishwashers, and air conditioners, allowing the appliances to run consistently at the most efficient speed. In Maytag Corp.'s (MYG
) high-end Neptune washer, for example, IR's chips help optimize the water flow and spin rate. Maytag figures the Neptune uses about 75% less hot water and 65% less electricity than typical washers, generating power savings worth $100 a year.
One of IR's oldest and fastest-growing business lines is supplying chips to makers of electronics equipment. Thanks to the company's power chips, Intel Corp. (INTC
) cut the heat generated by its customers' big network servers and also extended the life of batteries in customers' notebook computers. Chips for computers now account for 35% of IR's sales, up from 6% five years ago.
COMMODITY. The recent victories are welcome news, but IR is no overnight success. The company was founded in 1947 by Alex Lidow's father, Eric, a Latvian-born immigrant who was among the first entrepreneurs to use the element selenium for regulating electricity flows in devices such as battery chargers. Eric, now 88, remains involved as chairman--and the power chips he pioneered have become a commodity. Industry profits plunged in the late 1990s, and big companies such as Motorola (MOT
), Siemens (SMAWY
), and Harris spun off or sold their power-chip divisions.
IR was hurt by the downturn, and it went through a period of cost-cutting. The Lidows decided to shutter a British plant and laid off 350 of their 5,000 employees. At the same time, they built a $50 million research and development facility near headquarters in El Segundo, Calif. This 1999 investment is now paying off. While low-cost commodity chips, such as the 25 cents diodes that shift current from alternating to direct in copiers, still make up half its business, IR is nabbing more high-end market share.
IR is generating some pretty impressive numbers. For the company's full fiscal year, which ends in June, Vincent A. Benedetti, an analyst at New York's Gruntal & Co., expects IR to earn $181 million on nearly $1.1 billion in sales--a doubling of revenues in just two years. And with energy prices still a worry, few things will slow IR's growth. Indeed, even its sales of PC chips surged by 14% last quarter, despite a sectorwide slowdown. Such strong performance has rocketed IR's stock price to near $40, up from around $4 in 1998.
Alex Lidow may be correct. His business may not be funny, but IR's performance is likely to win applause.
By Christopher Palmeri in Los Angeles
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