Electronic Design

Top 100: Company Analysis

We came up with an initial list of 250 or so companies for potential inclusion in this process that was built around the top design influencers (per iSupply) and the top readers of Electronic Design. The lists were a combination of U.S. public companies; a couple of private companies; subsidiaries or divisions of non-U.S. companies and U.S. public companies, which in some cases had been independent public or private companies previously; some large non-U.S. (mainly consumer electronics) companies; and a few public agencies and research facilities, such as NASA, JPL, and the military.

Our goal was to provide readers an idea of how these companies were performing not only from a top-line financial standpoint but also with respect to how the stock was doing and other non-financial aspects such as patents, design influence on semiconductor spend, and feedback from our 2006 ED Reader Profile Survey. In essence, we wanted to convey why these companies would be good places to work.

As we started working with the Lexis-Nexis service, which included the Hoover’s and Standard & Poor’s databases among others, it became clear that we weren’t going to find the latest updated information for all the companies. It was also clear that finding reliable information for the private companies was going to be difficult, as well as finding the same for non-U.S. companies, public agencies and research facilities, and subsidiaries or divisions of non-U.S. companies and U.S. public companies, as divisional numbers typically aren’t broken out publicly.

In the interest of data integrity, we narrowed the list down to U.S. public companies where data would be available through 10-K SEC filings for both 2005 and 2006 and ended up with 104 companies. As discussed below, we included Atmel even though 2006 numbers aren’t yet available. Although technically the Thomson Group is a Canadian company and SAIC (Science Applications International Corp.) has only filed one 10K report since going public recently, we’re comfortable with the data we gathered for these two companies.

We then chose the specific data categories after evaluating what we could consistently compare within our narrowed-down 104-company universe. We chose top-line employee growth, some pertinent income statement and balance sheet items, U.S. patents obtained in 2006, how the stock had performed during the 2006 fiscal year, R&D investments, and design influence on semiconductor spend. We also tried to incorporate employee feedback on certain questions from our 2006 ED Reader Profile Survey. We wished we could have included more survey questions and feedback, but the practicalities of gathering data limited our scope.

We believe our approach focuses both on company strengths while pointing to areas where companies can capitalize on improvement opportunities.

How we gathered the data for the list of 100 public companies
Data was gathered for both 2006 and 2005, reflecting a company’s fiscal year. In many cases, this did not reflect the calendar year. The company’s fiscal year was used for all data except information on patents and design Influence. For income statement and balance sheet data, we used 10-K reports except in a couple of cases, when we used the audited financial statements included with the annual report.

All comparisons are 2006 versus 2005, with the exception of Atmel, where we used 2005 10-K data for both the 2006 and 2005 columns, so all income statement and balance sheet data will show zero change year over year. The company has delayed the filing of its 2006 10-Ks and annual reports due to ongoing investigations regarding the valuing of employee stock grants and options.

All dollar data is shown in millions.

Employee data was mostly gathered from 10-K reports. In the few instances where they could not be found, annual reports or company Web sites were used. In most cases, the 2005 data had to be gathered from the 2005 10-K report, as this data was not included on the 2006 10-K report for most companies.

Sales data was gathered from 2006 10-K reports for most companies.

Operating profit was gathered from 10-K reports, but in various cases, it will be different from what may be reported by a company as “Operating Profit or Loss.” For consistency’s sake, we did not include interest expense/income, other expense/income, or significant restructuring charges or “one time” expenses or income in the calculation, unless the amounts were small and didn’t materially alter the comparison. The emphasis was on comparing the profit/loss generated solely by continuing operations.

Operating profit margin was a simple calculation of operating profit divided by sales. Long-term debt and stockholder’s equity data was taken from the 2006 balance sheets found in the 10-K, with the obvious exception of Atmel and UTStarcom. Long-term debt to stockholder’s equity ratio is simply the former divided by the latter.

The total of 2006 patents issued was taken from a report sorted by company generated by the U.S. Patent and Trademark Office. High, low, and closing stock prices were taken from 10-K reports, as well as Yahoo Finance, Google Finance, and MSN Money. Data was gathered to match the particular company’s fiscal year. Research and development expenses came from either a separate note contained within the 10-K or from the income statement.

Design influence dollars came from information shared with us by iSuppli, an applied market intelligence research firm that covers the entire supply chain for the electronics industry. These dollars show the level of semiconductor purchasing driven by electronic equipment design activities at a company. This is an important measure of not only the number of designs made by a company, but also of the level of success those designs achieved in terms of how much semiconductor purchasing they drove.

Notes related to specific companies
Adtran: Used bonds payable for long-term debt

Advanced Micro Devices: On Oct. 25, 2006, completed acquisition of ATI, a Canadian company, whereby ATI became an indirect, wholly owned subsidiary

Agere Systems: LSI Logic Corp. (NYSE: LSI) announced that it has completed its merger with Agere Systems Inc. (NYSE: AGR), effective April 2, and that it will rename the newly merged company LSI Corporation; the company will continue to trade under the stock symbol LSI on the New York Stock Exchange

AT&T: Old SBC Corp., which acquired Bell South in 2006, as well as the remaining interest in ATT Mobility (formerly Cingular Wireless)

Atmel: Has not filed its 2006 10-K yet nor completed its 2006 annual report pending the results of an independent investigation of its stock option grants to employees

Boeing: Accounting for an underfunded pension liability per FASB Statement #158 caused the drop in stockholder’s equity

Boston Scientific: Acquired Guidant Corp. in 2006, a world leader in the treatment of cardiac disease

Broadcom: R&D amounts are shown without any accounting adjustments due to restating stock based employee compensation expense

Cisco: Acquired Scientific-Atlanta in late 2005

Comcast: Stock prices shown adjusted for January 31, 2007 three-for-two stock split, in the form of a 50% stock dividend

Dell: Used fiscal years ending 02-03-06 and 01-28-05; fiscal 2007, which would include most of the 2006 calendar year, is not available yet

Federal-Mogul: Company is still finding its way through its financial restructuring plan under Chapter 11, which it filed in 2001, as a result of excessive pending litigation because of asbestos liabilities; plan will be confirmed May 8, 2007

General Electric: High long-term debt mainly comes from unsecured senior notes on the books of affiliate, GE Capital Services; GECS offers consumer financing, commercial & industrial financing, real estate financing, asset management & leasing, mortgage services, and consumer savings

L-3 Communications: L-3 Communications Integrated Systems (L-3/IS), formerly Raytheon Aircraft Integration Systems, is a division

SAIC: Only one 10-K available as of fiscal year end 01-31-06; company was essentially previously employee owned but provided a secondary market for its stock through a wholly owned broker dealer subsidiary, Bull Inc.; now publicly traded as of October 2006; stock prices used in our analysis cover October 2006 to February 2007; SAIC stands for Science Applications International Corporation

Thermo Fisher Scientific: Formed in the late 2006 merger of Thermo Electron with Fisher Scientific International

Thomason Group: Although Thomson is headquartered in Stamford, Conn., it is a Canadian company and considered a “foreign private issuer” for SEC purposes; thus, Thomson makes filings and submissions to the SEC using forms under MJDS (the Canada-U.S. Multijurisdictional Disclosure System); MJDS permits Thomson to file its annual report on Form 40-F; audited financial statements were used for our data gathering.

Tyco: Company plans to split its remaining operations into three separate, publicly traded companies in 2007; Tyco Healthcare, one of the world’s leading diversified healthcare companies; Tyco Electronics, the world’s largest passive electronic components manufacturer; and a combination of Tyco Fire and Security and Engineered Products and Services, a global business with leading positions in residential and commercial security, fire protection, and industrial products and services

Line score methodology
Our goal was to develop a tool for the reader to get a quick, top-line view of how a company was doing in the various data categories we had chosen. The line score rankings can be used as a guide to get a feel for how a company is performing most recently.

These scores are not the last word, as some companies may not be showing significant year-over-year growth in their financial categories but may have significant sales volumes, operating profit dollars, and margins that sustain healthy businesses. It is more difficult to grow a business that is already very large. However, you usually want to see real growth on the sales line, as that typically leads to good news everywhere else.

Also keep in mind that if the line scores indicate areas of concern for a company where there may be some improvement opportunities, they do not really tell you what the root causes are without further analysis. The line scores are just a simple partial report card.

The following categories were used in determining the main line score:

  1. Employee growth percentage (2006 versus 2005)
  2. Sales growth percentage (2006 versus 2005)
  3. Operating profit growth percentage (2006 versus 2005)
  4. Operating profit margin improvement (2006 versus 2005)
  5. Long-term debt to shareholders equity ratio improvement (2006 versus 2005)
  6. 2006 total number of patents issued
  7. 2006 stock price closing as a percentage of 2006 stock price high
  8. R&D expense change percentage (2006 versus 2005)
  9. Design influence on semiconductor spend dollars
  10. Design influence on semiconductor spend percentage increase

We felt these categories gave us a good balance of financials (2, 3, 4, 5), human resources (1, 8), technology (6, 8), stock market perceptions (7), and engineering (9,10).

Bonus points awarded
A maximum of 10 points was awarded to each company per category in calculating the Total Company Line Score, as follows:

Rank In A Particular Category

Points Given

01 - 10

10

11 - 20

9

21 - 30

8

31 - 40

7

41 - 50

6

51 - 60

5

61 - 70

4

71 - 80

3

81 - 90

2

91 - 100

1

100 - 104

0

We then awarded a maximum 10 bonus points based on employee responses to the following five questions on our 2006 Reader Profile Survey:

How many job promotions have you achieved at your current place of employment?

Points:
a, b, c: 2 points
d, e, f: 1 point
f, g, h: 0 points

a. 8 or more
b. 7
c. 6
d. 5
e. 4
f. 3
g. 2
h. 1

Do you feel that you are being challenged intellectually with the engineering projects you work on at your present job?

Points:
a: 2 points
b: 1 point
c: 0 points

a. Sufficiently challenged
b. Somewhat challenged
c. Not challenged enough

To the best of your knowledge, what is the engineering employment outlook at your company in the coming year?

Points:
a: 2 points
b: 1 point
c: 0 points

a. My company plans to increase the number of engineering jobs
b. My company plans to maintain the current level of engineering jobs
c. My company plans to scale back engineering staff

Do you feel that your organization is more focused on employee retention this year as compared to a year ago?

Points:
a: 2 points
b: 0 points

a. Yes
b. No

How would you rate your present job security?

Points:
a: 2 points
b: 1 point
c: 0 points

a. I feel strongly secure
b. I feel somewhat secure
c. I feel insecure

If a company had more than one survey respondent, the total bonus points for that company were divided by the number of respondents to come up with the average bonus points per respondent assigned to that company. The number of survey respondents for each company is listed to the right of the total company line score.

The total company line score is a simple sum of all the category points plus any bonus points assigned. The maximum total company line score possible would be 110.

The final company rank was based on the total company line score. Ties were broken, where necessary and possible, based on the number of respondents to our 2006 ED Reader Profile Survey for a particular company. The company with the higher number of respondents got the higher ranking when the tie was broken.

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