Micrel Inc: Management Responds ($MCRL)

I wrote about Micrel Inc (NASDAQ: MCRL) two weeks ago, noting its strengths and weaknesses and concluding that the price isn’t currently low enough to warrant a purchase. I received the following email (reprinted in whole with his permission) from the President and CEO of Micrel (as well as its largest shareholder), Ray Zinn. For those interested in MCRL, I think this would be worth your time to read, as it provides some more insight into management’s thinking.

Dear Frank Voisin,

I wanted to take the opportunity to thank you for your article on Micrel.  I found it to be very honest and fair; pointing out all the positives and the negatives.  As you know, in life, there are always two sides to the coin.  Often, the pros become the cons.  Having said that, I thought I’d share with you a few insights about Micrel that you might not have available to you.

I started Micrel in 1978, along with my partner who is now deceased.  We started the company with a total of $300,000, which is less than 1/10 the average to start a semiconductor company.  I, personally, guaranteed the debts of the company, which reached as high as $4.5M by 1985.  The debt that I was guaranteeing was over two times my net worth.  As you can tell, Micrel is not venture funded.  We were, in fact, bank financed.

The covenants I had to adhere to were far greater than most companies could ever tolerate.  For example, we had to be profitable for three out of four quarters, every year.  The company was profitable for 32 out of 33 years.  The year 2002, which was the only year we had a loss, was just after the dot com implosion, and we consolidated two wafer fabrication facilities down to one.  This resulted in a restructuring charge of nearly $30M.  In addition, 2002 was one of the most difficult years the company has ever had.  In spite of this, the loss in 2002, on a GAAP basis, was a mere $50K.

In 2009, the industry experienced its worse recession ever.  In spite of that, the company did make a reasonable profit.  The reason I was paid a significant bonus in 2011 was that it was the result from the accrued bonus from 2010 where the company grew 36%.

The past 10 years have been a difficult for the industry, but Micrel has been on a par with its peers.  Our growth has been ostensibly organic, compared with many of our competitors who have acquired companies in order to grow their revenues.  I retained a large stake in the company because of my original investment in the company, notwithstanding the fact that I’ve been buying back Micrel stock, myself, adding to my already extensive holdings.  The purpose of this is that I’m trying to, again, help the shareholders by not only having the company buy back stock, but by buying it back myself, as well.

I sincerely believe in the company, and 90% of my net worth is Micrel stock.  In the past year, I’ve done some significant reorganizing and have brought on stronger management who believe the company will grow above our peers, going forward.  I do believe in returning value to the shareholders, notwithstanding that I am the largest shareholder.

Thanks, again, for your impartial approach you took in analyzing Micrel.


Ray Zinn

Author Disclosure: No position

Talk to Frank about Micrel Inc