Valor systems now set the world standard By Galit Yemini Executives at Valor Computerized Systems had a few good reasons to smile this past year. Not only did the company succeed in making the turnaround from losses to profits, with fourth quarter sales continuing to grow, but a few months ago the U.S.-based National Institute for Standards and Technology (NIST) decided to adopt the ODB++ data format, developed by Valor, as the world standard.
This is a tremendous achievement for an Israeli company. Very soon, with the completion of the formalization of the NIST standards, the whole data transfer process between the companies that design, manufacture and assemble printed circuit boards (PCBs) will be done using Valor's format. The competition will also have to adapt their products to this format.
This achievement is somewhat reminiscent of the success of another Israeli company, Verisity, whose e-verification language for checking the planning and testing process for semiconductor chips was declared the world standard, making Verisity into a world leader in the chip-testing field.
About a week ago, Valor gained a new customer, Foxconn, the largest electronic manufacturing services company in Taiwan. The company decided to upgrade the systems at its manufacturing facilities in southern China with Valor products designed for the PCB assembly process. Foxconn now joins Valor's other customers, including Siemens, Toshiba, Sony, Cisco, Lucent, Nokia, IBM, Ericsson, Samsung, Epson and many others.
"We have stopped thinking like a startup that accedes to the whims of every developer," explains Ofer Shofman, Valor's CEO since last year, "and we have begun to run like a mature business company that has to think about revenues and profits."
Valor develops software tools for planning, manufacturing and assembling PCBs. The company was founded as a startup in 1992 and first issued stock on the Frankfurt exchange in 2000. At the height of the high-tech bubble, Valor had some 250 employees. Company executives also considered issuing stock on Nasdaq at that time, but the bubble burst. Valor started loosing momentum in late 2001 and issued a severe profit warning.
Schmil Dolberg, one of Valor's founders, resigned his post as company CEO about 18 months ago, after Valor reported first quarter 2002 losses of $1.2 million on revenues of $5 million.
Dolberg holds 11.9 percent of Valor's shares, while the company's two other founders, Shlomo Almog and Moshik Kovarsky, own similar holdings. The company's largest shareholders are the IBI Steps Fund and Arison Investments. The remainder of the shares are held by the employees, entrepreneur Chuck Feingold and Shofman, who was appointed CEO after managing the company's operations in the Far East.
Shofman instituted a number of streamlining measures and structural changes in order to halt the company's losses. After trimming the payroll, Valor was left with 170 employees and the financial vice-president was replaced by Dan Hoz, the former CFO for Frontline, a joint venture between Valor and Orbotech.
Valor's Internet venture, which was designed to allow engineers from all over the world to develop projects jointly, was closed due to expectations of future lack of profitability.
"The process we underwent included not only the replacement of the executives, but a change in the work order, development methods and marketing," explains Shofman. "We learned how to manage a product properly; to develop what is needed to bring in business, and not what is comfortable for the company's workers to do. That's the way it goes. During the bubble era we expanded too much, we were late in anticipating the arrival of the crash and we absorbed the difficulties of our customers, too. But we learned the lessons from that period and changed the whole concept of the company. We were forced to be much more focused."
Disbursing dividends
Shofman's labors have begun to bear fruit. In the past four quarters, the company has made the turnaround from losses to profits, with both revenues and profits growing from one quarter to the next. Valor finished the Q2 of 2003 with revenues of $6.3 million and profits of $766,000. The company also decided to make a daring move that quarter and disbursed $6.6 million in annual dividends to its shareholders.
"Beyond that, we declared a dividend of 30-50 percent of the annual net profits for each year," says Hoz. "This will not harm the planned growth of the company. Among other things, we have a strong foundation of some $30 million in cash reserves."
Valor started out developing CAD (Computer Assisted Design) products for electronic circuit manufacturing companies. It then began to develop software tools intended for companies that were designing the electronic circuits, one stage before the manufacturing. The tools for the design stage simulate all the manufacturing and assembly steps and are meant to facilitate precision designing by the engineers. At a later stage, Valor became involved in the PCB assembly process, which is the stage after manufacturing. Now Valor sells a system for engineering and optimizing PCB assembly processes. Valor is now investing its greatest efforts in increasing its market share in this field.
"The assembly companies are very sensitive to profitability," says Shofman, "and correct assembly greatly shortens the time before a PCB appears on the market. Competition is very aggressive because the customers are big electronics companies. This means that if the assembly companies see a good return on their investment in products that will help them, they are also willing to pay a lot of money for such products."
This division for products for the assembly market is the division that is still not profitable at Valor, but Shofman is confident that will change soon. "The main growth and expansion in the company in the coming years will be in this market," he says. "Both via new developments and via acquisitions."
The fact that Valor is involved in all three stages of PCB production - design, manufacturing and assembly - prompted the company to create a new product that is designed for industrial engineers: a digital library of components that documents all the development, manufacturing and assembly processes of various generations of electronic circuits.
In addition, in the process of preparing the PCB, the end user, which is the electronics company, prepares a manufacturing file that passes among the various companies - the designers, the manufacturers and the assemblers. This open format that was invented by Valor, ODB++, serves as a type of uniform language in which this manufacturing file is written and moves from one stage to the next. When this format was declared the standard, Valor gained a big relative advantage in the market.
"What it means is that the other software companies that develop PCBs will have to translate their software tools into our language," explains Hoz. "Valor has various competitors in each one of the stages of PCB preparation."
The optimism of the recent period is reawakening Valor executives' thoughts of registering the company on stock exchanges other than Germany's, and not necessarily Nasdaq. If Valor registers on the Tel Aviv Stock Exchange, it will be listed in the Tel Aviv 100 and Tel-Tech indexes, which may attract more attention to the company than it has received so far.
Shofman wants to bring annual sales up to $100 million within a few years, but prefers not to talk about the immediate future. In the meantime, shareholders can only hope for the continuation of the company's current trend and that the recovery is not a passing phase. |