Joseph Keithley, Keithley Instruments Chairman of the Board, President and CEO

Joseph Keithley (Source: Keithley Instruments)

Joseph Keithley is chairman of the board, president and CEO of Keithley Instruments Inc. (Cleveland). He has served as chairman since February 1991 and president and CEO since November 1993. In 1971, Keithley began working at Eaton Corp. as a manufacturing engineer and later as a market research analyst. Since joining Keithley Instruments in 1976, he has held positions in sales, marketing and division management.
 
Keithley has a B.S. degree from Cornell University, as well as an M.S. in operations research and industrial engineering from the same university. He has an M.B.A. from the University of Michigan. He is a member of the board of trustees of Case Western Reserve University, serving as chairman of its Technology Transfer Committee, and on the advisory boards of the School of Engineering and the School of Management. He also serves on the advisory board of Cornell University's Electrical Engineering School.

Keithley Instruments provides electrical measurement solutions to wireless communications, semiconductor and electronic component manufacturers, as well as other areas of the electronics industry and research laboratories. The company's hardware and software are used for process monitoring, production test and R&D.

SI: Like just about everyone in our industry, you announced lower third-quarter earnings, with sales down from the same period last year. How do you expect the beginning of 2004 to shape up?

Keithley: While conditions throughout the electronics industry have improved, the outlook remains hard to predict. Like others, we're seeing improving economic indicators supporting our belief that the near future will get better, not worse. I know business associates who are finding that getting money out of banks for financing operations is also easier than before. IPO activity is picking up, compared to what it was in March. The combination of SARS and the war in Iraq had a depressing impact, regardless of industry. People are regaining a positive attitude.

SI: When you announced your third-quarter results, you stated that the company could no longer wait for the upturn, to return to profitability. You instituted layoffs and reprioritized some areas; for example, you said there'd be a de-emphasis in optoelectronics. What was your thinking here?

Keithley: Even if the sales growth for our company over the next two or four quarters is slow — not double-digit — we are going to make a profit with that level of sales. A well-managed company creates its own growth and is profitable as it does it. In addition, we have emphasized some segments of the electronics industry. We have the ability, with our product portfolio, to shift emphasis from one area to another.

SI: Being as diversified as you are certainly must have helped.

Keithley: It did. For example, we had a team exclusively focused on optoelectronic devices for telecommunications applications, and we told them that we thought they should do more in the area of the flat-panel display segment, or look for materials characterization opportunities that might go beyond the semiconductor industry. We began seeing a shift where people in the military aerospace segment began spending more than before. For us, it isn't even the prime contractors — Northrop, Grumman — for putting out the new F-22 jet, but materials work. Maybe it is a new material to make III-V semiconductors.

So we shifted, began to do more with nanotechnology. The inclusion of RF measurement in our portfolio also continues to be important, and we're pursuing opportunities with our RF technology, whether it's applied to wireless handsets or making electrical measurements on wafers.

SI: Did you realign your R&D effort as well?

Keithley: Yes, but subtly. We didn't reduce spending. We directed resources more to the semiconductor industry, rather than developing a new line of optoelectronics products, for example.

SI: Aside from these measures, how else has the company been affected by the downturn?

Keithley: We viewed the downturn as a major opportunity for us as a financially stable company to strengthen itself for the near future. We maintained spending in product development, as well as strengthened our worldwide sales and support organization.

During the last five years, we've begun doing more work with production groups, in addition to development and research groups. Thus, we needed more of our own employees in the same venues, say, a drive away, from these important customers. So we took advantage of the downturn to install our employees in Japan, to add to the number of employees in China, to establish our own office in Singapore, and to move to a direct sales force in the U.S. as well. When you establish a new sales organization, you seek outstanding people to come to work for you. During an upturn they are not there; during a downturn you can really pick strong teams.

SI: You have been unusually active in the development of partnerships and working agreements, as with Novellus, for example. Can you tell us more?

Keithley: The Novellus agreement is a joint agreement, where they noticed they're facing challenges in the process integration of back-end steps, and need good electrical measurements to determine if they're providing a robust process to their customers.

We installed a system to perform electric verification, and provided considerable application support. We're helping to develop test methodologies, to ensure that their processes are under control and that they're delivering not only a good toolset, because companies like Novellus today not only deliver the tool but the process step as well.

We continue to work with them to help develop faster and better ways to characterize their back-end process using electrical measurement. Anritsu is another example, where the capabilities of its vector network analyzers and its RF gear, combined with our knowledge of the fab operations and wafer interconnects, resulted in a very strong parametric test product.

SI: You mentioned you were establishing a stronger presence in the Far East. How do you view the industry's shift toward China?

Keithley: The move to China for manufacturing is going to be important but must be balanced with the understanding that everyone won't come to the same strategic choice for their companies. For instance, Intel has announced that it's going to have a presence in China, vs. Texas Instruments, which wants to continue investing in fabs closer to its Dallas headquarters. The semiconductor industry is very capital-intensive, as well as requiring a tremendous amount of electricity and water to run its fabs. They don't need cheap labor for this; what they need is tax incentives.

A company with a well-controlled copy-exact process is well suited to consider a move to China. Other companies that are more decentralized are giving more authority to people lower in the organization and may find that they want to keep their work closer to their headquarters. In terms of development — and this isn't true only of the semiconductor industry — Americans seem willing to establish development centers as well as manufacturing centers outside the U.S. The Europeans, on the other hand, prefer to keep their development activity in Europe while manufacturing elsewhere.

SI: Are you doing anything to move your design or manufacturing operations to China?

Keithley: At this point we are not. If you look at our cost of goods sold, it is typically less than 50%. If you look at the largest part of that spending for cost of goods sold, it's the components that we purchase, while labor is a very small percentage. Therefore, we don't get a substantial benefit from manufacturing in China. What we've done is increase the number of salespeople we have in China, increase the amount of attention that our people in Cleveland have in China with more back-and-forth travel, and we're learning what our Chinese customers want.

China is the one country where I believe that the demand for products may be large enough that, during the next 10 years, products may be designed especially for them, with a special feature set for that market. We see this in Japan with their consumer goods, where the feature set is too rich for any other country. In China today, what we hear is that consumer goods can be successful with fewer features, and that they ought to be half the price of what it may cost elsewhere. As time goes on, I see Keithley trying to source more of our parts from China and Taiwan.

SI: The IP situation in China is not yet fully resolved. As someone whose equipment has considerable proprietary content, how do you view this?

Keithley: Our challenge is to always have new products coming out, and a wealth of applications knowledge for what our customers' measurement problems are. I think that's where our real IP lies, rather than in any manufacturing magic — having the applications team, the products whose features set is truly tuned to improving yield or increasing throughput.

SI: Now that you've refocused the company, is there anything else that you're planning to change?

Keithley: Not strategically. Our customer base continues to be development and production groups of industry segments within electronics, where their own technology environment naturally causes them to reach out in a collaborative way to work with someone who can help them solve measurement problems that they don't want to have to worry about — they're focused on increasing their throughput, characterizing their processes and materials. We'll continue to work with and support them. We're not like Novellus or KLA. When you look inside of their products there is what looks like a lot of "plumbing" and robotics capability to move the wafer. For us, there is not that much mechanical engineering. All our IP is in measurement technology.

SI: The long downturn hasn't changed OEMs only; there has also been a profound change in the customer base. Have you observed this, particularly in the things that they now require of you?

Keithley: Certainly, the Chinese as customers seek tremendous customer support levels without incurring additional costs. Also, our customers require assistance making more difficult measurements today than in the past. Some four years ago, while people were busy, there still was a tendency for when a new measurement had to be made, someone with an EE degree would open up a catalog and tinker a system together — perhaps bring in an intern to do some programming — then set up the whole thing and go. For the more difficult measurements, we're seeing customers coming more and more to us, to verify the measurements that they are doing, or to solve some of the more difficult problems, as device speeds increase, and sensitivity must go lower.

SI: What are your next growth areas and how are you planning for them?

Keithley: Much of our growth lies within those segments of the electronics industry that we're already pursuing, and in having semiconductor device companies return to spending more money on capital equipment. Some of that will be a result of needing additional capacity, and some of it will be to enable them to produce their next-generation devices. The next major area for us will be in adding and supplementing the main applications that we're already serving, to increase them.

SI: Is growth getting more difficult?

Keithley: (Laughing) I can say that the last two years have been no fun! The measurement industry is certainly more mature now than it was, say, five years ago. That means there are fewer players. As such, it's no longer an industry that is quickly consolidating, because there are several large players. So, for Keithley, we're looking to organic growth, and to supplementing it with other means, such as new products and applications.