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Matties: Coming in as the leader of the company, what sort of culture are you developing?
Kelly: We discussed this last year when we had the original interview, and it’s the same mindset; we aim to have a culture of accountability throughout the organization. From every functional department and manufacturing facility that we have globally to our R&D facilities, we hold each other accountable for the success of Isola. Culture takes time, and it has cascaded throughout the organization, from engineering to assembly and distribution. Culture is bigger than one person; it’s an ideology that is shared by all employees and built into everything we do as a team and organization.
Culture is not going to be established through an interview by saying, “This the ideal state,” because everyone is going to have the same verbiage. The leader of the organization, the senior leadership team, and all of the employees have to go in the same direction and believe in what we’re doing as a company. One of our focuses is on determining what game we play and how we’re going to win that game.
Matties: I bring up the culture again because time has passed since our last interview, and you have moved from acting to permanent CEO. And when you have acting leadership, people expect it to be temporary and things to change. We have seen this in the past, so it’s good to hear about your culture of accountability. But what does that mean? How do you hold somebody accountable?
Kelly: We do it a couple of ways. Obviously, the easiest way is through quantification of metrics, such as understanding the business and having our finger on the pulse of critical performance metrics that have to happen; that’s more quantitative than qualitative. Is your scrap low? Is your throughput high? Is your safety at zero incidents? We measure certain KPIs. This is one of the ways we hold each member of the team accountable. But it goes beyond that because as you start building a very successful team of people who want to win, you hold each other accountable in everything you do. Decisions are challenged in a constructive way.
We have constructive discussions throughout the organization. We talk about opportunities and issues. We want a healthy company where people know they have a responsibility to voicing their opinions and ensuring that when we set a course of action, all the team members are aligned to achieve the common objective.
Mirshafiei: The piece that is most convincing is when you see that an approach works, people tend to buy in. And it’s true that we’ve been through a period of transition, but we’re now poised to launch additional products that are being well-received in the market, which is a departure from what we have seen in the most recent history. When people see the results from us taking decisive actions to do fewer things, have a more focused approach, and then execute, that’s going to win their hearts and minds.
And then you’ll get more buy-in into that approach. We’ve seen a much more structured approach to OEM marketing and sales activity that we believe, even in markets that have had quite a bit of volatility. And when you can see share gain and see it directly based on actions that you’ve taken, people start to believe. We want to try to take advantage of that momentum and get that to expand throughout the organization.
Matties: In the U.S., you’re using Insulectro as a distributor. Do they cover all your sales in the U.S.?
Kelly: No, we also have direct customers. The relationship that Isola has with Insulectro is very strong; I visit Patrick Redfern quite often, and vice versa. We’re going to have them utilize our new facility now that we have invested more than $60 million in the U.S., which we’re very excited about. They’re a great partner. Through what Patrick is doing with his team—getting in front of the designers—we’re seeing benefits already. It’s a very complementary partnership.
Matties: And the fact that they brought Mike Creeden in, who was former owner of San Diego PCB, was brilliant because not only are they talking material, but he’s also talking design strategy, best design practices, the best ways to use material, etc.
Mirshafiei: And as they’re starting to deploy that approach and utilize it with customers, using our materials, it will start to become more and more prominent.
Matties: I was in Mike Creeden’s class at AltiumLive in Frankfurt, and he talked about how the weave of the fiberglass affects the design. He said, “If only it could be on a 45, but it’s ineffective to waste all that material and chop off the corners.” I asked him if the laminators could put the weave in at a 45. If that’s an advantage, why wouldn’t we solve this problem and make it a reality?
Mirshafiei: Without a doubt, this issue of skew, which is what Mike’s referencing, is a problem that the industry has tried to address in a few ways, such as spreading the glass. Moreover, the designs themselves are slightly rotated at different angles, which consumes panel utilization. In that particular case, what we’re dealing with—or what we as an industry are constrained by—is the fact that the weavers are weaving materials orthogonally in X and then Y. For them to rotate weaves would be something that hasn’t really been considered.
Alternative approaches have been where people looked at mitigating the effects of the glass. There are also other opportunities where what you try to do is match the electrical properties of the glass and resin together. It almost looks like it’s invisible to impedance effects. There are solutions in that space, but their ability to influence high-end designs is just not there. The problem has been solved, but in an electrical performance space that really doesn’t meet the needs of high-end, high-speed digital circuits.
Matties: And this goes back to one of the conversations we had around material selection. Because the core message is you have to choose the right material for the right application at the right time, and there’s still an education process that has to happen, and someone has to lead the charge. Sitting at design conferences and listening to these people talk about how material matters is a huge focus. They just don’t understand it all because it’s an overwhelming amount of choice and decisions that need to be made. So, what do we do? We fall back to what we know.
Let’s also talk about the new factory. Is it up and running now?
Kelly: The corporate headquarters staff has moved into the new facility. The R&D and manufacturing equipment will start to be delivered over the next 60–90 days. R&D will be up and running in their new lab by the end of March. The QTA facility will be up and running by the end of May or June. All the equipment is coming from overseas, and we have also bought some new equipment that we’re putting into Taiwan to upgrade that facility as it relates to HSD material.
Matties: Good, so you have a good view of the market. Let’s shift gears a little and talk about how people have been talking about a little bit of a slowdown, but they expect next year to pick up. Maybe you are already starting to see some of the pickup. Sean, what do you think the market conditions look like, and what do you think the future holds?
Mirshafiei: As we see in North America, we’ve seen a general pickup in the second half of the year, and in the last few months, it’s fairly broad-based. We see this in the defense and avionics sector, but that has been pretty strong throughout the year. We’ve seen some other market segments also pick up, and as a whole, North America looks quite strong exiting in 2019. In 2020, we’re cautiously optimistic it’s going to maintain a similar trend.
In Europe, there’s no evidence that suggests that it’s turning around anytime soon. I think that the underlying market conditions are definitely weak. However, one of the areas that we often talk about is the number of automotive vehicles in production dominating so much of the news. If you look at it from an electronics standpoint, where we see a decline, we’re seeing that decline offset by an increase in electronic content in vehicles. In some segments, we’re seeing growth, whereas in a broader sense—including the more traditional FR-4 space, which is headed in automotive—that has definitely suffered.
To some extent, you’re seeing busy quick-turn facilities in Europe that are doing QTAs much like we see in North America. The European laminates market is going to have to adapt, and you already see this adaptation with automotive Tier 1s as they size their organizations. Furthermore, suppliers must be proactive by working with lead OEMs developing those next-generation technologies, whether they be for automotive or for industrial applications. We can’t do anything about what the underlying market conditions are, but what we have to make sure is that we’re laser-focused on the spots that are where the market is going to emerge.
Matties: One other area that has caught my attention during my recent visit to AT&S in Austria was the active embedded work that they’re doing. How does that fit into the material world?
Mirshafiei: If the value proposition of that active embedded technology includes saving real estate and being able to reduce the number of boards, then embedding actives into materials is a unique solution. It has been talked about for years, and if you’re doing it in power now, then that’s a big area for growth.
Miniaturization is a big area where people try to cram as much capability in as small a space as possible. If you have ways to reduce the amount of power you have to consume, and if you can embed them and dissipate the heat out to make sure that you’re not suffering in reliability, what’s not to embrace about that technology? If we can enable that type of technology, then that’s a good place to participate.
Matties: This has been great. Is there anything that we haven’t talked about that you want to cover?
Mirshafiei: The underlying theme is that Isola has a long history. Fortunately, we had a lot of opportunities to engage with customers at productronica. Despite how the market currently is, it’s very exciting to see that people are still looking at innovating. As Travis said, Isola is definitely in the process of change. It’s a welcome sign to see the investments that we’ve made in the U.S. and recognize what we’re doing in Asia. We believe that our engagements with our customers will help solve problems. I think those are really the proof in the pudding.
Kelly: I agree with that. We’re seeing a lot of momentum throughout the industry, especially with some of our new products coming out. We’ve really looked at the organization and started focusing on certain areas where we know we’re going to see a lot of momentum and growth over the next several years. We believe we are positioned well, and we will continue to capitalize on our success for the years to come.
Matties: Again, congratulations, and well done.
Kelly: Thank you.
Mirshafiei: Thank you very much.