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ARCHIVED  November 5, 1999

Schatz takes AE through good, bad times

1999 Bravo! Entrepreneur - Fort Collins

FORT COLLINS — At its most keen, the entrepreneurial vision has the capacity to see through the foggy, dark patches that appear along the economic trail and fix on a target invisible to others.

In 1981, Doug Schatz saw the potential in incorporating switch-mode technology into a direct-current power supply. His breakthrough product, called MDX, put Advanced Energy Industries Inc. at the forefront of the semiconductor industry.

First-year revenues, based on an original investment of $35,000, were $250,000. In less than 20 years, Advanced Energy has become a publicly traded, $160 million company. And it’s still growing.

Between the time he started Advanced Energy and its first public stock offering in 1995, AE president and CEO Schatz guided the growth of the company through diversification and growth in market share in the semiconductor industry worldwide. By the late 1980s, the company was designing and producing equipment to make audio disks and digital video disks. The company now holds 95 percent of the world market for products used to make CDs and DVDs.

In 1995, Schatz took Advanced Energy public as a means to fulfill a commitment to long-time employees with stock options to help their liquidity. At the time, Advanced Energy was a $100 million company with no outside equity. A year after going public, the company held 35 percent of the worldwide market share in radio frequency technology.

From its founding through 1997, Advanced Energy grew at a 51 percent compounded growth rate. Then came a one-two punch: the Fort Collins flood of 1997 and a worldwide downturn in the semiconductor business.

“Doug and I were both in San Francisco, each of us slated to give presentations to a conference of 600, when we got word of the flood,´ said Dick Beck, Advanced Energy’s chief financial officer. “At four in the morning, Doug learned that there were between four and 14 feet of water in our facility. The people at the factory and Doug’s wife, Jill, had responded well, putting in sand bags and salvaging what they could, but the damage was substantial.”

Leaving the conference early, Schatz returned to Fort Collins to find that not only had his stock of manufacturing components been ruined, but also that records and other business documents had been turned to paper machÈ. In addition, the cubical walls around workstations had been soaked and left vulnerable to bacteria growth. Concerned that the bacteria would present a health hazard for his employees, Schatz replaced everything.

“In all, we faced $3 million in damage, and were able to recover only about $1 million through insurance,” Beck said. “Despite the extent of the damage, we were back to 75 percent production in two weeks and within a month were back to normal. Doug’s relationship with his employees made that recovery possible.”

The company not only recovered, but also recovered well. In the fourth quarter of 1997, Advanced Energy posted record profits. Then the Asian crisis did what the floodwaters could not do: drive down sales and profits.

“In the first quarter of 1998, we saw a pretty rapid decline in the worldwide semiconductor industry,” Beck explained. “By the time 1998 had passed, our sales had dropped from $175 million to $125 million, the first year-to-year decrease in the company’s history.”

At a time when the rest of the industry pulled back, tucking into safe harbors to wait out the storm, Schatz adopted a different strategy: to move ahead despite the fact that orders from Asia were being canceled and domestic demand had slumped.

“Doug went to the investors and presented his case for continuing our development programs,” Beck said. “He reasoned that if we continued to develop our product, when the market recovered we would have not only the momentum to move quickly but also a significant advantage over other companies that had slowed development programs to reduce costs.”

Schatz’s entrepreneurial instincts proved him right. The industry and Advanced Energy have rebounded. Profitability returned in 1999, with sales in the second quarter totaling $41.5 million, compared with $32 million for the same period a year ago. Second-quarter profits totaled $2.8 million, and AE is again hiring after having to layoff employees during the downturn.

Perhaps one facet of Schatz’s character that caused him to engage, rather than retreat from, the devastation of the flood and an unstable market is his intellectual curiosity about everything. It is his position that the urge to think about things not directly involved with the everyday business of business gives the human mind an advantage when weather and economics wreck the best-laid plans.

“Doug’s feelings about education and that everyone should always be involved in learning new things are what motivated him to help start the Discovery Center,” Beck explained.

Now in its 10th year, the Discovery Center in Fort Collins invites everyone to “come play with” its 90 hands-on exhibits. The goal of the Center is to present science as accessible and exciting, as constantly changing and a constant source of wonder.

That sense of wonder in the inevitability of change has served Schatz well. He has demonstrated that a balance of vision and risk can redefine the shape of power supplies, can position a company to take advantage of chaos and can maneuver growth into niche markets through savvy acquisitions. It is this view that has given Advanced Energy Industries Inc., the character not only to survive and grow, but to prevail.

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