Kirk Mandy’s second run at Zarlink, by the numbers

By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
March 7, 2011 (March 9 on OBJ.ca)

Click here to view this article on OBJ.ca.

Kirk Mandy.
Kirk Mandy.
Ottawa Business Journal file photo.

Between leading a company through the aftermath of the high-tech meltdown, a heated proxy battle and a global recession, Kirk Mandy has had quite the busy six years since coming out of retirement to take the helm at Zarlink Semiconductor … again.

Mr. Mandy announced recently that he would be succeeded by Gary Tanner in May of this year, closing the chapter on a half-decade rebuilding process and a 27-year career overall at the chipmaker.

Since 2005, when Mr. Mandy took over following the departure of Patrick Brockett after a three-year stint marked by poor financial results, the company has made strides in shoring up its balance sheet in the face of “significant challenges and opportunities,” in the words of Zarlink chair Adam Chowaniec.

“We’re in a position now where we’ve made substantial investments in new product platforms, the company has cash, and frankly, the company is doing quite well,” Mr. Mandy earlier told OBJ.

Zarlink has indeed managed to weather several storms, with revenues in its third quarter rising 13.9 per cent year-over-year to $56.9 million and net income surging to $34.18 million or 28 cents per share, from just $112,000 or break-even per share a year earlier.

The company’s financial results have improved significantly, with gross margins representing 52 per cent of revenues and research and development costs narrowing to 17 per cent of sales in the most recent quarter.

Both measures were major bones of contention brought up by a dissident group of shareholders who sought to oust Mr. Mandy and several directors in 2008. At that point, gross margin and R&D expenses represented 46 per cent and 20 per cent of revenues respectively.

The dissident group, led by 5.2-per-cent stakeholder Scott Leckie, accused Zarlink at the time of overspending on R&D while “still living off the more than $1 billion” its predecessor Mitel had already spent before spinning out its semiconductor division as Zarlink in 2001.

Today, however, costs appear to be coming under control, and the company’s core communications business, which includes Legerity Holdings Inc., acquired for $134.5 million in 2007, is growing its sales strongly. The division generated $45.43 million in the third quarter, up 34.3 per cent year-over-year.

Under Mr. Mandy’s direction, Zarlink also sold off its optical products group – once referred to as “moribund” and a “black hole polluting their financial value” by analyst Brian Piccioni – to Tyco Electronics for $15 million.

The company’s share price has also rebounded tenfold from its low of 21 cents in March 2009 after the markets imploded, and it has roughly doubled its cash and cash equivalents to $124.23 million at the end of the first quarter, from $61.91 million a year earlier.

Now, as Mr. Mandy prepares to retire again, Zarlink is poised to expand its footprint in the south Asian market under the leadership of Mr. Tanner.

Zarlink noted Mr. Mandy will be “available as a consultant” to the company after his last day on May 23, 2011.

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CALLING ‘CAPTAIN’ KIRK … A TIMELINE

1992: Kirk Mandy is appointed vice-president and general manager of Mitel’s Semiconductor division — the precursor to Zarlink Semiconductor.

1998-2001: Mr. Mandy serves as CEO of Mitel.

March 2001: Zarlink is formed when Mitel spins out semiconductor division. Pat Brockett is named first CEO of Zarlink; Mr. Mandy moves to vice-chairman post.

February 2005: Mr. Mandy is appointed president and CEO of Zarlink following Mr. Brockett’s abrupt resignation.

June 2007: Zarlink announces it’s buying Texas-based Legerity Holdings for $134.5 million as part of bid to grow main communications business.

May 2008: Fiscal 2008 losses jump to US$48.4 million.

July 2008: Dissident shareholders led by Scott Leckie launch proxy battle, urging for ouster of Mr. Mandy and several other directors. Management eventually wins proxy fight; board remains intact.

May 2010: Zarlink sells optical products group to Tyco Electronics; announces return to full-year profitability with earnings of $7.7 million for fiscal 2010.

February 2011: Mr. Mandy announces departure from Zarlink; former Legerity executive Gary Tanner is appointed as successor.

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