Old line company posts new economy success

By DAVID JOYNER

Essex County Newspapers

No white tents were pitched outside the building to contain balloons and blaring music. There were no cigar-smokers clustered around monitors, watching in anticipation as their stock was released upon the market.

The office was empty Saturday, April 3, 1999. Ernie Godshalk remembers, because he went to work that day to send a congratulatory e-mail to Varian Semiconductor employees.

As of midnight the previous night, their plant in Gloucester's Blackburn Industrial Park was no longer the East Coast outpost of a California equipment and instruments business.

It had instead become headquarters of its own company with its own customers, its own executives and its own stock.

But unlike New Economy glory stories that produce millionaires in a single trading day, this offering was low key. As the company was spun-off, new shares in Varian Semiconductor were mailed to shareholders of its former parent, Varian Associates.

Godshalk, a Beverly man and financial officer hired about six months earlier to manage the spin, said the atmosphere in Gloucester at the time was nervous.

The plant had struggled before the break-off, buried deep by an Asian financial crisis that triggered a semiconductor industry collapse some said was the worst they'd ever seen.

Many were apprehensive about what the future might bring. And by the time Godshalk came into the office that Saturday, many had walked away from the company, rather than wait to find out.

Godshalk said he knew it would take time. With about six months and maybe a summer vacation to think about it, he figured people's minds would change.

In fact, he targeted a specific day, Sept. 7, 1999, as the turning point.

It turned out he was right.

Worries about whether the company would survive on its own had subsided, replaced by a mixture of energy and confidence.

"People came back after Labor Day and said, `Hey, this is pretty good stuff,'" he said.

Varian Semiconductor's spin-off may have been relatively unexciting compared to the much-hyped market premieres of other technology companies.

But in the weeks and months that followed, the new company found a groove akin to those of other hot prospects, and began posting record financial results to show for it.

It didn't take long for markets to notice.

By September, Varian Semiconductor shares were selling on the Nasdaq at more than double their initial price of $11.74.

And while it hit spikes and dips along the way, the price had climbed to well above $50 a year later.

In a place where the most beloved corner of the economy is fishing, a company that makes machines to implant ions in silicon for the manufacture of computer chips is something of an anomaly.

But in a city where coping with hard times is also ingrained in the culture, given the fishing industry's erosion, Varian Semiconductor's success has been a significant local tie to the prosperous economy.

One of the greatest outward signs of the company's success came last year, when it went on a recruiting binge that ratcheted its work force to about 1,600 people worldwide.

With about three-quarters of those employees in Gloucester, Varian Semiconductor became Cape Ann's largest employer, surpassing the city of Gloucester, itself.

The company's earnings have also a source of optimism.

In October, when tallying fiscal year-end results, Varian Semiconductor reported record-setting revenues of nearly $688 million, or 153 percent better than the year before.

Bottom-line profits, meanwhile, reached nearly $99 million, compared to a $13 million loss the company took the previous year.

Several factors have contributed to the fortune, not the least of which was a recovery in the computer chip industry.

The traditionally cyclical industry had hit bottom with the Asian markets. But by the time the company was beginning to walk on its own, demand grew for chips used in a variety of electronic devices, from cellular telephones to talking toys.

To meet a pressing need for its chip-making equipment, the company completely reworked its Gloucester plant, hiring more people and making more room for more machines to be produced.

Taking advantage of a hot market, it also rolled out new products.

They included technology allowing machines to process a single wafer crammed with computer chips, as opposed to older machines that process chips in batches of wafers at a time.

The company designed and introduced software to manage its machines, which also allows it to more readily solve customer problems.

But almost as significant as developments coming out of the Varian Semiconductor plant were changes inside the facility.

The spin-off brought with it a new team of managers, who gradually replaced ones that had long led the company.

That change in line-ups made some nervous.

Peter Souza, a production manager, recalled "what-if's" that spread through the plant, not only about the company's new status, but also about its new executives.

The issue, he said, boiled down to whether people were willing to accept change.

But Souza said the new leadership "bellied up to the bar," initiating employee meetings, regularly scheduling sessions for mid-level managers and top executives, and pushing for operating plans.

"They brought in a lot of good ideas and new talent," he said.

And as time passed, tensions eased. In fact, the company seemed to thrive on the change, as workers already dedicated to their jobs learned new things, Souza said.

For Souza, it was the latest in a history of evolution that began 28 years ago, when he started working for the company then called Extrion, which was located in Peabody.

It was then more of a research and development operation, he said, where semiconductor equipment was built on a trial-and-error basis.

The company moved to Gloucester in the early- to mid-1970s. About five years later, it was purchased by Varian Associates.

Souza said that helped the young operation build systems, such as those to purchase materials and manage inventory.

But as it grew, so did an us-and-them attitude toward the owners, who were on the West Coast with Varian's other divisions.

Some say removing that barrier was one of the spin-off's greatest accomplishments.

"I think we always felt that were the tail on the dog," said Bob Simmons, an Amesbury man and 22-year employee who joined the operation shortly after it was purchased by Varian.

The spin-off, on the other hand, localized decision making.

The company's chief executive now works in a corner office in Gloucester. And as decisions have been spread throughout the plant, employees have gained a greater sense of ownership.

"We're making decisions for our business," he said. "Our profits are being invested in our future."

With the company on its own, and Wall Street analysts touring the plant, Simmons said the importance of those decisions has also been magnified.

"You begin to understand how important you are, what effect you have on the business," he said.

But he and others say another significant thread in the success story has been the relationship between the company and its employees.

While everyone has stock options, there are other examples, as well. And none may be better than Simmons' own story.

Now 55, Simmons had spent a career working up the chain, from a support engineer to the operations manager for production.

Last spring, however, he was nearly forced into early retirement. He had gone to see a doctor about a cold, only to discover he had a serious heart problem.

"I was faced with having to make a career decision I wasn't ready for," he said, calling the situation "gut wrenching."

But after several months away, a strong will and "a lot of faith," Simmons said his medical condition drastically improved.

And the company was ready to bring him back, into a less stressful job as a research and development manager who helps find ways to develop and release new products.

Simmons said such gestures is part of what has employees people together.

"When people feel a part of something, they work to make change," he said. "And once it starts, it feeds on itself."