Sizing Up The Smiths Interconnect Group

Interconnects and power harnesses are often considered as "secondary" technologies to military systems integrators. But designers of mission-critical avionics systems, for example, will be quick to point out that anything less than a military-grade cable assembly can fail under the wide-temperature-range, high-vibration environment found in an airframe. Because of the importance of these often-overlooked military components and subsystems, it is no surprise that the Smiths Interconnect group of companies represents one of the fastest-growing business organizations—and best-kept secrets—in the high-frequency industry.

During a recent visit from Stephen Phipson, managing director (MD) for the Smiths Interconnect group, Microwaves & RF had the opportunity to learn more about this dynamic group of companies serving both commercial and military markets. The Smiths Interconnect group includes some well-known RF/microwave companies (see table), such as EMC Technology, Florida RF Labs, and Times Microwave Systems, but also companies in non-RF but related areas, such as Polyphaser with lightning protectors and Transtector Systems with uninterruptible-power-supply (UPS) conditioners and surge arrestors.

The Smiths Interconnect group accounts for about $300 million (US) annually of the giant publicly traded (London Stock Exchange) Smiths Group, the largest engineering firm in the United Kingdom. Headquartered in London, the company was started in 1851 by Samuel Smith as a clock and watch-making business. The Smiths Group, which has an annual capitalization of better than $5 billion (US), consists of major divisions in aerospace, detection, medical, and specialty engineering businesses. The aerospace business group is the company's largest, with annual sales of about $2.2 billion, including large contracts with Boeing and most major US military contractors. The Smiths Group numbers about 40,000 people worldwide, with about one-half of that total in the US.

"Being a part of Smiths gives us great leverage in bidding on contracts," notes Phipson. "Customers are very comfortable knowing that the Smiths Interconnect companies have the backing of a massive corporation. We have a much stronger position as part of a $5 billion publicly traded company than a $15 or $20 million stand-alone company," he adds.

The Smiths Interconnect group, as with the Smiths Group as a whole, has grown rapidly through well-considered acquisitions, such as Summitek Instruments, EMC Technology, and Florida RF Labs and, as Phipson points out, the company is constantly looking for additional acquisitions to strengthen the group. The firm has a very focused approach to acquisitions, notes Phipson: "We are looking for niche positions, people who have developed a technology leadership position or an application-specific product line that others can't do. These may be the type of things that a company like Raytheon might have once done for themselves but is now oursourcing."

People are an important component of any acquisition, according to Phipson: "The team of people at an acquisition is one of the most important factors in making the acquisition. We look very carefully at the chemistry between our current group of companies and a potential acquisition. And we look for quality people, people who are able to solve difficult problems even when the odds are against them." Apparently, the company is doing the right things by its people, since many of the entrepreneurs who founded the member companies of the Smiths Interconnect group are still with their firms.

"We choose niches very carefully," remarks Phipson, "with businesses that are sustainable, with low competition, and long program lengths." He says that "our goal is to grow these companies at a quicker rate after we acquire them." He notes that there are "about 2000 microwave companies out there," and the company looks at all possibilities in terms of acquisitions.

Phipson and the Smiths Interconnect group of companies are motivated for growth. "Specialty engineering is the second largest part of the Smiths Group at more than $1 billion (US) annually, and a part of that is the Smiths Interconnect group, which is about a $300 million portion," says Phipson. "My mandate is to grow that into a $500 to $600 business in the next several years," he adds. "The more capability we add, the more of an advantage that it gives us on military program bidding," Phipson notes.

The Smiths Interconnect group of companies consists of about 2000 people in 17 different companies/facilities, including the newly established Smiths Interconnect Shanghai to serve the Chinese market. The company has also established a production facility in San Juan, Costa Rica (in the same industrial park as several other high-frequency manufacturers, such as Merrimac Industries and TriQuint/Sawtek). "The literacy rate is 97 percent in San Juan," says Phipson, noting that the presence of a well-educated labor force translates into high-quality production at a fraction of the cost for local US labor. "We've been encouraging all of our companies to use Costa Rica for manufacturing," says Phipson, "since the direct labor rate in Costa Rica is only about $1.70 per hour. We have about 120 people down in Costa Rica now handling production of both thick- and thin-film products."

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Products made in Costa Rica are sold throughout the world, in contrast to those produced in China, which are targeted for the Chinese market alone. "Our strategy in China is to produce for the Chinese market, and not for export," says Phipson. "The companies that we sell to in China will then export their products," he adds. Phipson points out that there is a staggering difference in the labor costs in China even when compared to Costa Rica: "People have asked me what the labor costs are like in China and I tell them that it is about $1.00 compared to $1.70 in Costa Rica, but that is for $1.00 per day in China compared to $1.70 per hour in Costa Rica!"

Of its military business, Phipson notes that electronic warfare (EW) is very strong, as is the space business, especially for "black" military space applications. "We have five companies that produce connectors, and we are able to make a wide range of products, from large connectors for power applications to tiny connectors for handling RF and microwave signals," explains Phipson. "For example, we sell connectors to Ford Motor Company in Detroit for their engine production department," he says, "but we also make a wide range of connectors that withstand high levels of shock and vibration, making them well suited for avionics applications."

Some products of note include the HyperStac packaging solution from Hypertac Interconnect, an interconnect module well suited for high-speed applications in harsh environments. The solution is ideal for the latest generation of digital missiles, in which 20 to 30 layers of printed-circuit boards (PCBs) are being stacked together and interconnected. "These designs need an effective interconnect system, and the HyperStac connector is a viable solution," says Phipson. He notes that Hypertac has a proven track record in difficult applications, having supplied all of the rectangular connectors used in the Space Station. The company is also a leading supplier of interconnect solutions for high-speed Fibre Channel applications.

In addition, Phipson points with pride to a series of zero-loss coaxial cable assemblies from Times Microwave Systems that are helping military systems integrators link different portions of modular systems. "The EW world is offering some interesting new opportunities with a modular approach to their systems, and cable runs are an important part of those systems. In working with Northrop Grumman, we have developed 0-dB cable assemblies in which all the RF characteristics are maintained, but there is no loss through the cables. There is just enough gain in the RF amplifiers to compensate for the losses in the cables and connectors. So you can have a very long length of cable but it is still presenting a zero loss to the system," Phipson explains.

Phipson hints that it will be worth watching the Smiths Interconnect group in the months to come, since a new name will be announced for the group of companies as well as many new products and possible acquisitions. "We are about to launch a series of silicon-dioxide cables with impressive temperature stability," he confides. "Contractors are looking at increased phase stability in cables, and this technology can provide the performance they need," he adds.