NEW PRODUCT NICHE BOOSTS VANCOUVER WAFER COMPANY'S BOTTOM LINE

Written by Courtney Sherwood
Columbian staff writer
Photos by Dave Olson

A Vancouver semiconductor company is earning its first-ever profits, in part thanks to a shift in how computer chips are made.

Revenues at Isonics Vancouver, which makes 12-inch silicon wafers for specialized computer chip markets, have grown 188 percent over the course of a year. If the trend continues, the company expects to gradually add new employees in the coming year, says Joanna Lohkamp, chief operating officer.

The Vancouver division's health is welcome news for its Colorado-based parent, Isonics Corp., which also faces financial challenges. Isonics has not released corporate-wide quarterly results since summer as it works to redo its stock and debt structure, but it lost $1.5 million in the three months ending July 31. A year ago, Isonics Vancouver was also losing money. The local division lost $1.4 million from August through November of 2005. This year, the same division made a profit of $150,000 during the same quarter.

Lohkamp was hired in 2005 to turn the division around. Since then, Isonics Vancouver has been through production upgrades, cost-cutting and a new focus on the bottom line.

As results show, the company has carved out a niche in the semiconductor industry that likely could bring Isonics Vancouver long-term profitability, despite cyclical industry swings, Lohkamp said. The computer chips that power modern cell phones, laptops, television sets and thousands of other electronic devices are all made of fingernail-sized slivers of silicon etched with computer circuits. These chips are cut from 8-inch or 12-inch mirrored disks, called silicon wafers, which are made at large plants around the world, including 870-employee SEH America in Vancouver.

Isonics, with about 55 workers, can't produce wafers on the same scale as the industry's biggest players, but it does make 12-inch wafers on a smaller scale for specialty buyers. The lab makes test wafers, which are made to less exacting standards than the "prime wafers" sold by SEH America, and can be used to calibrate semiconductor machines. Isonics also takes 12-inch wafers discarded by bigger manufacturers and chemically repairs them for reuse. With new 12-inch wafers selling for hundreds of dollars, the market for reclaimed wafers is strong, Lohkamp said.

Isonics can also improve on other companies'wafers by altering or thinning them to make them work better in small devices such as cell phones and can provide other properties desired by some computer chip manufacturers.

Profit potential
Isonics' business niche has existed for years, but it took changes at the Vancouver facility to make it profitable. "We have really had to focus on improving manufacturing yields, "Lohkamp said. When she joined the company, 55 percent of its products met quality standards. Small changes in daily operations have raised that figure to 80 percent, and there's more room for improvement, Lohkamp said. As part of Isonics Vancouver's quest for higher standards, it recently obtained certification from the International Organization for Standardization, a respected industry certifying group.

The company has also diversified its product lines so it can weather changes to the economy. Isonics spent more than $10 million to improve its facilities and expand from 8-inch wafers to the more profitable-and technologically more advanced-12-inch.

"We have many different types of customers," she said. "We sell to semiconductor customers, we sell to big companies that make memory. Semiconductor equipment suppliers need wafers to test their manufacturing tools. And we sell to brokers. We don't even know who their customers are sometimes."

The semiconductor industry typically moves in cycles, with manufacturers filling warehouses, then cutting back production when they realize supplies are too high. If prices fluctuate, Isonics'low-cost wafers and recycling offerings may become more desirable, while its other product lines may decline, Lohkamp speculated. "That's part of why we're diversifying,"she said.

Looking forward

ISONICS SEMICONDUCTOR • WHAT: Vancouver division of Colorado-based Isonics Corp. • PRODUCTS: 12-inch silicon wafers, used to make computer chips • WHERE: 12001 N.E. 60th Way • EMPLOYEES: 55 • CHIEF OPERATING OFFICER: Joanna Lohkamp • TELEPHONE: 360-882-3744 • WEB SITE: www.isonics.com/silicon

The growth of the 12-inch silicon wafer market won local headlines earlier this year, when SEH America announced it would spend more than $350 million and hire several hundred people to expand its 12-inch wafer line. SEH's growth will bring unexpected benefits to Isonics, thanks to a state tax cut the legislature passed earlier this year. The law reduces the state Business & Occupation tax on gross revenues from 0.484 percent to 0.275 percent for all companies in the 12-inch silicon wafer industry-but only if one of them spends at least $350 million first. Isonics didn't know the tax cut would help its operations until state Rep. Deb Wallace, D-Vancouver, who sponsored the tax break bill, gave the company a call, Lohkamp said. Lohkamp had not yet calculated the savings to her employer with the new tax cut in place, but she said she would definitely take advantage of it.

Looking forward, she predicts gradual employment growth of four or five new people in the coming year, as Isonics continues to focus on profits and the bottom line. The company is optimistic that Isonics Vancouver will see continued revenue and profit gains ahead, as the local turnaround continues, Lohkamp said. "It will be interesting to see how the next year turns out." Isonics Corp. shares trade on the Nasdaq exchange using the symbol ISON. Shares this week were trading at 64 cents a share.