LED There Be Light

Uniroyal Technology Corp. hopes to transform itself into a high-tech company with a new Tampa plant that will make light-emitting diodes for car taillights, scoreboards and electronic displays.

By KYLE PARKS

© St. Petersburg Times, published November 8, 1999

TAMPA --The Uniroyal name is best known for tires. But inside a Tampa plant, an offshoot of the old tiremaker is cranking out sophisticated semiconductors that could someday replace light bulbs.

Uniroyal Technology Corp. is producing a new generation of chips with light-emitting diodes, or LEDs, that go into everything from auto taillights to stadium scoreboards.

The new technology marks a radical change in lighting, considering that incandescent lights haven't changed much since the days of Thomas Edison. LED manufacturers say their products last as many as 100,000 hours compared with 2,000 hours for traditional light bulbs and use one-tenth the power.

Still, it's a risky move for Uniroyal Technology, a Sarasota company run by executives who have experience making orange juice, not semiconductors. Uniroyal is taking on a pile of debt to start the $35-million plant as it tries to move from plastics manufacturing into the competitive semiconductor industry.

The plant, which expects to start selling chips in January, also is a test for the Tampa Bay area's long-term goal of becoming a center for cutting-edge technology.

"Right now, the key for them is to work out all the kinks in a complicated manufacturing process," said Lincoln Werden, a stock analyst who follows Uniroyal. "This has above-average risks, for sure."

Uniroyal Technology regularly gets calls from people who have no clue what it does. "They ask, "Can you get us a discount on tires?' " said Robert Soran, the company's president.

The company was created when New York investment banker Howard Curd bought the Uniroyal tiremaker's plastics business in 1986. Curd brought in Soran and chief financial officer George Zulanas -- who helped build Tropicana Products Inc. into a juice powerhouse in the '80s -- to run it.

Soran and Zulanas cut costs while building a $220-million company that makes plastics used in airliner windows and bulletproof bank teller stations, coated fabrics used in restaurants such as Applebee's and Denny's, and adhesives used in the construction industry. Its most famous brand name is Naugahyde, famous for its use in recliners.

But after the turnaround, something still was missing: respect from the stock market. Uniroyal's stock price climbed 200 percent from 1996 to 1998, but then stalled.

"The stock market isn't impressed with 5 percent sales growth," Soran said. "We lead a lot of our niches, but we couldn't dramatically improve our growth in plastics. We needed something that would give us 15 to 20 percent growth."

Enter Thomas J. Russell, Uniroyal's largest shareholder. Russell is chairman of Emcore Corp., a Somerset, N.J., company that makes equipment used to build semiconductors and electronic systems. Russell suggested LEDs.

LEDs consist of materials that emit light when electrically charged. They have been around for 30 years -- they provide the lights in VCR and telephone keypad displays, for instance. But now there's a new generation of high-brightness LEDs, produced by fewer than 10 manufacturers because setting up a plant requires a large investment.

The payoff is this: As more lighting users turn to LEDs, the high-brightness LED market is projected to grow 25 percent a year through 2003.

Transportation departments from California to Florida are retrofitting traffic signals with LEDs. Scoreboards in facilities such as Raymond James Stadium use them, and automakers such as Volkswagen, Mercedes-Benz and Audi are putting them in dashboard displays and taillights.

Consider that one-fourth of the nation's energy use is devoted to lighting, experts say, and that explains the hype about LEDs' long-term potential.

"LEDs are more expensive, but with their longer life, they can pay for themselves," said Bob Steele of Strategies Unlimited, a Mountain View, Calif., semiconductor research firm. "And when an LED lasts five to 10 years in a traffic light, that really pays off."

Chipmakers first came up with high-brightness LEDs in 1992 by combining materials that create red and yellow colors. Newer, more expensive technology is used for blues and greens.

The California Department of Transportation plans to replace 72,000 incandescent red lights with LEDs by next year, at a cost of $7-million. Officials are making similarly ambitious plans in Philadelphia and in Florida's Palm Beach County, where more than half of the county's 980 intersections have red LED signals.

In the Tampa Bay area, there are a few LED signals on U.S. 19 in Pinellas County, and about 100 on Tampa roads, primarily on Florida Avenue.

Still, skeptics remain. Florida Department of Transportation officials want to make sure LEDs last as long as promised before they expand their conversions. And Tampa has scaled back its plans "because we were promised 10 years and were getting four to five," said Bill Hall, traffic signal supervisor for the city.

"Until we are convinced they can do better, we'll be cautious," Hall said.

As technology improves, LEDs will live up to their manufacturers' promises, counters Uniroyal Technologies vice president Andy Lipman, though he acknowledges "there may have been some cases of defective products out there in the past."

Strategies Unlimited shares Lipman's optimism. It projects that the total LED market, which was about $2-billion last year, will reach $3-billion by 2003.

* * *

When Uniroyal decided last year to get into LEDs, it developed an ambitious strategy.

Find a location for an LED plant. Sign a joint venture with Emcore that could get the plant running in a year. Hire from competitors such as Hewlett-Packard, Intel and Texas Instruments. And don't get worried if skeptics wonder whether an investment banker and a former orange juice exec can run a technology company.

"Manufacturing is manufacturing, to a point," said company president Soran, who says he has picked up chipmaking basics by listening to his employees. "It's about hiring the right people."

Uniroyal looked at sites in Somerset, N.J., and North Carolina's Research Triangle for the plant, along with Jacksonville, Melbourne, Titusville and Tampa.

The executives found an existing structure in Sabal Park to their liking. Though tax incentives were better in other states, Florida was competitive. The executives were impressed with the attention from Tampa corporate recruiters. And they liked being close to their Sarasota headquarters.

Now, the challenge is hiring for a work force projected to grow to 200 in three years. So far, they've successfully pitched the cost of living here and the chance to get in on the ground floor of something big.

"The company had to convince me they were committed to this long term," said Andy Lipman, 33, who moved to Tampa from Hewlett-Packard's San Jose, Calif., office. "The job was appealing. My first week in Florida, I had access to Uniroyal Technologies' board. When would I be speaking to Hewlett-Packard's board?"

The average salary at the plant is $32,000, but the highest-paid employees -- folks with advanced degrees in electrical engineering and material science -- make close to six figures.

Uniroyal has had to take extra steps to get noticed in Tampa, though. It makes extensive use of personnel recruiters, and it brought in 30 stock analysts, industry experts and trade publication officials for an LED conference in June that included a plant tour.

* * *

The Sabal Park facility looks more like a laboratory than a manufacturing plant. Employees in white suits sit in dust-free "clean rooms," testing production of semiconductors made with materials only millionths-of-an-inch thick.

A row of $1.25-million reactors processes the chips at temperatures as hot as 2,900 degrees Fahrenheit, under the watchful eye of four supervisors who have doctoral degrees.

As Soran gives a tour of the 77,000-square-foot plant, he lapses into techno-speak with terms such as "substrate" and "indium gallium nitride."

Gases are introduced to sapphire wafers to create microscopic layers of materials. At the end of the production line, a $250,000 diamond saw cuts each wafer into 13,000 LED chips.

Each chip is tiny: To illustrate, Uniroyal execs say a chip fits between the 1 and the 9 in the date on a dime. In each chip, certain layers produce the light when an electrical charge is sent through the other layers.

Both Uniroyal execs and stock analysts are confident that the company can become a big player in the high-brightness LED market. Uniroyal expects its LED sales to reach $20-million in fiscal 2000, $60-million in 2001 and $150-million by 2003

The $150-million would be as much revenue as Uniroyal's plastics divisions bring in, and reaching that goal would mark the transformation of the company from a stodgy plastics manufacturer to a cutting-edge technology company.

Uniroyal officials point to Cree Research Inc., a Raleigh, N.C., LEDmaker whose stock is trading at about 75 times earnings, compared with Uniroyal, which is at about 20 times earnings. Soran hopes his company can earn similar respect on Wall Street.

"There will be plenty of business available to them," said stock analyst Werden, of H.G. Wellington & Co. in New York. "I think they know what they are doing. These guys do know how to run a manufacturing operation."

Earlier this year, Uniroyal expected to be selling chips by September; now the target is January. Werden is annoyed by that, and cautions that more delays will test investors' patience. Also, the company has $120-million in debt compared with $40-million in shareholders' equity, a high 3-to-1 ratio.

"The debt is an issue for concern," Werden said. "But if the stock price rises, that will do a lot to take care of the situation."

For Uniroyal, the challenge is to make sure almost all of its finished products are worthy to be shipped to light manufacturers. Uniroyal expects to make 200-million LEDs the first year, operating around the clock. A red traffic light's circuit board has 200 to 300 LEDs, while a scoreboard can use as many as 3-million.

As for the industry, the next step is to bring down prices -- which would encourage more automakers and transportation departments to switch to LEDs -- while developing a better way to create white LED light.

Now, blue light is filtered to create white, but a more direct method could bring the price down to a point where LEDs could light office buildings.

"The big lighting companies, like GE and Siemens, are working to help advance the technology," Soran said. "They can see their traditional lighting go away, and so do we.

"Last year, the LED market grew 56 percent. I like that kind of growth."

Uniroyal Technology Corp. Headquarters: Sarasota.

What it does: Makes high-performance plastic products, coated fabrics and adhesives. Now it is starting a push into the production of light-emitting diodes (LEDs).

1998 revenues: $220.6-million, up 5.8 percent from 1997.

1998 net income: $2.4-million, up 500 percent from 1997.

Chief executive: Howard Curd, a New York investment banker.

President/chief operating officer: Robert Soran, former head of Tropicana Products Inc.

Employees: 1,160, including 45 in its new Uniroyal Optoelectronics LED plant in Tampa.

Stock: UTCI on New York Stock Exchange.

Closed at $9.155/8 Friday, down 9.5 percent for the year.

Its future: The company plans to dramatically expand its LED business; the goal is for LEDs to account for as much as 50 percent of revenues within three years. It's betting that more LEDs will go into traffic signals, scoreboards and vehicle lights in coming years.

What the analysts say: The company expects to earn at least 20 cents a share this fiscal year. Lincoln Werden of H.G. Wellington & Co. expects that to grow to 65 cents next year, and to $1 a share in 2001. He also expects the stock price to rise to $15 in a year-and-a-half.

Sean Chaitman, an analyst with Jesup & Lamont Securities, forecasts earnings of 60 cents next year, and has a short-term target price of $13 a share. Both analysts have "buy" recommendations.

How high-brightness LEDs are made

1. Six 2-inch sapphire wafers are placed in a reactor, a machine used to control chemical reactions.

2. The reactor introduces various gases, which create layers of chemical compounds on the sapphire wafers. Each of the layers -- including layers that emit light -- is only millionths of an inch thick.

3. Tiny gold contact pads are applied to each chip site so that a current can be passed through the layers. Each wafer has space for as many as 13,000 LED chips.

4. A separation device dices the wafers into the 13,000 LED chips. Each chip is tiny: It would fit between the 1 and the 9 of the date on a dime. 5. The chips go through extensive testing and are prepared for shipment to companies that will put them into lighting products and electronic devices.