Company description: Technical expertise adds value
Solid State was established in 1971 as a components distributor and listed on AIM in 1996. It has grown both organically and through acquisition, building up its own design capability and engineering expertise, especially in the creation of ruggedized systems and subsystems for use in harsh environments. Around two-thirds of revenues are derived from the Manufacturing division (Steatite), which supplies mission-critical systems including rugged and industrial computers, custom lithium battery packs, secure mobile communication systems, antennae and subsystems suited to harsh environments. Around one-third of revenues are from its value-added distribution division (Solid State Supplies). Management estimates that over 85% of group business is based on high-margin custom designs that meet demanding customer requirements. Management’s strategy is based on top-line growth through selective acquisitions, the development of new products and entry into new industry verticals, combined with margin improvement through focus on value-added design and assembly capability and development of own-brand products.
The group’s headquarters and operating businesses are located at five sites in the UK. Steatite and Solid State Supplies share a 50,000sqft site in Redditch. The group employs around 200 people.
Steatite has an international customer base that includes Amey, Astrium, Atos, BAE Systems, the BBC, GE, Indra, NASA, QinetiQ, Synectics and Thales. It is a tier 1 supplier to some of the UK’s largest companies in the defence, broadcast, security, transportation and industrial sectors and an approved supplier to the UK MoD and other government authorities. Distribution customers include BAE, Honeywell Aerospace, Rolls-Royce, Thales and Ultra Electronics.
Steatite (62% of FY16 revenues)
The Steatite Manufacturing division aims to offer a one-stop-shop service for customers requiring specialist computing devices, battery packs and secure communications systems for deployment in harsh and demanding environments where it is imperative that the system does not fail.
Exhibit 1: Steatite core capabilities
Business unit |
Capabilities |
Competition |
Computing |
Custom PC design & build, mobile and fixed position computing platforms, embedded, server and panel PC solutions. |
Amplicon, BVM, Captek, Concurrent Technologies, Rockwell Collins |
Batteries |
Custom lithium battery pack design & build, energy storage & portable power solutions, approved oil & gas supplier, NATO approvals. |
Arotech, Leclanche, Lincad, SAFT, Ultra Electronics, Ultralife, |
Radio communications |
MANET & SATCOM radio systems, dismounted soldier systems & covert radios, mobile RF networks & secure video distribution. |
Centreprise, Cobham, Cohort, Cubic Corp, Elbit, Kratos Defence and Security, Persistent Systems |
Antennas & subsystems |
Horn, omni, sinuous and spiral antennas, antenna research, development & build, subsystems & bespoke antenna components. |
AH Systems, C-Com, Cobham, Cohort, Rockwell Collins |
Source: Edison Investment Research
At least three-quarters of divisional revenues are derived from projects where some level of customisation is needed to fulfil the customer specification. For a fully customised product, such as a battery pack for downhole drilling, Steatite will design a complete new system right down to individual circuit boards. For a semi-customised solution, such as a military communications system, a touchscreen computer for a nurse’s cart or a PC for use in an explosive environment or a food processing plant, Steatite integrates off-the-shelf product with some customised elements such as ruggedized casings designed in-house. This off-the-shelf product may be sourced from third parties, eg Persistent Systems and ViaSat, or from Steatite’s own branded ranges such as its ndura RUGGED brand ruggedized computing and peripheral products and Qpar antenna positioners. Steatite also offers service and repair contracts over the lifetime of products and design consultancy. For those revenues where no customisation is required, Steatite advises the customer on product choice and integration and may provide support during product deployment. By providing this level of service, Steatite effectively becomes an extension of the client’s own design team, making it difficult for a potential competitor to displace it.
The markets served have particularly onerous regulatory requirements. Steatite advises customers on compliance with CE, UK DEF STAN, American MIL-STD, NATO STANAG and UK, European and American TEMPEST requirements. It is able to provide systems that have been pre-certified for use in rail, marine, medical, sub-station, explosive and in-vehicle applications, thus speeding up product certification and reducing time-to-market for the customer. As part of the offer for bespoke mobile and static communications, it is able to provide enhanced drive encryption, which gives greater security of data. For example, the current range of Secure Communications Equipment used by the UK MoD was designed by Steatite, which continues to maintain the systems. Steatite is able to deploy security-cleared staff where required and has a dedicated secure area for sensitive projects. Since lithium battery cells offer high power densities but are liable to explode when the cell is pierced, their transportation in bulk is highly regulated. Steatite has UN approval for this.
Solid State Supplies (38% of FY16 revenues)
Solid State Supplies is a value-added distributor of electronic components. Its product ranges cover embedded processing and memory, imaging and displays, wireless, LED lighting, sensing and control, power management and analogue devices. It has particular expertise in high-reliability components for defence and aerospace applications, in support of which its Quality Management System meets international aerospace standard AS9120. Solid State Supplies is differentiated from volume component distributors by the level of technical support that it provides. Technical team members provide technical support on products, advising on purchases of individual items and how they will work together. They also provide post-sales support and customer training. The operation provides a local link between component suppliers, who may be based in the Far East or US, giving a single source of components from multiple suppliers that is located in the same time zone as the customer, speaks the same language and trades in the same currency.
Exhibit 2: Distribution division: product categories and franchisors*
Power & Analogue |
Allegro Microsystems, Exar, GE, Holtek Semiconductor, International Rectifier, ISO Link, Kemet, Knight Electronics, MagnaChip. Microsemi, Orion Fans, Power Integrations, Pulse Electronics, SanKen, Sunon |
Embedded processing & memory |
Achronix, Alliance Memory, AMIC, Digi, EmCraft, FieldServer Technologies, Holtek Semiconductor, Karo Electronics, Meltron, Microsemi, Rabbit Semiconductors, Silicon Labs, SK Hynix, Transcend, VIA Embedded |
Imaging & displays |
Crystal Clear Technology, Densitron Displays, OmniVision, Trimble, Varioptic, Winstar, YB |
Wireless |
Radiocrafts, Trimble, Pulse Electronics, Sierra Wireless, CML Microcircuits, Embedded Antenna Design, Quectel, Skyetek, ConnectOne, Rabbit Semiconductors, Silicon Labs, SmartEQ |
Lighting |
Allegro Microsystems, iWatt, MagnaChip, SanKen, Cooliance, Knight Electronics, Lunius Devices, Orion Fans, Exar, Holtek Semiconductor, LED Engin, Lumotech, Plessey |
Sensing & control |
Allegro Microsystems, Amur, Exar, Holtek Semiconductor, Pulse Electronics, Sensolute, SMI Pressure Sensors, VLSI Solution |
Source: Solid State. Note: *Brand owners with which Solid State Supplies has distribution agreements.
As customers’ projects progress from R&D to volume production, the division offers value-added services including programming semiconductor devices, checking that hardware has the correct version of firmware installed, putting individual components on reels of tape for use on automatic assembly lines, transferring components used in smaller volumes from larger to smaller reels of tape, creating kits of components to speed up assembly, and baking components to remove moisture and then sealing them to prevent any further moisture from entering the component. These services are carried out in the division’s secure, bespoke, electrostatic discharge (ESD) facility, which is certified to the AS9100 aerospace manufacturing standard. Other services provided that help customers with procurement issues are scheduling deliveries to help with inventory control, traceability of supply and parts obsolescence management. These services help generate additional margin and also help lock-in customers. Solid State Supplies generates additional margin by developing its own-brand product where there is a gap in the market. For example it has introduced a range of industrial camera modules.
Solid State’s specialist technical capability and compliance with the regulatory standards required to operate in the aerospace and defence sectors, eg AS9100, ISO 9001:2008 accreditation for document control and participation in the SC21 supply chain programme developed by the UK aerospace and defence industry, provide a significant barrier to entry. So do the long-term relationships, which it has built up with both franchisors and customers.