Entrepreneurial Dominion

     Steve Yates

A Chip is Just a Chip

Intel's network processors are inert flakes of silicon until a company like ADI Engineering breathes life into them.

ADI Engineering is one of those companies that make products so obscure -- so deeply embedded in someone else’s product -- that it would be an understatement to tag it as merely “invisible.” Unless you were engaged in the semiconductor business, you wouldn’t even imagine there was a need for a company like ADI to exist. Yet, there it is: a profitable, growing, high-tech firm funded without outside capital, located north of Charlottesville, and generating about $4 million a year in sales.

Just how arcane are ADI’s products? Here’s an example. Telecommunications companies are rolling out Voice over Internet Protocol (VoIP) telephone services that route phone signals over the Internet rather than through traditional telephone switches. A company called Qovia, Inc., sells an appliance with an obscure function. As the company describes it, “The Qovia 3000 is a low-cost network probe designed to capture data and performance information from the VoIP network.”

ADI makes the network probe… Well, it doesn’t actually make it. ADI adds value to it. If you’re wondering what a “network probe” is in the first place, don’t ask. All you need to know is that it is a sophisticated piece of equipment based on the Intel IXP425 network processor – modified to make it do what Qovia wants it to do.

Other companies make custom products using Intel microchips, too. What sets ADI apart, explains CEO Steve Yates, is that his company has figured out a way to reduce the cost of developing custom products based on the chip, speeding the time to market and eliminating most of the risk associated with making sure it works.

In industry jargon, Yates’ company makes “reference platforms” for Intel’s IXP425 chip. That makes ADI Engineering a player in the vast ecosystem of companies that swirl around Intel, adding value to Intel’s microchips so they can be embedded in a wide array of network-related gadgets. “We’ve established a unique niche with the semiconductor ecosystem,” says Yates. “We’re the only U.S. company that provides our particular mix of services."

It all starts with microchips. For all the power packed into them, these tiny silicon marvels are worthless by themselves. Intel manufactures unfinished products that must be set in circuit boards and programmed to perform desired tasks. ADI identifies a potential family of related applications – communications, for example, or security, storage or network processing -- takes the chips about 80 percent to 90 percent of the way toward the finish line, then does all the certification and testing to make sure they work as advertised. This semi-finished product is called a reference platform.

Companies like Qovia then hire ADI to finish the product design according to their own, custom specs. Because ADI can spread the overhead of taking the design to the 80 percent mark, it can charge a customer like Qovia less than it would cost to do all the work from scratch. Because ADI has done 80 percent of the work already, it can significantly reduce the client’s turn-around time: often only two or three months. And because ADI has already tested and certified the first 80 percent of the work, it has stripped out most of the project-development risk.

“It’s like a builder who has blueprints for a house,” Yates explains. “One client might want one a two-car garage instead of one, a finished basement instead of an unfinished basement. They don’t have to engage an architect for each house. What differentiates the products is the last 10 to 20 percent of the design.”

Born and raised in Chesterfield County, Yates learned early that he had a natural aptitude for his work. He built his first micro-computer by hand in the 9th grade. He earned bachelor’s and master’s degrees in electrical engineering at the University of Virginia, then moved to Oregon, where he designed PC motherboards for Intel. Returning to Charlottesville, he took a job with GE Fanuc, a factory automation firm, with the idea of finishing his Ph.D.

Yates never got around to completing his studies. In 1990, he started laying out printed circuit boards on the side. Within a few years, he had so much business he decided to devote himself to the business full time. Building a base of regional clients, he hired employees as he took on more business. The crucial break came in 2000, when Intel contacted Yates about designing a reference platform for a new embedded processor family. “Our memory performance was 10.5 times that of Intel’s [in-house] design,” Yates recalls. “That got noticed.”

That job brought Yates and ADI into the Intel fraternity, opening doors to new customers and strategic partners. Growing organically – no acquisitions, no outside capital – ADI steadily climbed the value chain. In time, the company developed a whole series of reference platforms for different industry sectors.

Yates’ philosophy has been to build value over time. As a service company, ADI didn’t have the kind of business model that the dot.com-era venture capitalists were looking for, so there’s no assurance that he could have gotten funding even if he wanted it. But he didn’t want it. “I don’t want to sound like some rogue guy,” Yates says, “but there can be a lot of pressure for quick returns and quick growth that isn’t in the best long-term interest of the company. We can look to build value over longer time frames, with less risk.”

With no outside investors to answer to, ADI has been free to evolve as Yates finds new and better opportunities. He’s expanded the company’s capabilities from primarily an engineering/design shop to include the outsourcing of manufacturing as well as marketing and distribution. With a demonstrated ability to anticipate market trends and deliver product, Yates is prepared to take on the risk of conceiving, manufacturing and selling his own products.

As with so many companies in the knowledge economy, ADI’s greatest assets reside in its human capital. “We have a highly talented, technically oriented staff,” Yates says. “The bulk of our staff is hardware and software engineers.”

Located in Charlottesville, ADI works at somewhat of a disadvantage: Most companies working closely with Intel, including many of ADI’s strategic partners, are situated in or near Silicon Valley. The considerable distance between Charlottesville and the center of the semiconductor universe does impose costs, Yates acknowledges. Often it’s difficult to recruit someone locally who possesses particular technical skills. It also takes a greater effort to maintain close ties to strategic partners in California.

But there are ways to offset those drawbacks, Yates says. A number of employees work remotely, and the sales and marketing staff operates out of Portland, Ore. For employees in Charlottesville, he offers a flexible work environment and technically stimulating jobs.

As far as Yates is concerned, there's no better place to run a business. “I’m a Virginia native. I think Virginia is the greatest place. Frankly, there never was a question of whether we’d locate here or not."

-- November 17, 2004

Find Out More...

ADI Engineering

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News...

October 19, 2004

ADI Announces Low-Cost Reference Platform for the Intel IXP23xx Product Line

September 7, 2004

ADI Engineering Teams with Instant802 Networks On New Production-Ready Wi-Fi Application Platform

September 6, 2004

Kozio, Inc. Introduces Complete Diagnostics Software Platform Supporting ADI Engineering's Pronghorn Wi-Fi Application Platform

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