Sheldahl Inc.

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Sheldahl Inc.

1150 Sheldahl Road
Northfield, Minnesota 55057-9444
U.S.A.
(507) 663-8000
Fax: (507) 663-8545
Web site: http://www.sheldahl.com

Public Company
Incorporated: 1955 as G.T. Schjeldahl Company
Employees: 1,000
Sales: $105.3 million (1997)
Stock Exchanges: NASDAQ
SICs: 3679 Electronic Components, Not Elsewhere Classified; 3643 Current-Carrying Wiring Devices; 3089 Plastics Products, Not Elsewhere Classified; 2295 Coated Fabrics Not Rubberized

Sheldahl Inc. creates and markets laminates used primarily by the automotive, computer, and telecommunications industries. Marketed worldwide, Sheldahl laminates are generally of two types: adhesive-based tapes and materials, and the company’s own patented adhesiveless material called Novaclad. From these materials, Sheldahl makes single- and double-sided interconnects and substrates for semiconductor packaging.

Entrepreneurial Beginnings in the 1940s

From an early age, Gilmore T. “Shelly” Schjeldahl, founder of Sheldahl Inc., demonstrated an unusual ability to understand how complex things worked. As a young man growing up in North wood, South Dakota, he built his family’s first radio. He would spend hours at local shops and plants, studying how things worked. At the local newspaper he built a static eliminator for the press. Although he never received a high school or college diploma, Shelly received 16 patents and has started five companies over the course of his career. Jim Donaghy, Sheldahl’s president and CEO, said, “Shelly gave our company a culture of scientific inquiry and the spirit of risk-taking so necessary for success in today’s world.”

Prior to World War II, Shelly worked and attended college part-time for six years, studying chemistry, biology, and engineering. After serving in World War II, he worked in the research laboratories of Armour & Company in Chicago. It was there that he first encountered plastic packaging. He was especially interested in a new packaging material, polyethylene, and the fact that it would not seal.

Together with his wife, Charlene, he developed a way to cut and seal together, simultaneously, two sheets of plastic with a hot knife. It was “a process that would one day revolutionize the packaging industry,” he noted in Forty Years of Innovation: The Sheldahl Story. When neither Armour nor any of Shelly’s other employers in Minneapolis showed any interest in his idea, he set up a bag-making operation in 1948 in the basement of his south Minneapolis home. Using a simple foot-operated cutting knife, he transformed sheets of plastic into pickle-barrel liners. He named his company Herb-Shelly, in honor of a salesman named Herb who had loaned him $100 for materials.

G.T. Schjeldahl Company Established in 1955

Herb-Shelly was soon producing a line of polyethylene bags in Farmington, Minnesota. The company grew to 100 employees and had sales of $500,000 by 1954. In May 1954 Herb-Shelly was acquired by Brown & Bigelow of St. Paul, Minnesota. Unable to work for a large company, Shelly resigned and left on January 8, 1955. Before the end of the year he would establish the G.T. Schjeldahl Company as a public company.

Some key employees were hired in the first year of the company. Dick Slater, who retired in 1995 as senior vice-president of technology, was hired on August 1, 1955, as a project engineer. Jim Womack, who eventually became president and chairman of the board, was hired on October 10, 1956, as a salesman.

Shelly set up a manufacturing operation in Northfield, Minnesota, to fabricate large, high-altitude research balloons made with Mylar polyester film and held together with a Schjeldahl-developed adhesive system. Shelly had been invited by DuPont scientists to visit their Wilmington, Delaware facility to evaluate adhesive resins for sealing a DuPont polymer called Mylar. According to Forty Years of Innovation, “He noticed that his breath caused one sample’s surface to crystallize, making it less tacky and easier to handle. That resin became the basis for his line of heat-sealing adhesive tapes.”

Diversified from the Beginning

The company was diversified from its beginning. It was involved in bag-making machines, high-altitude research balloons, and heat-sealing adhesive tape. The company was initially organized in two divisions: the Mechanical Division, which made packaging machinery, and the Polyester Film Division, which made balloons, special fabrications, and Schjel-Bond. Schjel-Bond was a line of adhesive tapes for polyester bonding.

The Mechanical Division shipped its first automatic side-weld polyethylene bag-making machine in December 1955. The machine was built in the Medical Arts Building in North-field and had to fit through a 35-inch-wide doorway. To this day, the standard width for bag machines all over the world is 35 inches.

By February 1956 the Polyester Film Division had tested more than forty Mylar polyester stratospheric balloons ranging in size from eight to 500 feet around. Shelly had first become involved with large balloons during the Herb-Shelly days, when he fabricated a balloon for the Office of Naval Research at the University of Minnesota.

Another innovative area for the company was that of polyester-fabricated, air-supported buildings. Utilizing its expertise in plastics and adhesives, the company built “Schjeldomes” for 98 cents per square foot. One covered a swimming pool at a Lake Superior resort, another covered a storage building at DuPont’s laboratories. In 1958 the company moved to a new location at the north edge of Northfield and built a 340-foot-long air-supported factory called the “Schjel-Mile.” By 1962 the company had consolidated most of its operations at the 54-acre “Schjel-town,” which included a two-story general office and laboratory, two Schjel-Miles (one was 540 feet long), a factory, and other smaller buildings.

Gained International Fame in 1960

Working under the auspices of government-sponsored programs, the company pursued materials research in many areas. The company benefited from these programs by being able to commercialize and sell the results of its research. For example, its involvement in the Echo satellite program enabled it to learn how to handle extremely thin plastic webs by laminating them in large forms and in high volumes and etching, or chemically milling, the surface. These processes would later be used in the production of the company’s circuitry and other products.

On August 12, 1960, the G.T. Schjeldahl Company became known around the world when Echo I was launched into orbit by the National Aeronautics and Space Agency (NASA) from Cape Canaveral, Florida. Echo I was a 100-foot passive satellite, or “satelloon,” that was designed and built by Schjeldahl. At the time it was the largest object ever fired into orbit, but unlike the Russian-fired Sputnik, it could be seen from Earth. It was made with a very thin polyester film vapor deposited with aluminum and sealed with Schjeldahl’s GT-301 tape.

For the United States, Echo I was the beginning of a satellite-based global telecommunications network. The aluminized surface of the communications satellite acted as a mirror to bounce radio and television signals back to Earth. Although expected to stay aloft for only a few weeks, Echo I circled the globe for eight years. It was the success of Echo I that led to a presidential recommendation to form a federally regulated, privately owned telecommunications network.

The U.S. Navy’s Polaris submarine was another important project for Schjeldahl. The company developed a laminate material and adhesive system to construct environmental seals, or diaphragms, for the sub. The diaphragms’ purpose was to keep water out of the submarine until a missile was released.

Mastered Two Key Processes in the Early 1960s

Schjeldahl’s expertise in two key processes for combining different materials, laminating and vacuum deposition, led to the development of many new products in the 1960s. A laminate is a product that combines two or more materials, such as plastic, metal, or fiber, using an adhesive or other means. Vacuum deposition condenses metal vapor onto thin plastic in a vacuum chamber to make a very thin foil.

In 1958 Schjeldahl was laminating materials by hand. In 1959 it built its first laminator, a small machine that could combine copper and tape, to produce Schjel-Clad, a laminate of copper bonded to Mylar polyester film for printed circuit and printed wiring applications. Schjel-Clad was developed for use in aircraft, spacecraft, automobiles, business machines, computers, switchboards, television, and radio. It was introduced as part of the dash-panel wiring in all 1962 Buicks.

In 1963 the company acquired a 72-inch vacuum deposition coating unit to make micrometeoroid sensors for NASA. The sensors consisted of metal sheets bonded with Schjel-Bond adhesive to polyester thinly coated with copper. Products that grew out of this vacuum deposition technology included thermal control coatings for spacecraft, Novaclad, X-ray sensors, radar-absorbing films, and keypads for computer keyboards.

Other technologies developed in the early 1960s involved microcircuitry, which Shelly began studying. His research led to a new process for enclosing microcircuits within a thin film of glass using a technique called “sputtering.” His early work in this area formed the basis for the high-density substrates that Sheldahl later made in Longmont, Colorado.

In 1964 the company introduced Schjel-Flex, a line of precision-etched flexible circuitry processed roll-to-roll from Schjel-Clad. The company also manufactured the machinery for the inline production of Schjel-Flex. It was this roll-to-roll processing ability that gave Schjeldahl a competitive advantage in the flexible circuit product area. This later became the focus of the company’s Electrical Products Division, which offered flexible circuitry, flexible laminates, flexible cabling, and shielding.

Growth and Change, 1965–1966

At the end of its first decade, Schjeldahl was organized into three divisions: the Advanced Programs Division, which worked on government research and development projects; the Packaging Machinery Division, the company’s largest division and by then one of the world’s leading producers of machines for making plastic and multiwall bags; and the Electrical Products Division.

The company had grown to nearly 900 employees and net sales had increased from $311,000 in 1956 to $13.3 million in 1965. Shelly stepped down as president at the end of 1964 to spend more time on corporate planning and exploring new products and markets. He remained as chairman and treasurer of the company. Arthur Hatch, executive vice-president, was promoted to president.

Faltering Economy and Government Cutbacks Brought Tough Times, 1967

The company enjoyed growing sales and income in 1966, but in 1967 a slackening U.S. economy and cutbacks in government-supported research, always an important part of Schjeldahl’s business, led to a 60 percent drop in net income to just $349,000 for the year. The next year the company reported a net loss of $742,000 under its new president, George Freeman. The company struggled to regain ground, but 1970 brought another net loss.

One highlight from this period was the company’s involvement with Apollo 11 and the moon landing of July 1969. It developed a thermal control material consisting of a thin plastic film coated with vacuum-deposited aluminum overcoated with silicon oxide. This material controlled the temperatures in the Apollo 11 command module, the lunar lander, and the astronauts’ space suits. The company also developed a special material for the lunar lander’s window shades.

Over diversification Led to Reorganization in the 1970s

When Freeman resigned in 1971, Jim Womack became president of the company. As Schjeldahl sought new markets, the number of products and projects grew rapidly. In 1974 a company logo was created to symbolize its expertise in bringing diverse materials together and the company’s name was changed to Sheldahl Inc. By 1975 Sheldahl had adopted the slogan, “Within our diversity lies our growth.”

Sheldahl enjoyed an international reputation for fabrication based on materials technology. It was the United States’ largest independent producer of flexible circuitry and one of the largest suppliers of packaging machinery in the Western Hemisphere. The company also produced laminates and tapes and a wide range of other products for aerospace and other industries.

Sheldahl was also involved in several special “one-off” projects. In 1973 it provided thermal control material to repair the Skylab space station. It also fabricated 35,000 expansion-joint weather seals for the above-ground portion of the 800-mile-long Alaska Pipeline.

The company’s extensive diversity eventually translated into a lack of direction, and in 1977 it began to consider redefining itself. It brought in an outside consultant, Arthur D. Little & Company, to help. The result was a decision to refocus resources on two growth areas: materials and circuitry. Operations at North-field were shrunk from four divisions to one, and extensive management cuts were made. The company also sold overseas plants and businesses that did not fit its new strategic plan.

Sheldahl’s new focus resulted in the sale of its packaging machinery division. Although it had been a dynamic growth business for the company since it sold its first bag machine in 1955, packaging machinery had become a mature market by 1980. The company had orders for almost 5,000 machines in 1980, the year it sold the division to concentrate on materials and circuitry.

Refined Focus and Emphasis on Quality Characterized the 1980s

As Sheldahl focused its resources on materials and circuitry, it made several organizational changes. It got rid of several layers of management to “empower our people,” said company President Womack. The company also switched from an indirect to a direct sales force to fulfill individual customer’s needs better. Each salesperson was equipped with a portable computer that allowed the sales force to determine the feasibility of a project or product through near-instant pricing estimates at the customer’s location.

In the face of increasing international competition, Sheldahl also adopted a zero-defect approach to quality. The company worked in partnership with customers to get its products qualified to be shipped without incoming inspections. Sheldahl’s quality control program was so successful that in 1982 the company was selected as one of the original 77 suppliers to receive Ford Motor Company’s prestigious Q-1 Award for producing a consistent top level of quality over a period of time.

In 1988 Jim Donaghy, who had worked with Sheldahl employees over the years, was recruited from DuPont by Jim Womack to become president of Sheldahl; Womack became chairman of the board. To close the decade, Sheldahl’s management team outlined a new market-focused, customer-driven business plan to make Sheldahl consistently profitable and the preferred supplier of laminates and components made from laminates in high-growth global markets. This plan resulted in a whole new line of products for Sheldahl that was introduced in the 1990s.

Preparing for the Future in the 1990s

One of the first new products introduced in the 1990s was “Z-Link,” an interconnective circuitry system with an adhesive that conducted electricity only in the Z (vertical) axis. This innovation allowed the building of multilayer flexible circuits and was awarded R&D Magazine’s prestigious R&D 100 Award for significant new technology. Another significant new product was Novaclad, a copper-on-film flexible material that eliminated the need for an adhesive system. Since it used no adhesive, it could be used in a high-temperature environment, such as inside an automotive engine compartment, as well as in a harsh chemical environment, such as in brake fluid.

Introduced in 1990 and patented in 1992, Novaclad was the start of a series of innovations that enabled Sheldahl to achieve significant penetration in the automotive electronic market. “Novaflex,” a technique for making adhesiveless flexible circuit from a Novaclad base, was introduced in 1991, followed by “Novalink,” a multilayer circuit constructed with Novaclad or Novaflex flexible circuits and Z-Link adhesive. These products were used in such automotive applications as antilock braking systems and dashboard circuitry. To better serve its automotive customers, Sheldahl established the Detroit Technology Center in 1990.

In 1993 Sheldahl organized a consortium of vertically integrated, noncompeting companies to develop products based on Novaclad for the multichip module (MCM) integrated circuit packaging market. The United States needed high-density, low-cost MCMs to compete globally, and federal funding for the consortium was obtained through the Advanced Research Projects Agency (ARPA) of the U.S. Department of Commerce.

With funding assistance from ARPA, Sheldahl established a prototype production facility in June 1994 in Longmont, Colorado to produce Novaclad-based products in commercial quantities, principally for the datacommunications market. One of these products was “ViaThin,” a Novaclad-based microcircuit substrate that, with the application of a photoresist liquid, was ready for printing and etching fine conductors. The company also made substantial capital investments over the next several years to support its strategy of gaining market share in the automotive electronic market and the datacommunications market. Production capacity was increased at its Northfield and South Dakota operations.

Production Delays Affected Profitability, 1997

Sheldahl’s strategy seemed to be paying off, with sales increasing steadily to a record level of $114.1 million in 1996. The company’s net income of $4.8 million that year was its highest ever. Sales to the automotive market had increased from $13.9 million in 1989 to $71.0 million in 1997 and represented 67 percent of the company’s revenue. Datacommunications revenue, the company’s second largest market, had steadily decreased from $32.6 million in 1991 to $12.5 million in 1997, accounting for 11.9 percent of the company’s 1997 revenue. Aerospace and defense work, another declining but important segment of Sheldahl’s business, was third at 8.7 percent of sales, or $9.2 million.

Unfortunately, production delays at the company’s Micro Products facility in Longmont, Colorado significantly impacted Sheldahl’s profitability. These included delays in delivery of equipment for its production lines and longer-than-anticipated product specification and full qualification periods. As a result, Sheldahl reported a net loss of $8.0 million in fiscal 1997 on sales of $105.3 million. According to the company’s annual report for 1997, “These losses are expected to continue until efficient volume production and related sales revenue are achieved.” Sheldahl’s CEO James Donaghy expected volume production of the company’s micro products to begin in the second half of fiscal 1998 and noted that one of the company’s lead micro products customers had completed its first round of full qualification testing on Sheldahl’s ViaThin substrate for semiconductor packages.

For fiscal 1998 and the near future, Sheldahl was focused on the automotive electronics and datacommunications markets. The worldwide automotive electronics market was expected to grow to $28 billion by 2005. With datacommunications demanding lighter, smaller, and faster products, Sheldahl expected to find a ready market for its Novaclad, ViaThin, and MCM substrate products. In addition, new applications, such as government-mandated airbags and others yet to be developed that depended on Sheldahl’s core technologies and competencies, were likely to come along in the future.