Challenged by serving a volatile market, Spokane electronic components tester Hi-Rel Laboratories Inc. says its recipe for survival includes staying small, lean, and tightly focused on customer needs.

The highly specialized company, which mostly serves the aerospace industry, has weathered industry swoons and national recessions, and is holding its own despite them, with 48 employees and expected sales this year of more than $5 million, says its president, Trevor Devaney.

"We have a rather different approach than most companies," Devaney says. "We don't care about growth. We've grown as a response to our customers' needs. We just want to take care of them."

Right now, the U.S. Department of Defense, he says, is "trying to squeeze the whole system down" in aerospace, and, consequently, business volume for Hi-Rel's primary customers, military contractors such as Boeing Co. and Lockheed Martin Corp., is in decline. He says future growth in the aerospace industry is uncertain, which is one of the reasons Hi-Rel takes a conservative approach to growth.

"If business is going down, we're anticipating it so we don't get caught," Devaney says.

Hi-Rel does microscopic testing of the materials used in electronic components, usually looking for flaws that could cause the part to fail.

The company survived a major downturn in the materials testing industry in 1992.

"It was the end of the Cold War. The procurement of government satellites ended in the early 1990s," Devaney says. Orders lapsed before work on commercial satellites and the International Space Station began.

That also was the year Hi-Rel moved from Southern California to Spokane.

"Our customers thought we were crazy. Now, they say it was the most brilliant thing we could have done," he says. "If we'd stayed in Southern California, with the cost of operating there, we wouldn't have been able to stay in business."

During that downturn, Hi-Rel went after work in other sectors, such as automotive and medical manufacturing, that require high reliability in electronic components. "We found everybody else doing testing, and survived on that," Devaney says.

That need for high reliability in manufactured parts is how Hi-Rel got its name, he says.

Following that downturn, Hi-Rel won a contract to test parts for the International Space Station. Needing more space, it moved from its first quarters here on East Nora to a 12,000-square-foot building at 6116 N. Freya in 1997.

Several years ago, Hi-Rel benefitted from a shift "back to basics" in military procurement, Devaney says. For a time, the National Aeronautics and Space Administration had not been requiring contractors to follow standard specifications in manufacturing.

"A lot of failures resulted," Devaney says. The military "went from one end of the pendulum back to reinvigorating the old specs," he says. "It increased our testing dramatically."

In fact, Hi-Rel's business nearly doubled with the military's return to close contractor oversight that resulted in more testing of manufactured components. Its annual revenues grew to $6 million in 2007, from $3.3 million in the year-earlier period.

Devaney says Hi-Rel has been able to roughly maintain such revenues ever since. "We haven't been hit by the recession," he says.

Hi-Rel's staff also has increased with its increased workload, but management doesn't want to grow beyond the current 48 employees, including three employees who work at a satellite facility in Okanogan that does cross-sectioning of parts. The company had 14 employees when it moved here in 1992. Hi-Rel says it wants to keep the company under 50 employees so it doesn't lose small-business status with the government.

"There are incentives in not being large. The government encumbers you with regulations if you become a certain size. If you stay under 50 people, the government pretty much leaves you alone," Devaney says.

Hi-Rel's staff includes metallurgists, chemists, a physicist, and electronics technicians. Devaney's 71-year-old father, John R. Devaney, hasn't held a management role with the company since 2001, but still puts in a full week, mostly teaching seminars and workshops within the industry, which provides Hi-Rel with another source of revenue.

The company tries to make sure that job security isn't a major concern for the laboratories' staff, many of whom are long-term employees.

"We take serious responsibility for the future welfare of all our employees and manage the business very conservatively to those ends," says Roger Devaney, vice president and the laboratory director, and Trevor Devaney's brother. "Rapid growth destroys more companies than anything else, so there is merit in being content with the current size and scope," he says.

Hi-Rel has four operating divisions. The largest does what's called destructive physical analysis, which is microscopic cross-sectioning and inspection of electronic components to look for flaws or defects that could cause failure of electronic devices over time. Devaney says that division does 400 to 500 individual analyses each month.

The materials analysis division uses specialized techniques to study the components of a material. That division got a big boost with the trend toward lead-free soldering in manufacturing. Devaney explains that the properties of lead prevent other metals from forming microscopic defects under stress that can cause electrical equipment to short circuit.

Because such defects could cause spacecraft to fail, the aerospace industry was given an exemption to the lead-free requirement, allowing it at least 3 percent lead in soldered devices. Every part had to be validated as having a minimum amount of lead, Devaney says. That resulted in "an enormous amount of testing. It was an unintended consequence of going green."

The failure analysis division at Hi-Rel tests electrical and electronic components that didn't hold up with repeated use to determine the root cause of that failure.

"A half-cent part makes a difference," he says, adding that a problem part causing failure could put a company out of business.

Upgrade services is Hi-Rel's newest division, begun in 2002. It's run by Devaney's younger brother, Cedric, who also is vice president of quality assurance. Testing in that division is done with X-ray machines that magnify up to 2,000 times. Technicians look for microscopic loose particles inside the cavity of a device that could cause problems during use.

"Everything we do involves imaging at high magnifications," Devaney says. The company's nine scanning electron microscopes can magnify an object up to 60,000 times. Another machine uses a focused ion beam to do micro-machining with a precision to one-tenth of a micron. Yet another device uses ultrasound under water to produce more accurate resolution of objects down to a thousandth of an inch.

Devaney says one of the reasons the company has been successful is that he spends a significant amount of time searching for used equipment for sale at a fraction of the original cost. For example, he's purchased a used scanning electron microscope that costs hundreds of thousands of dollars when new for only tens of thousands. He bought a focused ion beam instrument that retailed at $1 million five years ago for $110,000. He picked up a $300,000 acoustic microscope for $40,000. He says keeping equipment acquisition costs low allows Hi-Rel to keep its pricing comparatively low for the specialized testing it does.

Devaney says the company doesn't have a growth plan, because Hi-Rel's growth depends on cycles in the industry that can't be predicted.

"Our business relies on new procurements of satellites. It's all about cycles. A very bad cycle brought us here 18 years ago. We've been blessed by the government's recent procurement strategy that reinvigorated us. We were very lucky to grow back in a healthy fashion," he says.