A craftsman works on an acoustic guitar at the PRS guitar factory in Stevensville, Maryland, September 25, 2009. REUTERS/Jonathan Ernst

Three decades after defying the odds and persuading Carlos Santana to try out his hand-built guitar, Paul Reed Smith's quest for perfect tone is still reeling in enthusiasts from all over the world.

Despite the world economic downturn, his company has built a new multimillion dollar factory and is looking at multiplying revenues while other instrument makers report declining sales.

More than 1,700 guitar dealers and customers traveled to a festive open house at Smith's Maryland headquarters this past weekend to see his newest guitars and tour a factory that turns out over 16,000 handcrafted instruments each year.

The crowd -- which included dealers, doctors, investment bankers and ordinary guitarists -- ordered more than 500 guitars ranging in price from several thousand dollars to as high as $70,000, for a grand total of well over $1 million.

Over the past 25 years, that kind of excitement has made Paul Reed Smith (PRS) Guitars the third largest U.S. electric guitar maker, helping it to squeeze older names Fender and Gibson and capture 40 percent of the high-end guitar market.

Nick Catanese, of Black Label Society, began playing PRS guitars in January, and says there's no comparison with other brands. They're almost like a work of art, he told Reuters.

Those kind of reviews are good for PRS's bottom line, which is surviving the economic downturn better than most.

This year, PRS expects to match its 2008 revenues of $38 million, while competitors report declines of 20 to 30 percent, and the new factory should allow the company to double its sales once the economy recovers, says President Jack Higginbotham.

Gary Ciocci, managing director of Premier Guitar magazine, attributes the company's success to Smith's intense focus on its customers and events like the $300,000 open house.

They're not here to make a quick dollar, he said, noting that despite the economic downturn there weren't many used PRS guitars among thousands for sale on eBay.


Santana, who has been playing Smith's guitars since 1980, said he was grateful God put me in Paul Reed's path because his passion and integrity were simply contagious.

It inspires you to be the best you can be, he told the crowd during a surprise concert on the eve of the open house.

He's like Leonard Bernstein ... and the people who make the guitars are like the symphony, he told 400 guests.

Santana was so impressed with PRS's new amplifiers -- a product line introduced this year -- that he ordered several for a concert on the West Coast next week.

Smith began repairing guitars while in high school, but soon began building his own by hand, persuading stars like Santana, Howard Leese of Heart, and Ted Nugent to try them.

Over the decades, Smith has become a kind of rock star himself, says Guitar World publisher Greg DiBenedetto, who says PRS has an almost cult-like following among its fans, many of whom collect PRS guitars. Some own as many as 50 or 60.

Smith calls his success the American dream come true.

You get a kid whose a hippie in a bedroom in Bowie, Maryland without any money who is somehow able to put a guitar company together, he says. The other part of the magic is that these are musical instruments.

And those instruments are the best of the best, says Leese, who bought his first Smith guitar in the late 1970s for $2,000, an instrument now worth over $500,000.

Buying a PRS is like buying a Rolex watch, he told Reuters. The instrument eliminates the physical barrier between what you hear in your head and what's coming out the other end.

Smith keeps a few vintage guitars in his office, including a 1957 Fender Stratocaster, the instruments he considers his real competition. On Saturday, he let Dweezil Zappa, son of the late Frank Zappa, play some of those old guitars before handing him a brand new prototype PRS guitar.

Maybe it'll be the Dweezil Zappa special, he told Zappa, who is weighing a possible endorsement.

Zappa said he'd still have to think about it, but thanked Smith for the invitation to play at the open house. It's a fun thing to be part of what you put together, he said.