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More cuts loom as Newport reviews product lines

04 Nov 2015

Owner of Spectra-Physics and Ophir brands initiates 'detailed review' of its product portfolio.

California-based Newport says that it is looking to cut costs again, despite posting a solid-looking financial quarter in the face of unfavorable currency effects.

Like many US technology exporters, the owner of well-known brands including laser specialist Spectra-Physics and metrology-focused Ophir Optronics has been hit by the strong dollar. Quarterly sales of $147.6 million were almost identical with the same period last year, but would have been nearly $9 million higher on a constant-currency basis.

In terms of the firm’s end markets, CEO Robert Phillippy described the overall economic environment as “somewhat choppy”, adding that he was optimistic about long-term prospects in the semiconductor sector despite likely near-term weakness.

The defense market also appears to be rebounding from recent lows, with sales and orders both up strongly on the same period of 2014, while the health and life sciences story was a mixed one: demand for bio-imaging equipment is strong but that has been offset by weakness among OEM customers selling into ophthalmology and dental applications.

Detailed product review
The Spectra-Physics division, which has borne the brunt of the cost-cutting measures already taken by Newport’s management team, reported a 9 per cent year-on-year increase in quarterly sales to $48.2 million. However, Newport’s optics unit reported a decline in sales of similar magnitude to $38.4 million.

The actions already being taken – which include closing the firm’s Andover, Massachusetts, facility and relocating some activities there to Romania and Israel - are expected to reduce annual operating expenses by around $14 million.

Now further measures look to be in the pipeline, with Phillippy telling an investor conference call: “We have initiated a detailed review of our product portfolio, and are developing a targeted plan to identify and address underperforming areas via cost reduction, de-emphasis, or divestiture.”

That review is scheduled to be completed by the end of the first quarter of next year, and when asked about the thinking in more detail, the CEO expanded: “In the slow growth environment we can’t afford to tolerate product lines and business areas that have interesting technology and growth prospects, but that don’t contribute to our company-wide profit objectives.”

Exactly where those cuts will fall remains to be seen, but happily for Femtolasers, the ultrafast laser company acquired by Newport earlier this year, recent actions have now nudged the division intro profitability.

Semi consolidation
In the microelectronics sector, Newport is likely to be impacted in some way by the recent news that the semiconductor equipment firms Lam Research and KLA-Tencor are to merge. Phillippy said that he saw “some possible upside” in the deal.

Though it must first gain approval from industry regulators, the merger should see Lam and KLA look to combine their expertise into larger systems and tools that integrate wafer processing and process monitoring capability.

KLA has been a major customer of Newport’s for more than a decade, while Lam has not. But with the existing strong KLA relationship and design-ins, Phillippy is optimistic that the new system combinations could eventually offer a larger opportunity.

For the final quarter of the year, Newport’s executive team predicted sales of between $150 million and $156 million. If correct, that would take full-year revenues to around $600 million.

That would represent a slight decrease on last year’s record sales total of $605 million – although the stronger dollar will be partly responsible for that.

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