GSI Lumonics banks on back-to-basics strategy

26 Nov 2002

Sales at GSI Lumonics, the Canadian maker of industrial laser systems, have been hit hard by the recent economic downturn. Jacqueline Hewett speaks to Charles Winston, the company's chief executive officer, to find out how he plans to turn things around.

From Opto & Laser Europe December 2002

The economic slowdown in the semiconductor and electronics industries has hit many photonics firms hard. Businesses around the world are busy making contingency plans to ride out the storm, and GSI Lumonics (GSIL), the Canadian laser specialist, is no exception. Its two core product areas, laser-based manufacturing systems and precision optical components, have been badly hit and a large portion of GSIL's business as a whole has been affected.

Like many others, the company's back-to-basics survival plan focuses on consolidation: exploiting its core technologies; meeting buyers' changing needs; and rationalizing its products and workforce. But the return to profitability is proving to be a difficult nut to crack. The company has just reported a further drop in quarterly sales, and it anticipates only a modest improvement for the rest of the year.

For its third quarter ended 27 September, the company posted sales of $37.4 m (€37.7 m), down from $39.7 m in the preceding quarter and $41.3 m year-on-year. These figures fail to reflect the bigger picture, however. In the first nine months of this year, sales at GSIL totalled $113.9 m. Compare this with the $205.5 m that was brought in by sales in the first nine months of 2001, and the true scale of the problem becomes clear.

"Visibility remains poor for our semiconductor and electronics capital equipment markets," commented GSI Lumonics' president and chief executive officer, Charles Winston. "We will continue to reduce our fixed costs in an effort to become profitable at the current level of revenues."

Consolidation is crucial So what is GSIL's strategy for riding out the downturn and returning to profitability?

"Our approach during this downturn has been to increase efficiency and concentrate only on our core technologies," explained Winston. "In short, this is a time to concentrate on fundamentals and not reach for advanced technology for the answers."

He points out that the depressed economy has led to a definite change of attitude in GSIL's customers. "The key purchasing factors in capital equipment have shifted from features and functionality to reliability, support and price. Manufacturers want the lowest-cost price point."

Winston believes that the key to GSIL's survival is to stay focused on what its customers want. "We are making every effort to consolidate and build our market position at this time when some competitors may not have the financial strength to remain in business," he said. "Consolidation within the customer base and low-cost competition are critical factors we are addressing."

Inevitably, rationalization has meant job losses. In March this year, the company announced plans to restructure its systems and laser-components businesses: production of its manufacturing systems was transferred to the company's Wilmington, Massachusetts facility in the US, while all of its laser components are now made at the plant in Rugby, UK. These changes have resulted in 50-60 job losses. In this quarter alone, GSIL has slashed its workforce by a total of 12% to 840 employees.

"We have reduced the company to a level of employees and expense which is commensurate with the revenues we have and expect to be experiencing for the next few quarters," said Winston. He added: "Any additional reductions will be less severe than those we have had to take to date. We must be successful with fewer resources and conserve our financial strength."

Responding to change Winston points out that in the past, rationalization has helped GSIL to progress. The company started out as two separate businesses - General Scanning Inc, where Winston was at the helm, and Lumonics - which merged in 1999 as a response to changing market conditions. "At the time of the merger, we had a collection of diverse businesses," he explained. "The merger occurred based on the need for consolidation in the industry during a steep period of decline in revenue for all suppliers. We have emerged a much stronger company."

As the industry remains depressed, further mergers and acquisitions are a possibility for the company. "It is likely that we will have other opportunities in the not-too-distant future should the markets continue to be in a trough," said Winston.

As well as cutting costs, GSIL is attempting to exploit emerging markets while protecting its financial position. "We are concentrating on a few projects with our larger customers, which will lead our development efforts for future products," said Winston. The company also has a number of new products waiting in the wings for a market recovery.

Having concentrated heavily on R&D, GSIL is now seeing success based on its core competencies of laser systems and beam-manipulation tools. On the systems side of the business, GSIL is developing new lines of laser systems used for producing 300 mm semiconductor wafers and DRAM memory. This year it has received orders in excess of $13 m for its M430 WaferRepair system. Customers include leading Japanese semiconductor manufacturer Elpida, a joint venture between Hitachi and NEC.

Having exited the high-power (greater than 2 kW) market for automotive applications, GSIL is now focusing on lower-power (less than 1.2 kW) devices for precision welding, drilling and cutting. "These applications are growing both in use and demand as lasers replace older, less effective tools. We see Asia Pacific as a growth area, especially for our systems business," Winston said.

This change has been accompanied by the rollout of an impressive list of products from GSIL's UK-based laser group, including an overhaul of the JK700 pulsed Nd:YAG laser series; a third-generation family of continuous-wave Nd:YAG lasers; and a patented fibre-optic beam-delivery system that protects against back-reflection damage.

The components arm of GSIL, which makes micro-optics for fibre-optic networks, was dramatically affected by the telecoms downturn. To cope with the slump, it is now turning its attention to niche markets and diversification. "We are successfully pursuing non-telecom applications, knowing that it will be a winning combination when the fibre-optics market returns," said Winston. This activity takes the form of developing precision components used in medical imaging techniques, such as CAT and MRI scanners.

Winston says that the firm intends to work with customers to address emerging applications. And it's a tactic that seems to be working. New orders booked during the third quarter of 2002 came to $39 m, compared with $35 m in the preceding quarter and $34 m year-on-year.

Boasting offices throughout North America, Europe and Asia, it seems that GSIL will inevitably be in the right place to take advantage of a market recovery. Winston is optimistic: "With customers now asking for solutions as well as components, our expertise in laser technology and its applications in diversified markets has positioned us well for 2003."