03 Oct 2003
Coherent is a company on the move. Jacqueline Hewett spoke to John Ambroseo, the firm's chief executive officer, about recent acquisitions and current market trends.
From Opto & Laser Europe October 2003
There is no disguising Lambda's poor performance. Ambroseo himself described Lambda's latest quarterly sales of $15.8 m (€14.5 m), down 21% year-on-year and down 35% on the previous quarter, as "clearly unsatisfactory". On the flip side, the Electro-Optics group's quarterly sales came in at $83.4 m, up 10% year-on-year and up 5% on the previous quarter.
Faced with the conundrum of what to do with its flagging excimer-laser business, Coherent announced in April that it was making a tender offer to buy back the 40% of Lambda shares that it did not already own. The deal was completed in August, but Coherent narrowly failed to acquire enough shares to force outright ownership.
JH: Why did you decide to buy back Lambda-Physik? JA: One of our fundamental philosophies is that we should have technology in our portfolio that solves our customers' needs. In addition, you have to decide how and where to add value to your business.
If you are a technology company, one of the ways that you can add value is by providing unique solutions. In photonics there are few technologies - in fact I am not aware of another one - that produce the kind of performance that you can get out of an excimer. It's a unique technology and important for a number of applications.
Our relationship with Lambda is as the major shareholder, but still a shareholder. In principle the amount of information that Coherent can have access to should be the same as what your average shareholder can get. However, when you are trying to report your results and you can't get all the information you need, it becomes very difficult. Maintaining the relationship we had with Lambda as an independent subsidiary under these conditions was difficult for both companies to manage.
Our decision really came down to "all in or all out". We decided on all in because this is a technology that services a number of key growth markets that we wanted to be involved in. We wanted excimer technology as part of our portfolio. That's what drove the decision.
What is the current state of play regarding the tender offer? We have acquired 93.95% of Lambda's registered share capital to date. We originally had just over 60% and our goal remains to get to 95%. For the time being, we will concentrate on buying an additional 135 000 shares through the open market to bring us up to 95%, and then we will invoke a squeeze-out resolution to acquire the remainder. We will have to explore other options if we can't get to 95% in this way.
How do you plan to turn things around at Lambda? I am interested in what we can do to make Lambda profitable in the long term. I don't have a magic wand that I can wave and make it profitable in the short term! I am not instigating wholesale cost-cutting and expect to increase the R&D spend in the next year.
I am going to refocus the company's efforts. Lambda is working on, and has invested in, a lot of small projects. I will be looking to reduce these diffuse investments and focus on streamlining them. Management changes will also be made. For example, I have already moved two of my best people from Coherent across to Lambda and I am now the president and CEO of both companies.
Why did you decide to buy Positive Light? We knew we had a gaping hole in our portfolio - kilohertz amplifiers. We struggled to decide between developing our own or making an acquisition, but we identified Positive Light as the best company out there. They were involved and still are involved in a distribution agreement with Spectra-Physics, but that agreement is drawing to an end this year.
We had an opportunity to talk to Positive Light and realized we were a good fit. They bring technology that we don't have and we have technology that they need. There are opportunities to leverage the supply chain - they are located some 30 km from us and we plan to move them into one of our buildings eventually. The chance to consolidate is beneficial to both companies. And we picked up a terrific group of people and some very talented engineers.
What will happen to Positive Light's branding? Typically we look at these things on a case-by-case basis. Positive Light has some very good branding. We will co-brand it for some period of time, but in the long term I'm not sure that having all these different names in the industry is a good thing.
One issue that plagues the photonics industry is that a large number of companies are serving a finite number of customers. The industry needs a few large-scale players. You can try to grow organically or you can do it through acquisitions and then bring all of the functions together so that you don't duplicate efforts.
What are your views on emerging technologies such as fibre lasers? Fibre lasers have been around for a long time and it is a very interesting technology. It fills certain niches, but like a lot of emerging technologies, it is viewed as a panacea that is going to solve every possible need. It certainly has a role to play - there is no question about that - but I think the challenge for fibre laser companies will be how to create differentiation from existing technologies. There's the basic fibre, which you can buy commercially, and then there are the pump diodes. I don't mean to simplify it down to that level, but there's not a lot of space to create something that is unique.
You have to come up with a solution in fibre technology that is unique, difficult to duplicate and has good intellectual property around it. And then if you get into the commodity game, it is hard to build a business on that.
What sectors are performing well within Coherent? We have two reporting segments within Coherent: Lambda-Physik and the Electro-Optics group. Within the Electro-Optics group we have five technology units.
The first unit covers the research market. This is a historical market for us and it's more or less stable. It's an important area because so much new development is taking place there and at least some of it will find its way into commercial applications over the next 2-5 years. You have to see what trends are developing.
The second is the materials processing market, which has grown substantially over the last year. This is a bit counterintuitive because the general economy hasn't grown as much as the market has. This would suggest that photonics is displacing traditional tools rather than opening up broader markets.
Thirdly, we have the graphic arts printing market, which has also been strong. Our bookings year-on-year have doubled in this segment. It started out as a small market and now it is taking off because you have additional benefits from deploying lasers in these applications. A lot of it has to do with environmental impact and the ability to eliminate chemicals from the printing process.
The fourth market is OEMs, or components and instrumentation. This market is up, not by a lot, but it's up. As an example, there are a lot of companies that use our diodes or our optics. Customers wrap a lot of added value around our technology.
And the final segment is microelectronics, which encompasses front-end and back-end semiconductor processes. Not surprisingly, this one is limping and everyone wants to know when it is going to start to crawl or walk. And that's a big question!