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INSIDE VIEW: Knowing how to diversify is the key to surviving changing times

21 Jun 2007

Diversifying an optics company can be crucial to its survival and success. In this month's interview Paul Ellis, CEO of SIFAM, discusses his experiences of keeping the company afloat after the telecoms downturn.

Not many people in the photonics industry can say that they have sold their company twice and led a management buy-out, but Paul Ellis can. He joined fibre-optic expert SIFAM 17 years ago and has worked his way up to CEO. He was part of the management team who sold the company to JDSU in 1999 at the height of the telecoms boom.

The ensuing bust gave Ellis the opportunity to lead a management buy-out in 2002. Forced to diversify to survive the tough times, Ellis has seen SIFAM adapt and change from a supplier of key components for erbium-doped fibre amplifiers for telecoms into a developer of fibre-optic components for a variety of markets including medical and aerospace. On the back of its continued success, SIFAM was acquired by Gooch & Housego in May.

What is the key to running a successful fibre-optic company?
You have to make all aspects of the organization work; there can't be any weak points. Strong technology is needed to manufacture high-quality, high-performance products efficiently and you also have to be good at selling them. Every part of the company has to be contributing and successful.

I think that my mechanical-engineering background has helped the firm. We are practical about delivering quality and efficient manufacturing performance. This results in a more engineering, developing and manufacturing-orientated company.

How do you maintain a successful company when markets change?
It's about being market-led, you need to keep very aware of what's happening in the market.

We learned a valuable lesson at the end of the telecommunications boom when we found ourselves to be 95% focused on telecommunications and without a particularly wide customer base. We were just supplying lots of products to a relatively small number of customers. Since then we have become much more diverse. We have a wider range of products, serving a wider range of applications in four main market areas: telecommunications; biomedical; industrial; and aerospace and defence. It is also important to be customer focused.

What advice would you give on how to go about diversifying?
I think it depends, in part, on where the company is based. If you're a western-based company manufacturing costs will be high so you have to aim for niche business. This means focusing on a high-performance, high-quality niche business where you can generate enough revenue to cover your costs and generate profit. Conversely, if you're manufacturing in a lower-cost environment you can probably aim more at volume applications.

We diversified by making variations based on our core technology and the needs of the users in the industrial, biomedical and aerospace and defence markets. We now have a much wider range of fused-fibre products available in a range of frequencies and configurations. In addition to that, in 2005 we added an active photonic packaging capability that really helps all of our customers and is growing very quickly. We also have the ability to integrate systems on behalf of our customers. In our newer markets we find that the customers often do not yet have the ability, knowledge or experience of working with fibre. They often require our help and this adds value to our business and improves the service that we can offer to the customers.

What are some of your experiences of diversifying?
The aircraft industry is a good example of where we have diversified. The key factor is weight saving – the advantages of putting fibre optics and photonics within the next generation of aircraft are just phenomenal. Fibre can replace the masses of copper cable that is currently used on aeroplanes. These weight savings lead to a huge saving in fuel and environmental impact. There is a revolution coming in terms of the aerospace industry. We are currently developing relationships with Boeing and Airbus, and are shortly expecting a fairly big contract.

Do you see a settled time ahead for the fibre-optic market?
After being in this industry for 17 years there's no doubt that there is some stable growth coming. Fibre optics is increasing its importance within the photonics market and that market is increasing its importance worldwide in terms of commerce and development. Photonics is being used in so many more applications.

What's next for SIFAM?
It is a very different phase now. We are focusing on delivering the needs of the customer. Having previously focused on creating new opportunities we now need to concentrate on delivering and meeting the expectations of our new and existing customers.

Joining Gooch & Housego – an experienced and well-established listed company – has provided increased financial strength enabling sustainable growth and investment potential. In addition it provides access to an array of world-class photonics technology from other parts of the Gooch & Housego Group.

•  This article originally appeared in the June 2007 issue of Optics & Laser Europe magazine.

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