Newport aims to ride out the storm

05 Nov 2008

Growth in photovoltaics and a focus on costs gives the company confidence, despite the slowdown in semiconductor markets.

“These are unpredictable and in many respects unprecedented times.”

Weak macroeconomic conditions and a general slowdown in orders dragged total sales for Newport down by 3.6% in the third quarter of 2008, to $105 million. In line with other companies in the sector, declines in semiconductor manufacturing were a decisive factor.

"Order levels reflected the general slowdown in our markets," CEO Robert Phillippy commented to investors. "Our third quarter sales to semiconductor equipment customers, which we include in our microelectronics end market, were the lowest we have recorded in over three years."

Newport CFO Charles Cargile indicated that revenue from photovoltaic (PV) customers was increasing and boded well for future growth in that sector, despite the decline in other areas during the quarter.

"We have two different dynamics in our microelectronic sector," Cargile said. "First, sales the semiconductor equipment customers fell to a historic low in the third quarter of 2008. We recorded only $18.6 million in sales to these customers, which is the lowest level we recorded since our acquisition of Spectra-Physics in 2004. On the other hand, this weakness was partially offset by $8.4 million of new orders from PV customers."

Newport has booked over $30 million of new orders in the PV space this year, and claims to be rapidly approaching its stated goal of $35 million from PV customers in 2008.

Phillippy was still obliged to be cautious about the future direction that the PV sector could take. "The business of solar cell manufacturing is changing rapidly," he observed. "While we believe that solar energy has excellent long-term potential and we are very encouraged by our progress, the current state of this industry creates a degree of uncertainty that makes it difficult to predict near-term orders and revenues."

In the mean time, Phillippy told investors that the company intended to focus on areas that were within its control. These included efforts to reduce costs, and Phillipy reported that initiatives to ramp production at the company's Wuxi, China facility and outsource selected manufacturing processes to lower cost sources in Asia were on schedule for completion in the first half of 2009.

"These are unpredictable and in many respects unprecedented times," he concluded. "Newport will stay focused on our long-term objectives while being mindful of the need to carefully manage cost and cash. We are confident about our ability to successfully emerge from the present environment and continue to enhance our position as an industry-leading photonics solutions provider."