Newport Corporation Business Information, Profile, and History

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History of Newport Corporation

Newport Corporation serves the semiconductor and microelectronics, communications, aerospace and defense, healthcare, and research markets, offering a variety of precision components and systems, including lasers, light sources, crystals, spectrographs and monochromators, vibration control worktables and platforms, wafer handling robotics, photonics instruments, motion control equipment, optical filters, and a wide range of optics (such as lenses, mirrors and prisms, and beamsplitters). Each year for more than three decades the company has published the Newport Catalog, a major sourcebook for advanced technical products and services. It is now available on the Web as well. Newport maintains 24 sales offices located around the world, and owns nine international subsidiaries in the United Kingdom, Italy, France, The Netherlands, Germany, Switzerland, Singapore, China, and Sweden. Newport is a public company based in Irvine, California, with its shares trading on the NASDAQ.

Company's Founding in the Late 1960s

Newport was founded as Newport Research Corporation in a garage in 1969 by graduates of the California Institute of Technology, John Matthew and Dennis Terry, who were looking for industrial applications for lasers. Just a few years earlier, in 1960, physicist Theodore Harold Maiman had invented the first operable laser, spurring worldwide interest in the technology. Another Cal Tech graduate, Milton Chang, soon joined the company. At school he had worked with Matthews and Terry, and they had become all too aware of a glaring need for equipment specifically designed for laser work. The optical tables at the school were so unstable that the graduate students had to conduct experiments late at night because during the day the building shook too much. Although not noticeable to most people, the building's elevators caused vibrations while traveling up and down in the shafts. The third-shift experiments proved fruitful, however, as the young researchers developed some important techniques that would be put to use at Newport. In the meantime, Chang graduated and worked in the research laboratory at Northrop Corp. for two years before Matthews recruited him to head up Newport's marketing. Given their encounters with troublesome elevators, it was little wonder that Newport's first commercial product was a steel-clad, honeycomb core table for laser experiments, essentially a stabilized platform that counteracted the vibrations emanating from the floor. In the first year of operation, Newport generated sales of $46,000, a modest number, yet the company was now able to move out of the garage and lease industrial space in Fountain Valley, California.

Newport also took advantage of its stabilized table business to launch a catalog in 1971. Newport Catalog became a wish book for high-tech clientele, a source for precision optic, electro-optic, and opto-mechanical products. During its first decade Newport pursued opportunities in whatever direction laser research took, such as holography and interferometry. In 1978 the company went public.

In addition to following the leads of others, Newport pursued its own interests. Matthews, for instance, was an avid shooter, and during the 1970s he began developing a laser sight for firearms. He received a patent on a laser sight in 1979, but the initial version was far too cumbersome to have commercial value. Because refining the sight would require far more funds than Newport could invest, Matthews asked the board to sell the laser sight business to him and some staff members who wanted to branch off. After the board agreed, Matthews resigned as Newport's president, replaced by Chang, and founded a new company, Laser Products, which later adopted the name SureFire LLC, makers of the SureFire WeaponLight, a weapon-mounted flashlight for the law enforcement and military markets. In addition, Matthews' company would produce laser sights, shield lights, and baton lights so powerful they could blind and temporarily disable an opponent.

Advances in Holography in the 1980s

One area on which Newport elected to focus was holography, which focused two laser beams on photographic film to produce a three-dimensional image. Holograms were invented in 1948, creating a great deal of enthusiasm about their potential uses, such as 3-D television and movies. Despite massive amounts of money spent on research, holograms were still little more than a curiosity 30 years later, essentially a fascinating technology chasing an application. In the early 1980s, however, they found their way on the front of credit cards, acting as an anti-counterfeiting measure. Newport made one of the few successful applications of hologram technology in the 1980s by developing a holographic camera for mechanical engineers. Coupled with a computerized system the Holocamera, a 70-pound unit suitable for the field, lab, or factory, produced moving holograms that revealed areas of stress and vibration in a product design.

By the mid-1980s Newport was generating sales in excess of $40 million. Chang stepped down as president and CEO in early 1988, indicating that he had been interested in leaving for some time, but only now was he comfortable, having assembled the management team and operational systems needed to sustain the company's long-term growth. He stayed on as chairman of the executive committee for a time, while becoming involved in a number of start-ups and serving on the boards of several optics companies. Chang was replaced as president by Thomas Galantowicz, a former senior president of the company, but the CEO title was eliminated. Overall, Newport fared well during the 1980s, enjoying margins of 11 percent to 24 percent. By the end of the decade, sales reached $57 million.

The early 1990s brought a number of changes and some struggles, however. In 1991 Newport moved its headquarters to Irvine, California, and reinstated the CEO position, naming 59-year-old Richard E. Schmidt to assume the post. He also succeeded 70-year-old Erwin Tomash as chairman of the board. Schmidt was the former CEO and chairman of Milton Roy, manufacturer of environmental and analytical instruments. From 1986 to 1991 he doubled the company's revenues to $150 million, at which point the company was sold. A Milton Roy board member who also served on Newport's board recommended Schmidt for the job at Newport. When Schmidt took over, he inherited the effects of a major acquisition initiated earlier in 1991, the $43 million purchase of the Micro-Positioning Products division of Micro-Controle, a French company. The acquisition placed Newport in the forefront of the positioning and motion control systems field, but the operation was not easily assimilated. Newport was forced to embark on a costly restructuring of the company, and that coupled with the effects of a recession led to a $14.2 million loss in 1992 and a further loss of $3.7 million in 1993. "The impact of the Micro-Controle acquisition was more than we had thought," Schmidt told the Orange County Business Journal in a 1995 profile. "It had too many locations and too many people, and the product lines needed to be rationalized. It was not as profitable as we had thought." At the time the deal had been completed, Newport expected Micro-Controle to double its revenues to $120 million.

To turn around Newport Schmidt consolidated the European operations, reducing the number of segments from seven to three. Employment was trimmed to less than 600 from a headcount of 950 in 1991. As a result of these and other cost-cutting measures, as well as a rebounding economy, Newport returned to profitability in 1994, earning $3.3 million on sales of $85.6 million. At this stage Newport was still very much dedicated to the manufacture of equipment used in research laboratories, with institutional customers including Massachusetts Institute of Technology, Lawrence Livermore Laboratories, and Cal Tech, and corporate clients including Hewlett-Packard, 3M, IBM, and Texas Instruments. More than half of revenues came from the sale of electro-optical products, much of it custom designed, an area in which Newport held a 50 percent market share in the United States and 25 percent worldwide. The main challenge Schmidt now faced was flat sales from Newport's traditional market, U.S. university and government research laboratories. For further growth in this area, the company looked overseas, in particular to Latin America and Asia, where governments were actively investing in research labs to improve their countries' scientific standing. In early 1995, for instance, Newport opened a sales office in Taiwan to take advantage of the emerging market in Asia.

To drum up additional business, Schmidt looked to commercial customers and to achieve growth through acquisitions. In February 1995 Newport acquired RAM Optical Instrumentation, Inc. in a stock exchange. RAM Optical manufactured video-based measurement and inspection systems, essentially projecting microscopic images on a television for inspection and assembly. This deal provided Newport with entry into a new area, one that produced more standardized products with greater appeal for industrial customers. A month later, Newport traded more stock to add Light Control Instruments Incorporated, a San Luis Obispo, California-based company that made laser diode test and control instrumentation. Newport was thus able to expand its ability to serve the growing telecommunications field. To tap into this market, Newport placed high hopes on a product called AutoAlign, which aligned fiber-optic cable to photonic devices such as laser diodes, receivers, and waveguides.

Robert Deuster Becomes CEO in 1996

In 1996 Schmidt stepped down as CEO, turning over the job to 46-year-old Robert Deuster while staying on as chairman. Deuster earned an electrical engineering degree from Marquette University, then went to work for General Electric Company's Medical Systems Group, holding both engineering and marketing positions. In 1985 he was named vice-president of sales and marketing of the Enerpac Division of Applied Power, Inc., then over the next decade held a variety of senior management positions for Applied Power, including president of the APITECH Division, president of the Barry Controls Division, and senior vice-president of the Distributed Products Group.

Deuster took over a company that topped the $100 million level in sales in 1995 and recorded a net profit of nearly $3.9 million. A few months before his appointment in 1996, Newport completed another acquisition, adding Minneapolis-based MikroPrecision Instruments, Inc. to increase its presence in the semiconductor equipment and computer peripherals arena. Shortly after taking over, Deuster made his mark by investing $5 million to establish a unit devoted to fiber optics. Although it was a risky move that took about two years before showing any signs of paying off, Deuster was proven correct about the potential of fiber optics, as telephone companies began adding fiber optics to the final connections between customers and the switching offices, rather than relegating the technology to the long-distance sections of the network. The need for a more robust network also would grow as the demand for highspeed Internet service began to gain momentum. Sales in the fiber-optic and semiconductor sectors became increasingly important as lab product sales lessened in importance. The fiber-optics communications sector was strengthened further with the October 1998 acquisition of Environmental Optical Sensors, Inc., maker of high-precision assembly and test equipment for the market. A year later, Newport paid $6.3 million to acquire the Commercial Optics divisions of Corning OCA, which formed the basis of Newport Precision Options, devoted to the production of specialized precision optical products and systems and value-added opto-mechanical subassemblies. As a result of these investments and changes in the marketplace, Newport showed steady improvement on its balance sheet. Sales totaled $143 million in 1997 and net income improved to $10 million. A year later sales were flat, dipping to $142.8 million, but Newport increased earnings to $11.2 million. In 1999 the company recorded sales of $144.1 million and net income of $7.9 million, before enjoying a breakout year in 2000, when sales jumped to $252.9 million and net income more than tripled to $27.8 million.

In 2000 Newport's performance gained the attention of Wall Street, which drove up the price of its stock at a breathtaking rate. Over the first six months of the year, shares rose 581 percent to more than $107, making it the sixth best performing stock on the NASDAQ in the first half of 2000. Newport's ascent was remarkable because so many other tech stocks stumbled during the spring. By late September the price hit a high watermark of $189 (after a three-for-one split, no less), a 1,000 percent increase for the year. Before 2000 closed, however, Newport arranged to use its stock to acquire Kensington Laboratories, maker of robotic automation systems, serving the semiconductor industry that Newport would adapt to fiber-optic component assembly and automation. The deal closed in February 2001.

The fiber-optics market tailed off dramatically in 2001 as the telecommunications sector entered a severe downturn. With customers postponing investments, Newport was adversely impacted, forcing a number of cost-cutting measures, including a major reduction in the workforce. Fortunately for Newport it could still fall back on its semiconductor and metrology businesses, each enjoying strong success in 2001 while the fiber-optic business stumbled. Nevertheless, the loss of fiber-optic sales was a hard blow, leading to two years of further job cuts and more belt-tightening efforts, such as consolidating six of its 12 plants. Newport lost $6.3 million in 2001 and more than $100 million a year later. Not surprisingly the price of Newport stock plummeted, as far as $10 before rebounding. Sales bottomed out at $134.8 million in 2003, but the company's loss was reduced to $13.2 million for the year.

Newport looked to revive its fortunes in 2004 with the acquisition of laser manufacturer Spectra-Physics for $300 million, a deal that created a single-source supplier by adding more than 5,000 products to the 10,000 Newport already offered. Although Newport faced a major task in integrating Spectra-Physics into its operations, necessitating more reductions in headcount and plant closings, the merger had the potential to create a powerhouse in its field. When the telecommunications sector rebounded, there was every reason to believe that Newport would be well positioned to take advantage of the upturn.

Principal Subsidiaries: Kensington Laboratories, Inc.; Spectra-Physics, Inc.; Micro Robotics Systems, Inc.

Principal Competitors: Agilent Technologies Inc.; Brooks Automation, Inc.; Carl-Zeiss-Stiftung.

Chronology

• Key Dates:
• 1969: The company is founded.
• 1971: The first Newport Catalog is issued.
• 1978: The company is taken public.
• 1991: Division of Micro-Controle is acquired.
• 1995: Light Control Instruments and RAM Optical Instruments Incorporated are acquired.
• 1996: Robert Deuster is named CEO.
• 2001: Kensington Laboratories is acquired.
• 2004: Spectra-Physics is acquired.