Ceradyne Inc. is a little less defensive these days.
The Costa Mesa-based company, one of the largest makers of bulletproof vests and other armor during the height of fighting in Iraq and Afghanistan, is undergoing a shift as fighting subsides.
Now Ceradyne is armed with a new mission: $1 billion in sales by 2016.
That’s more than double the $400 million in sales Ceradyne expects to see when 2010 financials are filed next month.
The revenue goal was announced a few weeks ago at a New York investor conference. To meet it, the company is downsizing its body armor division and looking to subsidiaries and emerging businesses for growth.
“It’s a major transition,” Chief Executive Joel Moskowitz said.
The chummy executive is quick to roll out blueprints for a 212,000-square-foot plant that opened earlier this month in China.
He points to a section of the plant that’ll house a small operation for ESK Ceramics, a German unit that makes ceramics for industrial uses.
A majority of the plant’s 300 to 400 workers are making products for solar power cells, where Ceradyne’s ceramic crucibles are used to hold melted silicon.
Solar industry sales are a growing part of Ceradyne’s business, accounting for about 15% of yearly sales. In 2011, they’re expected to make up 25% to 30%, or some $125 million.
“This will be a big year for solar,” Moskowitz said.
Seven years ago, Ceradyne didn’t have a solar division. Now it’s seen as the company’s largest growth market.
Acquisition
In early January, Ceradyne bought Seattle’s Viox Corp., which makes specialty glass used in solar panels, electronics and other uses, for $27 million in cash plus another $22 million if certain goals are met in the next two and a half years.
“It could end up being a decent acquisition,” said Gary Leibowitz, an analyst at Wells Fargo Securities LLC in New York.
Solar glass products, a cousin of Ceradyne’s heavy-duty ceramics, make up about 70% of Viox’s $22 million in yearly sales.
“This company has a niche product,” Moskowitz said. “It was a perfect fit for us. It’s profitable. It’s very focused on advanced glass technology. Its ultimate customers are our customers.”
Finding new customers may prove a challenge for Ceradyne, which built a reputation as a defense contractor in the past decade.
At the company’s 2007 peak, Ceradyne shipped $535 million worth of body armor to soldiers in the field as defense contracts accounted for 74% of its business.
In 2010, the company shipped less than $100 million of armor and related products to the Defense Department and U.S. allies. Armor made up about a quarter of 2010 sales.
By 2016, the defense market is projected to be about 15% of Ceradyne’s business.
“We know that the defense business will never be what it was, but it’s not going away,” Moskowitz said.
This year, Ceradyne projects about $40 million in sales from an enhanced combat helmet, a stronger version of earlier models. The bullet-proof helmets are made from boron carbide ceramics, one of the lightest yet hardest materials on Earth.
The company recently set up a factory in Irvine to make the helmets. If they pass testing, Ceradyne could expect the first orders around April.
“It’s doubtful the market for helmets will be as big as body armor,” analyst Leibowitz said. “My question is if this is going to be an annuity business. Is there an assigned amount of recurring revenue or is this a one and largely done?”
The helmet market is valued at $150 million to $170 million in yearly sales, according to analysts and trade groups.
Ceradyne, which never set out to solely be a defense contractor, has some image issues to overcome, said Moskowitz, a ceramic engineer by trade.
“I’d say we’re not a defense company,” he said. “In three years you may call us a solar company. Some other time, you might call us something else.”
Ceradyne and its subsidiaries make a bevy of products, including boron for cosmetics, nuclear waste management containers, ceramics for water pumps, the thin aluminum coating inside potato chip bags and ceramic dental braces.
Dental products are sold exclusively to Minneapolis-based 3M Co., which markets them as Clarity SL.
Boroneige, a boron nitride powder used in cosmetics, also could have promise. ESK Ceramics makes the base for lipstick, eye shadow, facial creams, rouge, concealers and other products. New York-based Revlon Inc. is its biggest buyer.
Boron, one of Ceradyne’s six primary businesses, accounts for about $27 million in annual sales. By 2016, the company expects annual sales of Boron to hit $100 million.
Dabbling in several business lines is common for Ceradyne. But that story hasn’t been told nearly as often as its body armor success.
Diversification has “always been part of the story,” said Michael French, an analyst with New York investment bank Morgan Joseph TriArtisan Group Inc. “Most of the ideas tend to pan out. They’re not betting the whole company on the long shot.”
Some investments haven’t panned out, according to analyst Leibowitz. Among them: Mintco Inc., bought in 2007 for $28 million, and 2008’s buy of SemEquip Inc. for $25 million, which included a potential earn out of $100 million over 15 years if goals were met.
Less than two years after the Mintco deal, 10% of the staff was laid off because of lower demand. And the probability of Ceradyne paying an earn out on the SemEquip deal is “quite low,” Leibowitz said.
Moskowitz
Moskowitz, who earned a 2004 honorable mention for the Business Journal’s businessperson of the year, wants to see the $1 billion sales goal reached during his tenure.
“I don’t want to retire,” said Moskowitz, who’s spent 43 of his 72 years at Ceradyne.
Six years ago he survived a battle with Non-Hodgkin’s Lymphoma, a cancer of the lymph nodes.
A check-up a few months ago revealed no problems.
“I’m clean as a whistle,” the Corona del Mar resident said. n
