Newport Corp. has a new take on an old segment of the tech industry.
The Irvine-based maker of lasers and equipment to control them has put together what one analyst calls an unmatched product lineup as a result of a key acquisition.
The move is starting to pay off in what’s called photonics, or the industrial use of lasers.
Newport is the “the Wal-Mart of photonics,” said Jonathan Dorsheimer, an analyst with investment bank Canaccord Adams Inc.
Newport is boosting profits, beating estimates and has watched its stock climb nearly 30% this year. The company counted a market value of $700 million last week.
Now Newport hopes to grab more business and go after new markets. It’s poised for what could be growth down the road as lasers find their way into more products.
The company can point to a big bet it made two years ago when it paid $400 million for Thermo Electron Corp.’s Spectra-Physics, which makes machines for producing lasers.
The move doubled Newport’s yearly revenue to about $440 million now. The deal made Newport the first major company to sell laser devices as well as equipment to control and manipulate them.
“A lot of people were skeptical,” said Charles Cargile, chief financial officer.
Newport saw change coming, Chief Executive Robert Deuster said. More companies wanted to buy laser gear from one place, he said.
“That was a defining move,” he said. “It’s kind of thrown the industry into a new mode.”
Any lingering concerns about the deal were laid to rest in July when Newport crushed its earlier forecasts for the second quarter.
Second-quarter earnings rose 67% from a year earlier to $9.3 million, versus earlier forecasts of $6.3 million to $7.5 million.
Sales jumped 14% to $112.4 million. Newport earlier said it expected $106 million to $109 million in sales.
For the year, Newport said it sees profits at the high-end of estimates of $27.2 million to $32.6 million, up from $11.6 million last year.
Profit margins also improved during the second quarter.
Gross margins hit 44.3% from 41.1% a year earlier. The company credited “operating leverage” gained from higher sales volume and a more favorable product mix.
More gains could be coming, said Vijay Singh, an analyst with WM Smith & Co. in Denver.
“I think the company will extract more efficiencies out of the merger in bringing their total manufacturing experience to bear,” Singh said.
Started in Aerospace
Newport’s experience is deep for the technology industry.
The company,a byproduct of the aerospace industry,was started in the late 1960s to sell lab tables for scientists needing a reliable workbench for their specialized laser gear.
The tables hold laser machines that shoot lights at mirrors and through optical instruments, such as prisms and beam splitters. The tables, which are full of holes to mount the instruments, rest on legs that automatically adjust to minimize floor vibrations.
Newport started selling laser instruments by the 1990s.
The company showed steady growth as lasers found their way into more production equipment, including machines that churn out semiconductors.
By the end of the 1990s, Newport had found its piece of the tech boom by selling laser equipment to makers of telecommunications gear.
Back then, nearly all of its sales came from the once hot optical networking sector. Investors loved it. From fall 1999 to late 2000, Newport’s stock surged more than 200%, giving it a market value of about $6 billion.
Then the bubble burst. Newport’s shares collapsed as telecom companies cut back on spending.
Diversification
Within a few years, Deuster knew it was time to diversify by adding Spectra-Physics. The move let Newport better package lasers and instruments into one offering that could be added to a buyer’s own production gear.
Newport now counts four major markets: research, including colleges and universities; microelectronics, much of it in chipmakers; medical, including for laser eye surgery; and industrial, including lasers used in factory equipment.
The research and microelectronics markets make up about two-thirds of sales.
Newport and industry analysts estimate the market for the company’s products could grow by 19% through 2008 to $5.6 billion annually.
Growth rates after 2008 could rise as more companies move toward lasers and away from older production processes or manual labor, Deuster said.
Newport also hopes to gain market shares from rivals, which include Silicon Valley’s Agilent Technologies Inc. and Coherent Inc.
“Photonics is really becoming the next electronic age,” Deuster said. “Light is enabling a lot of things that were only sci-fi a few years ago.”
One newer market is in biology. New machines use lasers to illuminate and track down the tiniest of cell features. This process could be used for genetic testing.
But Newport still faces a challenge: It’s exposed to one of the most cyclical of all markets. Nearly a third of its business is tied to the chip industry.
Analyst Dorsheimer has a “hold” rating on the stock because of concerns about an impending slowdown in chip making.
The company’s advantage is its suite of products and the prospect of new markets.
“They are positioned well,” he said. “They’re offering a greater breadth of products.”
