Robert Deuster
Chairman, chief executive, president
Newport Corp.
In 2000, investors picked up on what Robert Deuster already knew: the future of Newport Corp. lies in fiber optics and semiconductors.
For the past few years, Deuster has overseen Newport’s transformation from a sleepy maker of instruments for scientists and researchers to a high-flying supplier of production gear to Nortel Networks Corp., Lucent Technologies Inc., JDS Uniphase Corp. and others.
As the company’s strategy took hold last year, Newport saw its shares reach dizzying heights,going from around 10 at the start the year to a high of 192 in the fall, even after a 3-for-1 stock split in May.
The recent pullback in fiber-optic stocks has hit Newport,its shares are off more than 40% from their recent high. But Newport still ended the year up nearly 500%, by far the best showing of any Orange County stock.
As of late December, Newport’s market capitalization was $3.2 billion. Deuster, pronounced doyster, owns nearly 2% of the company, a stake worth about $40 million late last month.
In the past year, Deuster has overseen a secondary stock offering, acquisitions, management changes and heady growth. The company has added 300 employees in the past two years for a total of 1,200 people, with about half in OC.
“Where I’ve been able to contribute is to focus on the people side of the equation,to manage a company that now has to grow at 40% to 50% a year,” Deuster said. “That was not traditionally the Newport growth trajectory.”
Newport makes equipment that helps automate the production of fiber-optic network components, a process now done largely by hand. In the third quarter, fiber-optic products accounted for 45% of Newport’s $66.5 million in sales for the period, up from 26% in the third quarter of 1999.
“The fundamentals of Newport have changed,” Deuster said. “2000 will be viewed an acceleration year.”
The company’s products also are used with semiconductor production equipment from San Jose-based KLA-Tencor Corp., the Netherlands’ ASM Lithography Holding NV and others. In the third quarter, chip products made up 27% of Newport’s sales, up from 14% in the year-ago period.
Deuster “has been able to put the company on the right road map,” said San Francisco-based Zero Gravity Internet Group Inc.’s Patrick Wong, analyst for the Zero Gravity Internet Fund. “He’s also done a good job getting the message across about what the company is focusing on.”
Newport saw strong sales and profit growth last year. For the nine months ended Sept. 30, the company saw sales surge 63% to $166 million from the year-ago period. Net income grew a striking 216% to $15.5 million. When Newport reports fourth-quarter results later this month, analysts expect the company to earn 33 cents a share, up from 10 cents a share in the year-ago quarter, according to consensus figures from First Call Corp.
This year, Deuster said he’s told analysts to look for sales growth of around 50%.
“It won’t be quite as dramatic, but it’ll be healthy,” he said.
Early in 2000, Deuster brought on a new vice president and general manager for Newport’s Fiber Optics and Photonics Division, the company’s fastest-growing business. Dan Petrescu joined the company from Nortel’s unit in Quebec, where he was director of manufacturing and carrier solutions.
In May, Newport landed $2 million in orders for fiber-optic products from Samsung Electronics Co. By the end of the third quarter, Newport had racked up $76 million in orders for fiber-optic and semiconductor gear.
By year’s end Deuster had three deals under his belt. In September, Newport bought Unique Equipment Co., a Chandler, Ariz.-based integrator of robotics for the fiber-optic and semiconductor industries. On Dec. 18, Newport announced plans to buy CE Johansson AB, a Swedish maker of advanced metrology, or measurement, systems.
Last week, Newport announced plans to pay about $335 million in stock to buy Richmond-based Kensington Laboratories Inc., a maker of automation and robotics components.
The deals follow Newport’s 1999 buy of the Garden Grove-based commercial optics operation of Corning OCA Corp. and a handful of other acquisitions in the past five years. In June, Newport announced plans to buy International Metrology Systems, a U.K.-based supplier of coordinate measurement and advanced metrology systems. But the deal was scrapped in October over what Newport called “legal and business issues.”
Newport’s extended run on Wall Street hit a snag in October after Lucent, Nortel and other big industry players started warning about slowing sales in parts of their businesses. Analysts fear telecommunications companies will slow the rollout or expansion of networks, crimping demand for fiber-optic gear.
Deuster said he believes the sell-off in fiber-optic stocks has been overdone.
“The telecommunications market is made up of a number of different pieces,” he said. “The part that’s optical is continuing at a similar rate. From our perspective, the market shouldn’t slow at all, because there’s new technologies that need to go into that market for cost reduction and yield improvement.”
Zero Gravity’s Wong said any slowdown in network spending should be put into perspective.
“Optical networking is here to stay,” he said. “The overall capital expenditure spending may come down, but the nominal amount of dollars going toward optical is going to increase.”
Chip equipment spending, which tends to go in cycles, could moderate in 2001, Deuster said. Even if chip makers curtail overall expansion, Newport still is looking to them to buy high-end gear to produce the next generation of 300-mm silicon wafers, he said.
“There’s a lot of noise about whether we are in the early stages of a downturn in the semiconductor capital equipment area,” he said. “If it is sustainable over a number of quarters, we are going to feel it. But we expect to see pretty strong demand for the highest technology of wafer processing equipment. That should help mitigate it for us.”
The challenge for Newport is to buy companies that bolster its competitive edge, according to Wong. For now, most of Newport’s competition comes from fiber-optic gear makers looking to boost production internally. Other customers, such as makers of chip-production equipment, also could step on Newport’s turf.
“They could lose their competitive edge, but I don’t think that’ll happen,” analyst Wong said. “They should buy companies that have great R & D; or strength in yield improvement. If they can allow JDS and those guys to perform better, this company will do well.”
Newport is constantly looking for acquisitions, Deuster said.
“They are not easy to find,” he said. “We don’t tend to buy large companies. We buy companies that have specialized skills in term of technology. We like the model of buying small to midsize companies, integrating them quickly and getting a very fast return on that investment.”
Newport plans to expand in Irvine in the next six months, Deuster said. The company is adding up to 100,000 square feet of new production space, where it plans to relocate some operations and expand others, he said.
“For the most part it will be new equipment and new facilities here,” Deuster said. n
