Cognex CEO Bob Shillman Shares Thoughts on Acquisition
I was privileged to chat with Cognex Corp. CEO Robert Shillman yesterday. After congratulating him for consummating the deal, I asked if having $80 million of the purchase price diverted to "Good Will" on the balance sheet is really a good deal.
Shillman remarked, "Perhaps some would say that we paid too much. Certainly the other side were superb negotiators. But we've run the numbers and expect to accrete more than enough additional profits to pay for the purchase."
During the analyst briefing meetings in Natick last week, much was made of DVT as the major competitor in the factory automation market segment. So the obvious question is who now remains as competition in the factory floor segment.
Shillman identified Banner,Keyence and Omron as the remaining competitors that Cognex regularly runs into. National Instruments competes for few accounts where Cognex plays. Two companies noticeably absent from his analysis that I follow are PPT Vision of Minneapolis and ipd division of Dalsa/Coreco (another recent acquisition where Dalsa bought Coreco Imaging. Shillman's analysis is that the cost of entry is too high for anyone to compete in Cognex' space for the near term. "You can add some vision to sensing technology, but many people don't realize how hard it is to make vision work reliably on the factory floor. Not only do you need a staff of Ph.D.s with advanced math knowledge and ability to develop sophisticated algorithms, but these people also must have factory floor experience. They must know what works in that environment."
Shillman continued, "We had three challenges. The first was to make products less expensive. Next we needed to make vision systems easier to use. People today don't have time to read manuals and experiment. They need to take it out of the box and get it running in a short time. Our third challenge was distribution. In this market segment, prices are too low to support direct sales. In order to boost sales volume, you need lots of feet on the street. This was DVT's strength."
Mintchell, "With less competition and the extensive distribution, will pressure to reduce price still be there? Can customers expect price increases?"
"I believe the responsibility of a company is to drive prices down, but only in an elastic market," noted Shillman. "[DVT CEO] Steinke discovered that. DVT awakened us to the fact that there was considerable elasticity in the factory floor market segment. I feel that some market elasticity (that is incrementally more sales resulting from lower prices) remains."
What will really drive prices down, according to Shillman, is new technology. "We have a team headed by Senior Vice President John McGarry that is working on a vision system on a chip. This technology would drive down both size and price. Imagine having the technology to recognize you when you approach your car and automatically open the door. Or having an ATM machine recognize you. This would allow application of vision wherever it could be used."
In any acquisition, there are people who happen to have positions that suddenly become redundant. Shillman artfully dodged specifics about potential layoffs-either at DVT or Cotnex. However, he did say, "We want to keep the best people."
As the product line is rationalized, expect the Legend name to survive but the DVT name may go away. "I want to assure DVT customers that they can continue to buy the products they have been or any product in the line. We will continue to support the DVT products. In the future, we will incorporate DVT's ease-of-use in our lower end products."
Meanwhile ARC anayst Dick Slansky adds, "I think this move positions Cognex really well on the factory floor."
10:15:53 AM 
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