Prospering through the downturn
Our profitability and restraint in expanding the business during the boom years allowed us to enter the downturn in a strong cash position.
This is a difficult period for the photonics industry; we've been hit with the double impact of a downturn in the overall economy, together with the collapse of the telecom market. Nonetheless, opportunities abound for an enabling technology such as photonics, and the right business model can still deliver success. Alpine Research Optics, for example, has done well during this period. We experienced a mild drop-off in bookings in 2001, and in 2002 we bounced back to pre-recession levels. Plus, we've been profitable every quarter since the year after our founding in 1991, including this recent downturn. I believe several aspects of our business model have critically contributed to our ability to prosper during such tough economic times.
One important component of our success is that, from the very outset of our business, we've targeted niche markets. Specifically, we've concentrated on very high-damage-threshold coatings and optics, with a particular emphasis on the deep ultraviolet.
We were able to successfully enter this market because it was a niche that was not already crowded with players, nor dominated by any one extremely large competitor. In fact, in terms of technology, being a newcomer may have even given us an edge over the existing vendors. This is because production of long-lifetime, high-damage deep-UV optics requires processing techniques different from conventional optics. Specialized polishing techniques, cleaning processes, coating materials, and handling procedures are all necessary. This can create obstacles for conventional optical fabricators, because they have to "switch gears" to get into deep-UV optics production, and may find that many of their traditional methodologies don't transfer smoothly.
Another important characteristic of our technology is that it services several distinct applications. Right now, we have customers in medical instrumentation, such as LASIK and PRK, semiconductor microlithography, industrial micromachining, high-power laser research, and even in telecommunications, primarily for writing fiber Bragg gratings. This end-market diversity is a key element in reducing the effect of economic oscillations on our business. Certainly when the entire economy slows, as it has now, it's difficult to maintain growth, but the fluctuations are much less serious than when you're tied to a single market, such as the intensely cyclical semiconductor industry. And, if you're lucky, at least one of your markets will be doing well at any given moment. For example, even in the current downturn, military and security related products are thriving.
From the beginning, ARO also chose to supply custom components to OEMs and the research community, rather than to develop a catalog of standard products. This avoids the need to create a large sales and technical support infrastructure, and has allowed us to run a lean, efficient operation. The staff we have hired has mostly been experienced people from within the industry. Through these people, we've been able to rapidly gain tremendous market knowledge and extensive customer contacts. In the production area, this approach has shortened the learning curve and helped us avoid many mistakes.
Natural organic progression
In terms of new market development, our approach has been to focus on applications and technology that allow a natural, organic progression. In other words, we like to build on what we've learned doing one job to get the next, and avoid abrupt transitions in technology. The expertise that we gained around surface-quality issues while producing deep UV optics, for example, positioned us to successfully pursue producing ultrahigh-damage-threshold optics for near-infrared lasers. This has resulted in large sales to a major government laboratory.
Because of the way we chose to structure our business, the telecom boom never appeared tremendously attractive to us. While there was clearly money to be made during the good times, it really didn't fit our business model because we didn't see a clear way to a leadership position, and it didn't represent a natural extension of our existing business. It was apparent from the beginning that, at best, we could feast at the banquet along with everyone else, knowing that we'd enjoy no special position when the plates were removed.
In many ways, though, the telecom downturn has created an opportunity for us. Our profitability and restraint in expanding the business during the boom years allowed us to enter the downturn in a strong cash position. This meant we were able to procure land and some very slightly used equipment at truly bargain basement prices. We've also picked up talented and experienced personnel.
Another important strategic decision was to maintain the focus and level of our marketing activities throughout both the boom and bust of telecom. Staying constant on our original message, when many other companies sought to recast themselves as telecom vendors, has helped to solidify our market image as a dominant supplier in our chosen niches. In this downturn it's actually easier to garner market attention because so much of the industry is cutting back on marketing. Overall, staying true to our technology, markets, and message has kept us afloat through tough times, and should pay dividends when the economy turns.
DAVID COLLIER is CEO of Alpine Research Optics, 3180 Sterling Circle, Boulder, CO 80301; e-mail: AROcorp@AROcorp.com.