Painful Decision to Leave Industry : Monitor to Sell Robot Subsidiary
The decision, Monitor Technologies’ Chairman Kenneth Years readily acknowledged, was a painful one.
After staking a good chunk of Monitor’s future on the expected growth and profitability of the computer vision-inspection industry, Years and his board of directors last week decided to pull the plug.
Monitor Automation, the company’s automated visual-inspection subsidiary, will be sold less than two years since its inception and after a $4-million investment.
The company, officials explained, is cutting its losses, minimizing risks and making the prudent move--all the right rhetoric called for when a public company announces to the world that things didn’t turn out the way management thought they would.
But it didn’t ease the pain.
“It was a hard decision,” said Years, who was still touting the product line as recently as May at Monitor’s annual meeting.
The financial picture, however, left management with no choice, he said.
Monitor wasn’t alone. The day before the San Diego company said it would pull out of the vision-inspection field, GMFanuc Robotics Corp.--a major U.S. robot maker and joint venture between GM and Fujitsu Fanuc Ltd. of Japan--said it would cut its work force by about one-third, citing order cancellations by General Motors.
In late 1984, Years and Executive Vice President Francis Harding had predicted that vision inspection--which, using computers, “inspects” products as they roll off the assembly line--would grow 25% annually and that, in a few years, it would generate more than $20 million in annual revenue for Monitor--then called Monitor Labs.
Its vehicle would be Image Data Systems of Ann Arbor, Mich., which Monitor bought in January, 1985. Through Image Data’s computer-based vision-inspection products, Years and Harding figured they could reverse the Scripps Ranch company’s red ink of 1982 and 1983 and improve on its $334,000 profit in 1984.
But growth in the new industry has been less than stunning and, combined with softness in capital spending, Years’ goal of quick expansion quickly eroded.
The result: Monitor last week said it has set up a $2.2-million loss provision for the sale of its vision-market business, which in turn resulted in a $2.4-million loss for the second quarter ended June 30.
The stock market reacted strongly, sending Monitor’s stock plunging to 2 from 3 1/2 the day after the announcement. It closed Monday at 2.
Analysts took an I-told-you-so attitude. One longtime Monitor observer who was skeptical of the company’s expansion two years ago noted last week that the company was “in over their heads.” He said that the new product line needed a “larger investment than a company of Monitor’s size could handle.”
Years didn’t argue the point, and conceded that if his subsidiary were part of a larger company with stronger resources, “then we’d continue.”
Moreover, the world may not yet be ready to accept computerized visual-inspection equipment, Years said.
“When you get to the real gut level,” he said, “to the guy who has to install and make it work, it’s not the top of his priority--it’s near the bottom.”
Still, Monitor is not giving up on the industry. Years said he still believes both in the product and the market. As testimony, Monitor mailed a speech and an article by Laura Conigliaro, a Prudential-Bache Securities analyst, who predicted that the vision industry will continue to grow.
“This is one tough industry,” she said in a speech last June. “It seems . . . that the road to success in vision is probably something like the Yellow Brick Road to Oz. It looks great when you’re starting
out in Munchkinland but, on the way, you find out different.”
There may be a rainbow at the end of the road for Monitor, but management’s “first priority is to weather the storm,” said Years.
He may yet find capital to do that, but the most likely scenario is to sell off the subsidiary. To that end, several entities have already expressed interest in buying Monitor Automation, Years said.
Admitting defeat has not, apparently, deterred Years’ ambition. Both he and Harding were executives of Loral Corp.’s California division and when they joined Monitor in 1984 they made no secret that expansion was on their minds.
So what will they do now? “Everyone would like to know what we’re going to do next,” he said. The company’s “basic strategy” of making Monitor’s air-quality testing business profitable and growing at least 10% per year is solid and on target, he said.
For now, Years’ goal is to “go back to trying to find something to add to the air-quality business.”
Reminded that he and Harding had boasted about wanting to run a $50-million company, not an $8-million enterprise, Years retorted that Monitor is now, in fact, a $9-million firm.
But, he conceded, “it’s not enough.”
The company just two months ago officially changed its name from Monitor Labs to Monitor Technologies to reflect a broader approach--recently enough, it would seem, that management knew then the vision-inspection subsidiary would be on the auction block.
Revenues for the second quarter reached $2.6 million, up only slightly from the prior year’s $2.5 million.
For the six months, Monitor reported a net loss of nearly $2.5 million, compared to earnings of $55,329 a year ago. First-half revenues totaled $5.4 million, up nearly 19%.
Management likes to boast that Monitor has $600,000 in cash in the bank, only $530,000 in long-term debt related to the Image Data acquisition, and a current ratio of assets to liabilities of 2.2 to 1, which includes the reserve established last week.
About 15 employees in the vision-inspection operation have been laid off, leaving Monitor with about 100 workers.
Other San Diego firms active in the industry also have been affected by the less-than-spectacular growth for visual-inspection products.
IRT Corp. reported a $389,000 profit in the first quarter ended June 29 after a $4-million loss for the year ended March 31. The loss was accompanied by the abrupt resignation of the company’s long-time chairman and chief executive, Robert Mertz. The company, officials acknowledged, relied heavily on overly optimistic development and production figures of new automated inspection products.
At International Robomation Intelligence in Carlsbad, management is weathering the same industry slowdown as other companies. But “we were a few years ahead . . . and have a momentum,” according to director of marketing Chuck Giordanella.
The slowdown--especially in Detroit--is “something we anticipated,” said Giordanella. “It will affect us somewhat.”
