Monday, May 4, 2009

We thought it would be bad, but ...

How would you feel if you lost $3.4 million dollars? Would the word "disappointing" figure in your outpouring of anger? Well that's how Dr. Shillman, speaking with almost British reserve, described the first quarter results from Cognex.

With revenue down 30% from Q1 '08 it was inevitable that profit would nosedive, but I'll wager few anticipated such a reversal, from positive $8.6 million to negative $3.4 million. That's one heck of a drop, and it suggests that Cognex were unprepared for the way in which orders dried up at the start of the year.

So what's gone wrong, apart from the obvious fact of folks not buying machine vision?

I offer two possible explanations:
  1. The reliance on distributors to sell the InSight and Micro smart cameras has insulated Cognex from market realities. I'd guess that distributors kept passing along optimistic reports throughout Q4 '08, only switching into bad news mode in the New Year, and so leaving Big Yella little time to react.
  2. Too many product offerings, creating unnecessary complexity and confusing the customers. It's much easier to study the Banner range, to use just one example, than to figure out which InSight or Micro will do the job.

So that's my diagnosis. The prognosis though has to be positive. Cognex have a huge stash of cash, and even if they were to continue losing $3.4 million per quarter it would still take more than a dozen years to burn through it all. And let's face it, Dr. Shillman is not going to allow his company to wither away, so expect the market leader to come back strongly in the second half of '09.

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