Cost-cutting their way to prosperity?

With a loss of $9.8m at the mid point of 2009, financial results from Cognex can only be described as horrible. (Link to the press release - opens as a pdf) Now we all know that manufacturers have been slashing expenditures, so it's no surprise that revenue is down 35% for the first half of '09, compared with the same period in '08.And I think it's obvious that if revenue is down the business has to contract, but was cutting Research, Development and Engineering (R,D & E,) 13% from Q1 the right thing to do?

Let's put this in perspective: in the first half of 2008 Cognex invested some $18.2m, or 14% of revenue on R,D & E. For the same period in '09 they invested $16.5m. Expressed as a percentage of revenue, that's actually an increase to 20%, so at first glance it seems they're doing what they can to safeguard the future. But here's the kicker: R,D & E was cut by $1.1m from Q1 '09 to Q2 '09. Annualize that and they've taken out over $4m of product development-related expenditure.

That's the equivalent of thirty or forty engineers cut from the payroll of a company whose business is advanced technology. I'm not privvy to the R&D programs underway in Natick, but I have to assume that some will be slowed down as a result of these cuts while others will be cancelled completely.

Is that the right thing to do for the long term? I think not.