Tuesday, May 1, 2012

Cognex 1st Quarter Results

The machine vision behemoth that is Cognex reported its Q1 2012 results after the markets closed Monday 30th. I make a point of trying to deduce industry trends from their numbers, so let’s look at what these latest figures tell us.

Now compared to the previous quarter, (Q4 2011,) both revenue (sales) and income (profit) were down, but that’s not really a fair comparison because there is an element of seasonality in their business. So let’s do what CEO Robert J. Willett does, and take Q1 2011 as the benchmark.

On this basis revenue was up 4%, income up 5% and income per share up 2%. Respectable numbers, although I would predicted better. Based on nothing more scientific than my feel for our industry, I would have expected more like 10%. Everyone I speak to seems very busy and we know manufacturing companies are investing, so what’s going on?

Reading the financial statement, it seems pretty clear: Cognex have done good business with the solar panel people for the last few years, and as we know, the outlook for that industry is less rosy than for some time. Machine vision sales are driven very much by capital investment, and my sense is that the boom in manufacturing cap ex for solar has passed. Hence the slowdown in that market.

There are a few other points to note though. First, SG&A expense has jumped over Q4 ’11. This implies to me that they’re hiring sales people but not increasing the sales revenue per employee. Or maybe unit volumes are down. This might be expected after they pushed through some pretty steep price increases. (Although it helps raise margins for everyone in the industry.)

And second, as evidenced by their continued presence on jobs board Dice, Cognex continue to grow their R&D activity. But where are these brains being deployed?

My impression is that Cognex see code readers as their big revenue stream, so I suspect that’s where the effort is going. Plus, competitors, notably Microscan, are pushing hard in this market. What does that mean for VisionPro and the In-Sight smart cameras? I suggest there won’t be many new product announcements in these areas for at least a year, maybe longer.

That might be disappointing for us techies, but Cognex is a money-making machine and they’re doing what they do well. If it’s leading edge products you seek, maybe you’ll need to shop elsewhere.

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