Newport Outsourcing Lasers

Newport Corp. will move some of its laser and other manufacturing to China and cut about 10 percent of its worldwide workforce of 2000, the company announced late yesterday. Those actions and other cost-cutting moves are expected to improve Newport's operating profit by up to $14 million next year.

Newport manufactures lasers, optical components and subassemblies, photonics instruments and components and high-precision positioning and vibration isolation products and automated manufacturing systems through its two divisions, Photonics and Precision Technologies (PPT) and Lasers.

The Lasers Div. was formed in July 2004 when the company acquired Spectra-Physics (See Newport to Buy Spectra-Physics). Its products include ultrafast lasers and amplifiers, solid-state, gas and dye lasers, and high-power diode lasers for the microelectronics, life and health sciences, and industrial manufacturing markets. In 2006, Newport formed a Fiber Laser business group within the division and introduced its first fiber laser, the Pantera quasi-continuous wave mode-locked high-power ultraviolet laser, in the fourth quarter of last year. (See Newport Corp. Forms Fiber Laser Group)

"Internally, we experienced several operational execution issues in our Lasers division, which severely impacted our profitability. In response, we developed and are implementing a comprehensive plan to improve the division's operations and profitability, including management changes and the installation of improved business processes supported by new software and control systems," Newport president and CEO Robert J. Phillippy said in a letter to stockholders in the 2007 annual report.

Laser and laser systems manufacturing is currently done at Newport's facility in Mountain View, Calif., and in Ottawa, Ontario, and Stahnsdorf, Germany. Diode lasers are manufactured in Tucson, Ariz., where the company recently laid of 29 of its 200 workers and said it will let about 50 more go through the first quarter of 2009. The plant's general manager told the media that the cuts are primarily in assembly, testing and packaging operations, which were being moved to a subcontractor in Asia because of competitive pressures (See Newport Unit to Cut 80 Jobs), and that there were no plans to completely close the facility.

Newport opened its manufacturing site in China in December and will now transfer some of its manufacturing, particularly in the Lasers Div., to that facility, as well as other lower-cost sources in Asia, the company said. About half of the approximately 200 jobs being eliminated are connected to the outsourcing plan.

"We believe that these cost reduction actions will drive sustainable near- and long-term profit improvement for Newport. Our new manufacturing facility in Wuxi, China, provides us increasing opportunities to produce selected products in a lower-cost environment, while simultaneously enhancing our presence in the rapidly growing Chinese market. We are also developing stronger outsourcing partnerships in Asia for some of our manufacturing processes, which will further enable us to reduce our cost structure," said Phillippy.

The company reconfirmed that it expects its revenue for the third quarter of 2008 to be between $106 million and $112 million, and in the range of $115 million to $125 million for the fourth quarter, despite the uncertain conditions in the semiconductor equipment market, due primarily to its strong backlog of orders from photovoltaic customers and the strength it normally experiences in its research market in the fourth quarter.

"We believe that the opportunities we are capitalizing on in photovoltaic applications will drive significant revenue growth in the future and that this growth combined with the lower cost structure resulting from our profit improvement actions will position us well to significantly improve our profitability in 2009 and beyond," Phillippy said.

For more information, visit: www.newport.com