PORTLAND, Ore. -- In the latest move in the infrared device industry's consolidation, FLIR Systems Inc. and Agema Infrared Systems AB of Stockholm, Sweden, have signed a letter of intent to merge. According to the agreement, FLIR will issue about 4.2 million shares of its common stock (roughly 42 percent of its outstanding shares) to Agema's parent company, Spectra-Physics AB, in exchange for all of Agema's outstanding shares. FLIR reported sales of $66 million in 1996; Agema posted sales of approximately $48 million for the same period. Officials from both companies said they expect to complete the deal by the end of 1997. The move comes seven months after Raytheon announced its $3 billion plan to buy Texas Instruments Inc.'s defense electronics operations, including infrared systems. "I think [the merger with Agema] would have come to pass without the Raytheon acquisitions," said Bruce Carocci, FLIR's marketing director. "But having more strength in the marketplace is definitely a good thing when you have billion-dollar companies merging." FLIR officials attribute the consolidation to a growing commercial market for infrared camera products. "As the technology continues to move into the mainstream, costs are coming down to acquire and use it," Carocci said. He said he believes the deal will result in a stronger, faster product development process and improved worldwide distribution channels. Challenge to small companies Agema's president, David Smith, said he believes the nature of infrared technology will allow new companies to continue to enter the marketplace, but that the pattern of consolidation will make it difficult for smaller companies to compete. Competitors agree. "I applaud FLIR for taking the action. It makes sense," said Art Stout, marketing manager of commercial products for Raytheon Amber of Goleta, Calif. "It's a good move for FLIR and Agema, but certainly not for [smaller companies like] Inframetrics." However, officials at Inframetrics in North Billerica, Mass., disagree with the naysayers and see the move as an opportunity for expansion. "It will mean one less player in the market," said President Jay Teich. Teich said he believes Inframetrics' recent gains in the commercial infrared camera market have been at the expense of FLIR and Agema, and he believes the merger will strengthen Inframetrics' market position.