Excel Technology, Inc.

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Excel Technology, Inc.

41 Research Way
East Setauket, New York 11733
U.S.A.
Telephone: (631) 784-6175
Fax: (631) 784-6195
Web site: http://www.exceltechinc.com

Public Company
Incorporated: 1985
Employees: 619
Sales: $122.68 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: XLTC
NAIC: 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing; 333314 Optical Instrument and Lens Manufacturing

Excel Technology, Inc. is the parent company for several independently operated manufacturers of lasers and related equipment. The company's subsidiaries are active in design, development, manufacturing, and marketing of lasers used mainly in scientific and industrial applications—from researching subatomic particles to cutting material for automotive air bags. Through its subsidiaries, Excel has become one of the most successful companies to profit from the widening commercialization of lasers. Excel was founded in 1985 by a scientist eager to develop an advanced medical laser. In 1992 the tiny company acquired Quantronix, Inc., a much larger manufacturer of lasers for the scientific and industrial sectors. The purchase brought Excel an established product line, sales team, and manufacturing facility. Excel revived the struggling Quantronix and proceeded to buy a string of other small laser manufacturers over the next decade, bringing in companies with expertise in many different laser technologies and applications.

Excel now has about nine main subsidiaries engaged in laser-related manufacturing and design. Baublys-Control Laser manufactures lasers for marking and engraving, Continuum makes high-energy pulsed lasers for research purposes, and Synrad produces low-cost carbon dioxide lasers for cutting softer materials. Quantronix focuses on powerful solid-state lasers used for scientific applications as well as semiconductor, aerospace, and automotive manufacturing. Other subsidiaries produce subsystems related to laser applications. Cambridge Technology builds scanning components used to steer lasers, while Control Systemation makes systems for automation and parts handling. The Optical Corporation and Photo Research make precise optical products that can be used to measure light and color. Excel's manufacturing facilities are on the East and West Coast and in Germany and it has sales offices in the United States, Europe, and Asia. More than half the company's sales are to non-U.S. customers.

Rama Rao's Tunable Laser: 1980s

The story of Excel Technology starts with Rama Rao, a physicist who came to Chicago from his native India in 1979 to take a position as a teaching assistant at the Laser Laboratory of the University of Illinois. The son of a bookkeeper at a steel company in India, Rao got his bachelor's and master's degrees in physics in his home country. He arrived in Chicago the day before he was to report at his new job and took a room at the YMCA after having to pay most of his cash to an unscrupulous taxi driver who drove the newcomer all over the city. Nevertheless, Rao settled in and soon was able to take advantage of the opportunities available in the United States. He earned a doctorate in physics at Illinois, where he also met his future wife, Triveni Srinivasan. Srinivasan shared Rao's background in physics in both India and Illinois. By the mid-1980s Rao was on the faculty at the City College of New York, while his wife was a senior scientist at the Brookhaven National Laboratory on Long Island. She agreed to support the family when Rao took time off to explore the possibility of founding a company to develop advanced cancer-treating lasers. Rao's idea was that a light-sensitive drug could be injected into a cancer tumor and then activated by a laser, causing the tumor to disintegrate.

Rao established Excel Technology in 1985 as a Delaware corporation and drew up a business plan with a three-year design and development schedule. He visited nearly every venture capital firm in New York looking for funding, but the only support he received was about $1 million from the federal government's Small Business Innovation Research program. Rao used the money to outfit a laser development facility with a 220-volt power line in his garage. In 1989, he introduced the result of his efforts: "The world's first and currently only all solid state tunable Ti:Sapphire laser." Like all lasers, it produced a concentrated beam of light by stimulating a medium to emit light waves that are in phase and have the exact same frequency and direction of motion. The special feature of Rao's laser was that it was tunable, which meant that the frequency of the beam could be adjusted to cut different kinds of tissue. For about $100,000, customers could get one laser to perform several tasks, rather than purchasing a special system for each application. Excel sent the laser to the Massachusetts Institute of Technology, Hughes Medical, and other laboratories for testing. In May 1991 the company raised $3.6 million with an initial public offering on the NASDAQ. Sales in 1991 were about $250,000.

Purchase of Quantronix: 1992–94

Excel shifted its focus away from medical applications in October 1992 when it bought the laser manufacturer Quantronix Corporation, with headquarters on Long Island. The company was acquired in an exchange of stock worth about $9 million. While Excel had only a dozen employees at the time, Quantronix had about 200. The acquisition more than quadrupled Excel's annual sales and gave the once tiny company an established product line, substantial manufacturing facilities, and a marketing structure including a subsidiary in Darmstadt, Germany—which became known as Excel Technology Europe GmbH. Quantronix had been founded in 1967 and pioneered the first commercial CW-pumped Nd:YAG laser. It went on to install thousands of laser systems for industrial applications. In the 1970s, Quantronix began making laser systems designed to repair the photomasks, which are used to print computer circuit images on semiconductors. This became one of the company's primary markets. By the early 1990s, Quantronix had around $30 million in annual sales and an established presence in the industrial and semiconductor laser fields. The company was losing money, however, and needed the cash and new products offered by Excel.

The acquisition of Quantronix by Excel included two subsidiaries: Control Laser and The Optical Corporation. Control Laser, founded in 1970 and acquired by Quantronix in 1987, made lasers for marking and engraving applications in the automotive and aerospace industries. It had a manufacturing facility in Orlando, Florida. The Optical Corporation, located in Oxnard, California, made precisely polished optical components used for measurement applications. The company had been founded as John Ransom Laboratories in 1932 to make precision optics for industrial customers.

Excel moved its offices to the Quantronix headquarters and appointed J. Donald Hill as head of the company. Hill was successful in improving the company's performance. In 1993, the first full year with Quantronix, Excel made a profit of $2.88 million on sales of $29.03 million. Meanwhile, the company was seeking approval for its new dental laser, which had the potential for less painful, noninvasive treatment of soft tissue. By late 1993 the laser was approved for sale in the United States and Germany. In the summer of 1994, Excel/Quantronix introduced a laser welding system that could be used for the repair of dental crowns and bridges. The dental products, however, never caught on for Excel. They accounted for 7 percent of sales in 1996 but were not a significant part of the company's operations by the end of the decade.

Continuing Acquisitions: 1995–98

Excel made more acquisitions in 1995. In February it paid $4.75 million in cash and stock for Cambridge Technology, Inc. of Massachusetts. Cambridge made components known as laser scanners, which are used to move a laser beam with a precise speed and direction. The company had been founded in 1978 to make instruments for biomedical research. Eventually it focused solely on "closed loop galvanometer technology," working to improve the accuracy and speed of optical scanners.

In October 1995 Excel paid $3.5 million for the Photo Research Division of Kollmorgen, which was rolled into the newly created subsidiary Photo Research Inc. This firm, located in Chatsworth, California, made photometric and spectroradiometer instruments—devices used to measure light and color. Photo Research had been founded in 1941 by cinematographer Karl Freund. He won Academy Awards in technical achievement for the development of the Spectra Color Temperature Meter, used to improve the quality of pictures in movies. Photo Research subsequently expanded the technology for use in the design and testing of other light-emitting products, such as instrument panels in cars. The company won four more Academy Awards in the 1970s for its products. In the 1990s, the photometers were miniaturized to allow for convenient portable measurements. By the time of Excel's acquisition, Photo Research's products were widely used for computer-related applications such as measuring the performance of cathode ray tube monitors or the flying height of disc-drive heads. Also in 1995, Excel settled litigation with the government relating to alleged misuse of some of the grants it received in the 1980s. Excel paid $2.7 million without admitting wrongdoing.

Company Perspectives:

The unmatched precision and flexibility of laser technology offers a world of opportunity as commercial and industrial manufacturing techniques and scientific research get increasingly sophisticated. Our task is to offer superior technology coupled with cost effective solutions to our customers.

At the start of 1996, Rama Rao stepped down as CEO. Both he and his wife Triveni resigned their board positions to pursue other interests. Subsequently, J. Donald Hill advanced from his position as head of Quantronix to be CEO and chairman of the board. Hill worked closely with Antoine Dominic, who had joined Excel as chief financial officer in 1995 and became chief operating officer and president a few years later. Under their direction, sales of industrial and scientific lasers increased. With five separate subsidiaries now, Excel's sales were $66 million in 1997. Quantronix was the most profitable subsidiary. By 1998 it had moved from its old facility in Hauppauge to a new 34,000-square-foot design and manufacturing facility at the Stony Brook Technology Center on Long Island.

Excel branched out to yet another area of laser technology with the purchase of Synrad, Inc. in August 1998. Synrad, based in Washington State, was a leading manufacturer of sealed carbon dioxide lasers, which were generally the lowest cost lasers available. While not as powerful as other lasers, CO2 lasers could be used for less intense cutting applications: engraving trophies, slicing air bag material, cutting paper for computer-generated architectural models, and even giving blue jeans a worn look. Synrad had been founded in 1984 as a research company in southern California. At that time, most CO2 lasers required a constant flow of carbon dioxide, which made them expensive to operate. Company founder Peter Laakmann developed a cheaper, less powerful sealed-tube version and set up a manufacturing plant in Washington. This new product made lasers accessible to a much wider range of clients, and Synrad grew quickly as it captured most of the market for CO2 lasers. Eventually, competing firms developed similar products, but Synrad still had a strong market share when Excel bought it in 1998 for $22 million. Most of Synrad's lasers were sold to original equipment manufacturers who incorporated them into larger assemblies for specific applications. The acquisition of Synrad brought Excel's annual sales up to $88.9 million in 1999.

Expanding Its Reach: 1999–2004

Excel's acquisition spree continued well into the new millennium. Excel Technology Asia Sdn. Bhd., based in Malaysia, was created in 1999 as a marketing and distribution subsidiary for Control Laser and Quantronix Products in southeast Asia. European operations expanded as well. First, Excel Europe opened offices in Munich and Milan. Then, in July 2000, the European subsidiary acquired Baublys GmbH of Ludwigsberg, Germany, for $4.5 million in cash. Baublys designed and manufactured laser marking and engraving machines. Its facilities would allow Excel to offer European clients more customized products. Because Baublys had products similar to Excel's Orlando-based subsidiary Control Laser, the two companies consolidated their activities at the start of 2002, although they remained legally separate. In the fall of 2000, Antoine Dominic was promoted to CEO of Excel and J. Donald Hill stayed on as full-time chairman of the board.

Early in 2001 Excel created a new subsidiary, Control Systemation, Inc. (CSI). CSI was originally a division of Control Laser that focused on automation and parts handling applications for laser machining systems. Now it became an independent company and moved into a new 80,000-square-foot facility in Orlando. The creation of a separate subsidiary for automation was expected to strengthen Excel's offerings for the industrial market. A global recession in 2001 reduced demand for Excel's engraving, scanning, and CO2 laser products, pushing sales down 18 percent to $88.5 million after reaching a record $107.7 million in 2000.

Excel Technology Japan Holding Co., Ltd. was established in August 2002 to acquire OptoFocus Corporation, the company that distributed Excel's product line in Japan. In October of that year Excel used $13 million in on-hand cash to buy the scientific division of Continuum from Hoya Photonics. Continuum had offices in Santa Clara, California, France, and Japan. The company was producer of pulsed lasers, a new technology for Excel. Continuum had been founded in 1975 as Quantel International by Georges Bret, a laser technology professor at the University of Orsay in France. The company developed expertise in the production of pulsed solid state Nd:YAG lasers and changed its name to Continuum in 1990. In 1991 Hoya Corporation, a Japanese optical glass manufacturer, bought the company. By this time, Continuum had developed a laser device for tattoo removal, which proved to be very successful. Under Hoya, the expansion of the medical division held back the development of the company's scientific and commercial divisions, so these were sold to Excel, where they would have room to grow. After the sale, Continuum combined its sales team with Quantronix.

In April 2003 Excel created another Asian sales office, the Excel SouthAsia JV based in Mumbai, India. Excel had 50 percent ownership in the venture, which would focus on product sales in south Asia. In December of that year Excel bought D Green (Electronics) Limited (DGE). Based in the United Kingdom, DGE developed and manufactured power supplies for laser systems. Sales in 2003 grew to $122.68 million and net income was $11.32 million, in large part due to revenues from Continuum and the new Japanese sales office. In 2004 increased sales in marking systems, scanners, and CO2 lasers were putting Excel on a path to exceed the previous year's sales. In addition, the company had zero debt since most of its subsidiaries had been bought with existing cash reserves. As always, all of Excel's subsidiaries were pushing ahead with new product development. Excel's diverse array of laser products and the wide range of applications for its systems made it likely that the company would continue to post profits.

Key Dates:

1985:: Excel Technology is incorporated.
1989:: Rama Rao introduces a tunable laser.
1991:: Excel makes its initial public offering on the NASDAQ.
1992:: Excel acquires Quantronix, including Control Laser and The Optical Corporation.
1995:: Cambridge Technology and Photo Research are acquired.
1996:: Rao departs Excel; J. Donald Hill becomes CEO.
1998:: Synrad is acquired.
2000:: Baublys is acquired.
2001:: Control Systemation, Inc. is created.
2002:: Continuum is acquired.
2003:: D Green (Electronics) Limited is acquired.

Principal Subsidiaries

Baublys-Control Laser Corporation; Cambridge Technology, Inc.; Continuum Electro-Optics, Inc.; Control Systemation, Inc.; Photo Research, Inc.; Quantronix Corporation; Synrad, Inc.; The Optical Corporation; Excel Technology Europe GmbH (Germany); D Green (Electronics) Limited (U.K.); Excel Technology South-Asia Pvt. Ltd. JV (India); Excel Technology Asia Sdn. Bhd. (Malaysia); Excel Technology Japan K.K.

Principal Competitors

Spectra-Physics, Inc.; Thales Laser; Coherent, Inc.; New Wave Research Incorporated; Spectron Lasers USA Inc.; Hans Laser; ROFIN-SINAR Technologies Inc.; Fotona; Trumpf-Haas; NEC Corporation; Seiko; Alltec; Cheval Frere.