Cognex Corporation - Company Profile, Information, Business Description, History, Background Information on Cognex Corporation

One Vision Drive
Natick, Massachusetts 01760-2059

Company Perspectives:

I started Cognex because I wanted to work each day in a particular ty pe of company--one that had smart, energetic people who enjoyed what they were doing, who liked to have goals and to accomplish those goal s. And I wanted a physical environment that reflected the culture of the company, which I wanted to be dynamic. I also wanted to work for a company where the management would tolerate, or better yet, seek ou t outspoken and assertive people like myself who don't care about off ice politics but who care deeply about doing the right thing for cust omers. Well, I couldn't find such a company, so I had to create it.-- Cognex Founder Dr. Robert J. Shillman, Electronic Design, Febr uary 2, 2004

History of Cognex Corporation

Based in Natick, Massachusetts, Cognex Corporation is a leading globa l supplier of machine vision systems, which give computers the power of sight. In addition to its East Coast headquarters and other U.S. l ocations, Cognex's operational base includes sites in Europe, Japan, and Southeast Asia. Cognex's clients hail from a number of industries , including aerospace, automotive, consumer products, healthcare, pac kaging, pharmaceuticals, and semiconductor manufacturing. The company offers a comprehensive lineup of industrial-grade machine vision pro ducts, including vision sensors, PC vision systems, hand-held and fix ed-mount code readers, and surface inspection systems. As of late 200 5, semiconductors accounted for 27 percent of Cognex's business, foll owed by factory automation (57 percent), and surface inspection (16 p ercent). Outside of its initial success in the semiconductor and elec tronics OEM business, Cognex considers its foray into general factory automation as one of the most important events in its history.

Cognex's products are used to automate different aspects of the manuf acturing process. As the company explains, its systems "automatically identify products, inspect for defects, gauge part dimensions, and g uide robotic equipment--at up to thousands of parts per minute. ... I n a typical application, a Cognex machine vision system captures an i mage of the part to be inspected through a video camera. The system t hen analyzes the image and generates an answer about it, such as whet her a part is defective. This information then can be sent to other e quipment in the manufacturing line, including a robotic arm that will remove a bad part from the process."

Pioneering Machine Vision: The 1980s

Cognex, which draws its name from the phrase "Cognition Experts," was established by Dr. Robert J. Shillman, a lecturer in human visual pe rception at the Massachusetts Institute of Technology (MIT). Prior to receiving his doctorate from MIT, Dr. Shillman earned undergraduate and graduate degrees in electrical engineering from Northeastern Univ ersity and taught computer science at Tufts University.

According to the April 1999 issue of Electronic Business, Shil lman was "deeply dissatisfied" with life in the academic world. Psych otherapy revealed that he wanted to be two things: an entrepreneur an d an entertainer. Using research from his dissertation at MIT, in 198 1 Shillman invested $87,000--his life savings, which he earned by restoring classic cars and fixing up apartment buildings--to start C ognex in a 1,000-square-foot office.

Over the years, Shillman has built a culture that prizes humor and al lows him to entertain others. When asked about his emphasis on humor, he once explained that it is an effective way of increasing morale, addressing rumors, and breaking down barriers between workers, whom h e affectionately calls "Cognoids." In addition to instituting a polic y that made Halloween Cognex's official holiday--and required all emp loyees to work in costume--Shillman became known for wearing wild cos tumes throughout the year and engaging in complicated practical jokes . A Fortune article noted that Shillman once gave out cash bon uses of up to $10,000--in moneybags from a Brink's truck. He awar ds 15-year employees with trips to one of the world's seven wonders, and engages in a Three Stooges routine to welcome new hires. Cognex's 2002 annual report was a Mad Magazine parody, with Shillman a ppearing on the cover as Alfred E. Neuman. The company even has its o wn corporate anthem, which Shillman leads with the backing of an empl oyee rock band.

Shillman launched Cognex with the help of Bill Silver and Marilyn Mat z, two graduate students from MIT's Artificial Intelligence Lab, luri ng them to summer jobs with free bicycles and the prospect of interes ting work. Silver and Matz remained with Cognex long-term, earning pi oneer status along with Shillman. Matz eventually became senior vice- president of engineering for Cognex's Modular Systems Division, and S ilver became senior vice-president of research and development and ch ief technology officer.

In the February 2, 2004 issue of Electronic Design, Silver exp lained that youthful idealism and risk-taking were key elements in th e company's early success, remarking: "We saw a problem people wanted solved, and we were crazy enough to do it. We had our share of good luck too. Had we known how hard it would be, who knows if we would ha ve given it a try?"

Cognex initially set its sights on developing custom machine vision s ystems and installing them for clients. The company quickly made its mark by releasing an industrial optical character recognition (OCR) s ystem called DataMan in 1982. According to Cognex, DataMan was an ind ustry first and had "the capability to read, verify, and assure the q uality of letters, numbers, and symbols in industrial environments." The new system was first used by a typewriter manufacturer to ensure correct key placement. After securing its first customer, the company 's growth was aided by capital investments of more than $5 millio n.

According to the company, when DataMan successfully read its first ch aracter, employees celebrated with champagne. So began a tradition of celebrating important milestones with a bottle of the sparkling beve rage. After employees autographed the label, these special bottles we re added to Cognex's "Wall of Fame." Following the introduction of Da taMan, Cognex introduced its Checkpoint 5500 Automatic Visual Tester in 1984, which was used for detecting assembly errors on circuit boar ds.

After helping to form the machine vision industry, Cognex soon found itself in an increasingly competitive environment, with roughly 100 p layers vying for a share of the market. Developing custom machine vis ion systems was a costly proposition. In addition to significant oper ating losses, Cognex ran into technical difficulties with some of its early installations. For example, a system developed for American Cy anamid performed correctly in the company's lab, but had problems on the shop floor in Puerto Rico. Cognex was forced to take a loss on th e project and refund American Cyanamid's money.

For reasons such as these, the company shifted gears in 1986. Allan W allack, a manager from Digital Equipment Corp., was hired as Cognex's chief operating officer. Wallack helped to change the company's focu s from custom systems to the development of standardized machine visi on hardware and software for the original equipment manufacturer (OEM ) market. Cognex reasoned that technically adept OEMs--especially tho se in industries like semiconductors, which rely heavily on machine v ision technology--could then tailor these standardized products to me et their specific needs.

In tandem with its new approach, Cognex unveiled two new products. Th e first was Cognex 2000, which the company described as "the world's first machine vision system built on a single printed circuit board." The second was a software application called Search, which had the c apability to "locate patterns in images very quickly and accurately."

By the mid-1980s, Cognex was quickly establishing a position of indus try leadership. Leading firms provided development funds to Cognex fo r the development of much needed technology. For example, General Mot ors' Delco Electronics division gave Cognex $500,000 to develop a system for inspecting circuit boards with surface mounted devices (S MDs).

Cognex turned its first profit in 1987. The following year, the compa ny's revenues totaled $10.6 million and net income reached $2 .4 million. At this time, approximately 33 percent of total sales cam e from OEMs in the $600 million semiconductor industry. This focu s required Cognex to do a growing amount of business with Japanese fi rms, which held attributes like quality and punctuality in high regar d.

Initially, Cognex worked with Japanese firms through a distributor na med Marubeni Hytech Ltd. Dr. Shillman eventually began traveling to J apan, however, to forge direct relationships and learn more about Jap anese business practices. His efforts were met with success. As the N ovember 13, 1989 issue of Electronic Business explained, quali ty improvements at Cognex resulted in tighter delivery schedules and shorter response times, and helped the company to secure significant business from the Japanese.

In late 1988 Tokyo-based Seimitsu Co. Ltd. agreed to purchase Cognex' s machine vision systems at a rate of about 50 per year. This was fol lowed by a $9 million agreement with Shinkawa Ltd. in the spring of 1989, which some observers considered the largest contract in the machine vision industry's history. The company expected that the perc entage of its sales attributable to Japanese companies would increase from 14 percent in 1988 to more than 20 percent in 1989.

Cognex ended the 1980s on solid footing. The company went public in 1 989 at $1.38 per share. Sales reached $15.9 million that year , with net income of $3.7 million.

Focused Growth: The 1990s

The 1990s began on a high note. Cognex saw its stock price triple onl y a year after its initial public offering. In the March 5, 1990 issu e of Metalworking News, Fechtor, Detwiler & Co. analyst M. Ronald Opel forecast that Cognex would see its net income grow at an annual rate of 25 to 35 percent during the first years of the decade . At 25 percent, Opel explained that the company held a commanding sh are of the U.S. merchant electronics manufacturing machine vision mar ket (not including companies that manufactured their own systems), an d that Cognex was "the only machine vision company thus far to have a chieved substantial profitability."

Another positive development occurred in 1990 when Dr. Shillman was n amed Entrepreneur of the Year by Inc. magazine. With Cognex in good condition, COO Allan Wallack left the company to pursue other o pportunities. He was replaced by Neil R. Bonke, who previously served as president of General Signal Corp.'s Xynetics division. At this ti me, the company's products ranged from the Cognex 1500 system to high er-end applications such as its 2000 and 3000 series. Starting at &#3 6;20,000, Cognex's systems required engineers to be knowledgeable in the C programming language.

Cognex ended 1990 with sales of $23.5 million. That year, the com pany's net income surged 76 percent, reaching $6.5 million. Miles tones at Cognex during the early 1990s included a patent for VC-1, a dedicated vision chip, in 1991. That same year, the company unveiled the Cognex 4000, a full-capability machine vision system for VME bus computers. In 1993 the Cognex 5000 marked the first advanced vision s ystem for PC/AT bus personal computers. Finally, the company introduc ed its Windows-based Checkpoint system in 1994. Priced at $23,900 , the point-and-click machine vision system could be implemented on a ssembly lines by nontechnical employees.

Heading into the second half of the 1990s, Cognex began to actively a cquire other businesses. In 1995 the company acquired Portland, Orego n-based Acumen Inc., a wafer identification technology firm. This was followed by the purchase of Alameda, California-based Isys Controls, a manufacturer of high-performance surface inspection systems, in 19 96. Cognex acquired Mayan Automation, a manufacturer of low-cost surf ace inspection systems, in 1997, followed by the machine vision busin ess of Allen-Bradley Inc., a division of Rockwell Automation, in 1998 .

A number of important product rollouts occurred at Cognex during the mid-1990s. In 1996 the company introduced the acuReader/2Dm, a PC plu g-in Data Matrix 2D code reading solution. The following year Cognex unveiled PatMax, a fast, highly accurate, high-yield object location technology. Finally, a high-speed, compact industrial machine vision camera called the CVC-1000 was introduced in 1998.

The Cognex Surface Inspection Systems Division was formed in late 199 7. Based in Alameda, California, it was established to develop and ma rket high-speed, camera-based inspection systems to end-users in the plastics, metals, paper, and nonwoven materials sectors. The company ended 1999 with revenue of $152.1 million and net income of $ 30.4 million.

Acquisition and Expansion: 2000-05

The new millennium brought new developments at Cognex. In May 2000, t he company bought Komatsu Ltd.'s (Japan) machine vision business for $11 million, with additional performance-dependent payments of up to $8 million. During the same month, the company purchased Epso m, U.K.-based Image Industries, a manufacturer of vision sensors. The purchase made Cognex a leading supplier in the United Kingdom. In 20 00, the company also acquired the surface inspection business of Kuop pio, Finland-based Honeywell International.

New products during 2000 included the acuReader III, Checkpoint II, a nd SMD4 machine vision systems, as well as the SmartView web inspecti on system and the In-Sight 2000 machine vision sensor. According to C ognex, its In-Sight line helped it to expand into the realm of factor y automation. In 2001 the company introduced the In-Sight 1000 and In -Sight 3000 industrial machine vision sensors. Equipped with Ethernet ports, the sensors were suited for a range of industrial application s.

Jim Hoffmaster became Cognex's chief operating officer in 2001, a dif ficult year in the company's history. As overall economic conditions soured in late 2001, exacerbated by the terrorist attacks of Septembe r 11, the electronics and semiconductor segments began to decline. Th is prompted Cognex to announce its first major layoff since 1985. In addition to cutting 25 unfilled positions and contractor jobs, the co mpany let 60 regular employees go. The workforce reduction, which was expected to save the company $6.5 million, affected Cognex's Mod ular Vision Systems Division and included 30 positions at the company 's headquarters. Despite the workforce reduction, the industry downtu rn still impacted Cognex; in 2002 the company lost $6 million on revenues of $114 million.

Cognex made two additional acquisitions in 2003. That year, the compa ny purchased the wafer identification business of Siemens Dematic AG, as well as the ID code reading business of Aachen, Germany-based Gav itec AG. By 2003 Cognex served the Asian market from offices in Japan , Korea, Singapore, and Taiwan, and through partnerships with Chinese firms. In August of that year, the company announced plans to open a n office in Shanghai to directly serve the burgeoning Chinese market. Cognex marked the year's end by reaching a significant milestone: th e sale of its 200,000th machine vision system, marking $1.5 billi on in cumulative revenue since 1981.

Cognex's revenues reached $202 million in 2004. That year, Jim Ho ffmaster was named company president, becoming the first employee oth er than Dr. Shillman to hold the title. Shillman remained chairman an d CEO. Cognex's total number of system shipments exceeded 275,000 in 2004, representing cumulative revenue of more than $1.9 billion s ince 1981. With 207 patents and more than 100 additional patents pend ing, Cognex had devoted more than 500 "man-years" to the development of its vision systems. At this time, the company employed nearly 700 workers, affectionately known as "Cognoids," some 200 of whom worked outside of North America.

In late 2004 Cognex formed two new teams in its Modular Vision System s Division with a goal of devoting resources to new markets for machi ne vision technology, namely early vision technology adopters with st rong growth potential. One new team was focused on expert sensors, wh ich included sensors for monitoring admission to restricted areas, wh ile another concentrated on identification products. The latter area involved technology for reading two-dimensional bar codes, which were being adopted by manufacturers in the automotive, electronics, aeros pace, and defense sectors. Two-dimensional bar codes are capable of e ncoding more than 1,000 characters of data, and are useful for tracki ng and tracing parts.

In May 2005 Cognex announced that it had acquired one of its main riv als, Duluth, Georgia-based DVT Corporation, for approximately $11 5 million. The acquisition gave Cognex access to a network of more th an 150 industrial distributors worldwide who were trained to support and sell machine vision products. In particular, the distribution net work would help Cognex to expand its market for low-cost vision senso rs.

As Cognex prepared to mark its 25th anniversary in 2006, the future a ppeared to hold nearly limitless potential. As Bill Silver explained in the February 2, 2004 issue of Electronic Design: "We have h ardly begun to scratch the surface of machine-vision applications and technology. We have examples in the world of human vision that are s o far in advance of anything we can make with machines, that I don't expect us to catch up in my lifetime or my children's."

Principal Subsidiaries: Cognex Finland Oy; Cognex Internationa l Inc. (France); Cognex Germany Inc.; Cognex Ltd. (Ireland); Cognex B enelux (Netherlands); Cognex UK Ltd.; Cognex KK (Japan).

Principal Divisions: Modular Vision Systems; Surface Inspectio n Systems.

Principal Competitors: KLA-Tencor Corporation; Orbotech; Robot ic Vision Systems, Inc.


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