Terry L. Moshier, REO Inc.
The year 2009 was a particularly difficult
one for most of the optics industry, characterized by declining revenues and layoffs.
But it wasn’t all bleak: REO posted a 28 percent gain in sales, and the company
has shown a compound annual growth rate of more than 16 percent over the past six
years. We are proud of achieving well over $30 million in revenue in 2009. I’d
like to share the reasons why we have grown because I believe that our approaches
could be adopted by other businesses looking to expand in the current uncertain
financial climate.
Founded in 1993, REO manufactures precision thin-film coatings,
optics and optomechanical assemblies. Early in the company’s history, we decided
to focus on producing high-quality superpolished optical surfaces and thin-film
coatings, and today we still concentrate exclusively on servicing high-volume OEMs
that demand excellent performance. Our primary customers are manufacturers of defense
and aerospace systems, laser systems, semiconductor tools, medical systems, life
sciences instrumentation and telecom equipment. As is typical in this industry,
REO is a privately held company; however, we manage our business and reporting in
a public company manner, applying discipline and complete adherence to accounting
principles.
One obvious way for any company to increase its sales is to expand
the market accessible to it. In our case, that has meant adding coating, fabrication
and assembly capabilities so that we can produce a much wider range of products.
In the past two years, REO has completed the acquisition and integration of Coherent’s
Auburn Optics manufacturing operation, which has broadened our potential and taken
us into some entirely new areas. In particular, it has brought us equipment and
expertise in the fabrication – including diamond turning – of a wide
range of infrared materials (such as Ge, ZnSe and ZnS). We have added several coating
chambers, increasing our production capacity and further extending our infrared
and ultraviolet business. We also gained diverse laser sources that enable us to
perform detailed metrology at many wavelengths.
REO also has focused on developing strategic supplier agreements
that increase income and establish partnerships with recognized industry-leading
companies. Our customer base consists of OEMs and major manufacturing companies,
so simply supplying a product that performs as specified at a competitive price
is not enough. Our customers’ products may be critically dependent on a component
we supply, so they need to know that we’ll meet their requirements if volumes
increase and that we’ll provide the necessary technical support if problems
arise. Having agreements with well-known companies gives us an implicit and reassuring
endorsement that makes it easier to develop other relationships and that opens the
door to a great deal of collaborative innovation, helping us maintain our technology
leadership and competitive edge.
Above, REO has expanded its coating capabilities to increase volume capacity and to meet a wider range of performance and cost requirements. The company now has 38 coating chambers that use ion beam
sputtering, ion-assisted deposition and traditional electron beam evaporative methods.
It’s important to remember that value to customer extends
beyond just the product itself. Specifically, REO maintains a large staff of engineers,
and the services that the team delivers help us to avoid competing with other vendors
solely on price. For example, recently our engineering group, working with a customer
who was buying a doublet from us, helped refine the design and turn it into a lower-cost
singlet. Although our gross revenue was actually reduced, the cost reduction of
the overall system created a much higher-value proposition to the end user, enabling
us to maintain significant market share as a first-choice supplier in a competitive
area.
Another way for companies that start out as component producers
to expand revenue is to move up the value chain by supplying more complex products,
assemblies and engineering services. This is a particularly effective approach for
an OEM supplier such as REO. It’s easier and more cost-effective for us to
sell more, or higher-value, products to established customers than it is to find
and close business with completely new ones. To this end, we’ve added to our
capabilities for fabricating mechanical parts and for engineering and producing
optomechanical assemblies.
Even though we emphasize higher value, we are always looking at
creatively lowering cost. For example, the traditional labor-intensive method for
producing ultraprecision assemblies involves fabricating lens elements with tight
centration tolerances and assembling them in a machined housing. Instead of traditional
shim-and-glue techniques, we have developed an assembly system that uses a laser
to measure the position of the lens with reference to its housing and a mechanical
actuator to adjust the component’s position. The most important benefit of
this approach is that it reduces the need to hold tight mechanical tolerances for
the housing and optics, particularly lens centration, by two orders of magnitude
to levels that are easily and quickly reached in normal fabrication processes. The
end result is equal assembly performance for a competitive price.
Many optical component manufacturers and coating vendors are feeling
tremendous price pressure, especially in the face of low-cost imported products.
Focusing solely on shaving off the last penny to come in with the lowest bid is
a game that is difficult to win and one that REO doesn’t need to play. Instead,
we’ve found that by offering a combination of engineering expertise and highest
quality in value-added products to our targeted customer base, we can succeed and
thrive, even under difficult market conditions.
Meet the author
Terry L. Moshier is CEO and chairman of REO Inc. in Boulder, Colo.;
e-mail: [email protected].