Cognex Corporation

About the Company• Manufacturer of machine vision systems,

software and sensors • Used in automated manufacturing to inspect

and identify parts, detect defects, verify product assembly, and guide assembly robots.

• Headquartered Natick, Massachusetts, USA. • Offices in more than 20 countries.

• Founded by Dr. Robert Shillman with his two students: Marilyn Matz, Bill Silver.• Initial investment of $100,000.• Machine Vision Technology.

Capturin

g imag

e through camera

Convert it in digital data

Analysis of the data

• Dataman: Company’s first product, used optical character- recognition system, developed by Silver in 1982.• Entry of competitors.• In mid- 1980s, Cognex decided to target

original equipment manufacturer- build Cognex 2002 and various other products for them.

•1989- IPO.•Share prices moved to $33.50 from $2.75 per

share.

About Dr. Robert Shillman•Academician at MIT.•Had an “idea that computers can see”.•Management attitude “work hard, play hard”•“Dr. BOB”- now President, CEO and

Chairman of Cognex.•Named Inc. Magazine’s Entrepreneur of the

Year in 1990•Received Achievement Award in Leadership

from Automated Imaging Association in 1992.

Human Resource Management

•Unique corporate culture.•“Work Hard, Play Hard”.•Cognoids.•Innovative reward programs.•President’s Award.•Various incentives at 3, 5, 10 years of

completion of service.

Products

•Machine Vision Systems- helps in tight limits on speed, cost, reliability, size and safety.

•Consists of software and hardware components that are customized for specific manufacturing needs.

•Systems are programmable in C or point and click interface.

•Check Point Series.

New- Product Introduction

•Provides an edge over others.•High accuracy products PatMax.•Programmable machine vision systems•Launch of microprocessors which made

the products run on customer’s PCs.•1998- Introduction of Modular Camera

Networkfor products made in continuous processes.

The Machine Vision IndustryThe Machine Vision Industry

OEMs

Factory- Floor Customers

System Integrators

End- Users

Cognex Early Days

•Initial target of end- users but the strategy was not profitable

•Focus on OEMs in the Semi conductors and Electronic industries

•OEMs had technical knowledge•High R&D cost due to miniaturization •Cognex was first to enter semiconductor

market

Cognex and General Signal

•In late 1986, Cognex stuck a deal with General Signal’s Electrogas Division, which made test equipment for silicon wafers.

•General Signals bought a piece of Cognex to get access to the technology.

•Cognex had two- thirds of markets by 1990.

•Major Customers: IBM, Nec, etc.

•High profits as sales grow to 50% in 19899 to $16 million, profits jumped 56% to $3.7 million.

•Profits by selling to competitors: $ 200 million market of late 1980s.

Early and Mid- 1990s

•Fantastic growth in market:▫Number of units shipped grew 21.3% from

16,372 in 1995 to 19,868 units in 1996▫Industry revenue reported a gain of 16.3%

($ 894 million) in 1995 to $ 1040 million in 1996

•Market leaders: Market share of 38% in OEM market. The company grew by 60% .

•Close competitors: ICOS and AISI, with 32% combined market share.

The 1998 Market

•Majority of customers are still OEMs.•Base still lies in semiconductor and

electronic inspection.•Market size:

▫OEM Market: $170 Million▫Factory Floor Market: $150 Million

• Identifies various industries for growth opportunities.

•End user revenue grew to 43% of its total revenue in 1998, from 32% in 1997.

Troubles Times

•Revenues for 1998 decreased by 22% to nearly $122 million from $155 million due to decreased volume from the company’s OEM customers by 34%.

•Reason: worldwide slowdown in the production and use of chips, resulting in a slowdown in the purchase of capital equipment for both semiconductors and electronic products, began in 1996.

•Cognex tried to diversify through:▫Acquisition: Isys Controls, Mayan

Automation, and business relationship with Rockwell Automation.

▫Product Diversification: Automotive, Consumer products.

Changing Market

•Vision changing from technology to application.

•Provides most value- added benefits to operations through application engineering.

•Machine vision tends to be demand inelastic.

•Current trends in personal- computer and machine vision industries do not complement each other.

Competition

•Increased use and availability of information technology has also resulted in increased competition.▫Nikon▫Electro Scientific Industries

Opportunities for Growth

•Machine Vision is not widely known outside of the semiconductor and electronic industries.

•Use of machine vision helps in cost cutting.

•Business is concentrated in US (41%), Japan (46%), and European Markets (11%).

•Good reputation, strong work force, commitment to customer service and R&D- strong base of Cognex.

•Strong customer base.

Customer Service And R&D

•Emphasis on strong customer relationship.

•Education and training programs.•Feed back•Outsource manufacturing operations by

January 1997.•Protects its investment in R&D with the

use of patents, copyrights, and trade agreements

Cognex’s Vision of future•Surviving the crash of 1996-97, the company

needs to insulate itself against any such further volatility. Strategies for the same can range from expanding globally to diversifying its target market.

•Diversification in customer•Marketing capabilities.•Decoupling of hardware and software

solutions.•Expand globally.•High profits in industry

Present Challenges in Case

•Crash of 1996.•Change of market trend towards

application from technology.•Demand inelasticity.•Current trends in personal computer and

machine vision do not complement each other.

•Competition

Mission• Cognex Mission Statement:• To be the standard around the world for excellence in machine

vision and to exceed the expectations of our customers, employees, shareholders and neighbors.

• Cognex Values: Cognex has identified 10 core values as key to our success:▫ Customer First:

Customer satisfaction is our top priority. We listen to our customers, and then we do whatever they need, whenever and wherever they need it.

▫ Excellence:At Cognex, good is not good enough; we strive for excellence in everything that we do.

▫ Perseverance:We take on the most difficult challenges, and we do not stop until the job is done right.

▫ Enthusiasm:We enjoy what we do; we approach each day's challenges with energy and excitement.

▫ Creativity:We delight in being different from the rest and in taking creative approaches to solving problems.

▫ Pride:We derive great satisfaction through our individual accomplishments and those of our company.

▫ Integrity:We adhere to the highest ethical standards in our relationships with customers, fellow employees, vendors, and shareholders.

▫ Recognition:Cognex's success is due to the hard work and dedication of our employees and vendors, and we acknowledge their contributions in both tangible and intangible ways.

▫ Sharing: When Cognex wins, we all win. We share our success with everyone who contributes to it. We believe that the biggest reward for success is the chance to succeed again.

▫ Fun: We work hard, and we play hard. We celebrate often to recognize our accomplishments and to motivate ourselves to achieve even higher levels of success in the future.

Corporate culture & basic values of the company•Unique corporate culture.•“Work Hard, Play Hard”.• Cognoids.•Innovative reward programs.•President’s Award.•Various incentives at 3, 5, 10 years of

completion of service.

SWOT Analysis

•Strength:▫Good reputation▫Strong sales force▫Commitment to customer service▫R&D

•Weakness ▫Business is concentrated in US (41%),

Japan (46%), and European Markets (11%).▫Dependent excessively OEMs

▫Restricted to semiconductors and electronic items•Opportunities

▫Unexplored markets▫Untapped customers▫Unexplored Industries▫Use of machine vision helps in cost cutting.

•Threats:▫Competition invited by high profits margins▫Current trends in personal computer and machine

vision industries do not complement each other.

Business HistoryCognex Corporation was founded in 1981

by Dr. Robert J. ShillmanThe company produced its first vision

system, DataMan, in 1982. In early 1987, the company became

profitable for the first time in its history. Cognex went public on the NASDAQ

exchange in 1989In 1989, Cognex opened its first

international office in Munich, Germany.  In 1990, Cognex established a Tokyo-based

subsidiary, Cognex KK

In 1995 the company also made the first of many acquisitions when it purchased Acumen, a U.S. based developer of wafer identification equipment for the semiconductor industry. 

1996- cognex acquired Isys Controls1997- cognex acquired Mayan Automation1998- business relation with Rockwell

Automation 2004, Cognex introduced its first handheld

vision product—an ID code reader called DataMan

•May 2005- largest acquisition to date when Cognex purchased DVT Corporation

•In May 2006, Cognex acquired AssistWare Technology, Inc., a developer of Lane Departure Warning Systems, and entered the emerging market for machine vision systems in vehicles.

Current Areas of Operation

•Automotive•Consumer products•Electronic•Food and Beverages•Medical•Pharmaceuticals•Solar•Other Industries

Business StrategyDeveloping new productsDeveloping user friendly productsBuilding a worldwide sales and support

infrastructure in order to access more market

Research, Development, and Engineering

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

2005 2006 2007

27,640,000

32,607,000 34,335,000

PEST

•Political:▫patent, trademark, copyright, and trade

secret protection. As on Dec, 2007: 264 patents 174 patent applications pending. Use of trademark registrations in the United

States and in other countries: Cognex», VisionPro», In-Sight», Checker», and SmartView», as well as many common-law marks, including, among others, DataMan TM

▫Large number of legal proceedings

Economic

•2007: approximately 65% of our revenue was derived from customers located outside of the United States.

•Intend to continue to expand operations and might enter international markets, such China and Eastern Europe

Technological

•High expenditure on R&D•failure to develop new products and to

respond to technological changes

Porter’s 5 Force ModelThreat of new entant is blocked by the patents. Competitors are local suppliers.

Bargaining power of customer is high as company believes in customer is king.

Threat of substitution can arise in situation when the company fails to respond to technological changes, distribution channel and due to poor market analysis.

Competition in the industry in

dominated by Cognex

Present Challenges

•Insulate against industry wide volatility.▫Diversify the product▫Diversify from OEMs

•Marketing needs to be improved•Decoupling•Expand into Europe to minimize the

dependency on Japan.•Technological Advances•Competition