Set for global growth

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John Murphy tracks the recent progress of Ophir, an Israeli company carving out a significant niche in the test and measurement market

In the famous novel King Solomon’s Mines Ophir is a mythical land from which the eponymous King obtained much of his wealth. In the optics world today the name Ophir is also the source of great wealth, but in the form of advanced optics and laser measurement – more valuable than gold in many circles.

It has grown from being a small start-up company in Israel, supplying coating to the military market, to a world-wide brand. Its strategy has been to push the technology to the limit on the one hand and the market to its limit on the other. Its global sales network is now a key driving force in the company’s growth, allowing it to buy in technology through acquisition, which it can then take global.

The most significant acquisition has been Spiricon, a premier brand in the laser profiling market, which has been plugged into a global distribution network that it could never have created on its own.

Yoram Shalev, managing director of Ophir, says: ‘Although we had our own line of beam profilers, we felt it was a good strategic move to acquire Spiricon. We have now integrated the two companies and in all our marketing we are pushing Spiricon and Ophir brands. We have kept the Spiricon brand, because we believe it is a very good one.

‘We identified Spiricon as a brand leader, and that the founder of the company was willing to sell. We have spent the last two years aligning the sales force in the US and the distribution and calibration services around the world. Two years ago we were mostly offering barometers and beam profiling, but now we are able to offer a complete range of laser measurement. We are creating synergies between the technologies of the two companies.

‘There is a synergy in the market, because the customer for one part of the product line could also become a customer for another part. There is also synergy in our R&D effort so, instead of having two companies that had nothing to do with each other, we have quite the opposite. We have a company with two lines of products with R&D in two locations; they talk a lot together. In acquiring Spiricon we have access to its PyroCam technology, which allows customers the ability to measure across a wide range of wavelengths. Before that, we only had silicon technology. Now our offering to the laser community is much wider.

‘Spiricon did its sales like a small company does it, while Ophir is a large company, so we do our marketing like a large company. Spiricon had a very smooth operation and it was quite easy to integrate it. Ophir has always been strong in marketing and is represented by the best distributors all over the world. Spiricon was very strong in the continental US and part of Europe, but the rest of the world was less intensive. We are putting it through our distribution channel, which is more aggressive, and we have seen the fruit of this already. It got access to a network of more than 40 distributors from Australia to the Far East and South America. Basically wherever you see a laser you will see an Ophir distributor. Because of this synergy we have seen a very healthy growth in sales.’

Spiricon is still based in Logan, Utah and is working on the PyroCam technology for the whole Ophir Group. The company’s founder, Carlos Roundy, is still president but is taking a lesser role in the management of the company since the sale in January 2006.

Ophir was founded by three Physics PhDs, Yaacov Zerem, Ephraim Greenfield and Ephraim Sekemski, in 1976 to develop coatings for the military market and for medical lasers. In the 1980s a customer asked if it could make some laser measurement equipment and a new division of the company was created. The optics division has always been strong in coatings, developing its own ideas as well as methods of manufacturing. It has grown into supplying complete optical systems and is particularly strong in thermal vision. Later, the optics division expanded into consumable lenses for the CO2 market where, after seven years in the market, it has become the number two supplier.

Optics for thermal imaging is an area that has seen tremendous growth, due mainly to the availability of uncooled cameras. This has reduced the whole cost of an IR system, which has resulted in the market not just being military, but is now even being seen installed into cars. It’s an ill wind that often blows some good and 9/11 has seen a growth in the fire-fighting and rescue market, while the SARS epidemic in the Far East saw a growth in thermal screening.

Ophir’s early growth was based partly on supplying the requirements of the Israeli Defence Force. Due to the constant state of emergency in the region, the government always seems to find a way to fund its requirements, but clearly it does not have the budgets of the US military. Often the technology is developed for an IDF requirement – and that attracts the interest of the US military – and part of the strategy for Ophir has been to set up a manufacturing base in Massachusetts. Although technology developed in Israel is not subject to the same export restrictions of US technology, Ophir is always careful not to upset anybody.

Shalev says: ‘We have more freedom than a US company, but the export of military technology is controlled by governments rather than companies, so it is really up to the governments what happens.’

The development work on optical coatings led Ophir into the industrial market, where extremely high powered lasers treat their optics as consumables. Shalev says the name of the game in this market is to reduce the amount of energy absorbed by the lenses. This in turn extends the life of the components, which reduces servicing costs and lost production due to downtime.

Ophir has developed its own optical coating technology

He says: ‘We have invented our own technology here, called Black Magic. Normally the lenses are yellow, but our lenses are black and they have a dramatically lower absorption from CO2 lasers than all other lenses on the market. They last longer and can cut faster. The speed of cut is one of the main criteria for operators. If you can change the lens every six months, instead of every three months, then you are making considerable savings. We are continually developing the Black Magic range and making it more efficient all the time.’

Much of the business in laser measurement and optics is direct to the consumer but, in recently years, OEM business has become more significant. There is an application engineering group within Ophir that specialises in developing custom interfaces to meet OEM requirements.

This does not mean that the distribution channel is not involved in the OEM business. Shalev says the distributors handle the commercial side, but the technical side of an OEM deal has to be handled by the in-house engineering team.

He says: ‘The distributors know their territories and, in most cases, they find the OEM customers, so we want to protect them and keep them involved. We want to strengthen our distributors not work against them. In most cases our engineers will visit the customer with the distributor. There are some customers who want to work direct, but they are few and far between and we always get the approval of our distributor before we work with them. We want to look after our distributors because they look after us.’

Shalev believes that the growth of Ophir so far has been partly due to its technical advances, but also because the market as a whole has grown. The growth in the market means that there are now many more players taking an interest and so it cannot afford to relax.

He says: ‘We need to come in with more integrated products in the measurement field. In optics we always need to lead the market with new technologies and come to it with cost-effective solutions. The market has grown and prices have come down with more players coming into it. This means we have to constantly drive down our costs at the same time. A lot of technology is now moving out of the military market and into the commercial market, where cost is much more important.’

He says integration will not go beyond the optics as most of its optics customers are camera manufacturers. He says: ‘We have concentrated on making ourselves the first choice for camera manufacturers, so we don’t see why we should then start to compete with them. If you are very good in your area of technology, it does not always follow that you are going to be very good at another technology, such as making cameras, so customers are not asking us to start supplying them with complete cameras. We understand our market and we want to stay in the area where we can add value. That comes from having the technology we have and the manufacturing we have and combining it with the marketing that we have.’

Ophir has invested a lot of time in creating its global distribution network. The choice of distribution depends on how strong the distributor is in every country. Shalev says: ‘We judge the distributors by country, so we look at the pan-European companies country by country. Ophir has a very good brand, which gets us the best distributors. Every trade show I go to I am being chased by companies that want to distribute our products, because we are the leading brand.’

The measurement business also creates the need for calibration and service centres. The US calibrations centre was in Massachusetts, but has now been relocated to the former Spiricon base in Utah. There are also in-house calibration centres in Israel and Japan. In Europe the calibrations centre is run by BFI Optilas in Germany, but its engineers are trained in-house. The idea is to speed up turnaround for customers.

Customer service is very important to Shalev and the distributors are held to very high standards. He says: ‘We see customer service as part of our marketing operations. If people get good service they are more likely to come back to us. We make sure that any machine that is sold into any market can be supported within that market. We are constantly monitoring turnaround times and service quality. Ultimately the level of sales will tell us if the service is not good.’

Although Ophir has expanded across the world, Shalev believes it is still a distinct advantage being located in Israel. He says: ‘The paradigm is to develop in Israel, manufacture in the Far East and sell in the US. We are still manufacturing in Israel, because we are not in a consumer market; we are in a professional market where control of quality is absolutely essential. We have a lot of clever people here to work on development and while I don’t want to say too much about the US, to develop anything in the US would cost you twice as much. We are very efficient at developing here in Israel. The education system keeps us very well supplied with people and the economics are much more favourable than Europe or the US. Ten or 20 years ago there was some inconvenience in being an Israeli company, so I don’t think we see any need to change. Companies like Intel, IBM and Microsoft all have bases here, because you get good R&D at the best prices here in Israel.’

Ophir has been quoted for many years on the Tel Aviv stock exchange and Shalev sees no need to change that either. He says being part of a smaller exchange means the company gets a lot more attention than it would on the NASDAQ. He says there is plenty of liquidity in the market and no problems raising capital should future opportunities float past. He will not comment on whether or not future acquisitions are on the cards, except to say that they are definitely not off the cards. He says that if an opportunity arises, they will simply do it rather than talk about it first. The opportunities it may or may not be looking for are not restricted to exactly what it is doing now. One can only speculate that, if the company has found an opportunity to leverage its distribution network to greatly expand the market for one innovative technology company, then there is no reason to assume it cannot have the same effect on others where the right synergies exist.

The company has been performing well financially, despite the weakness of the dollar, because it has put equal efforts into developing sales outside the US. This does not mean that the marketing effort is being reduced in the US. Shalev’s motto is that they push every market hard. He says: ‘I don’t think we are going to focus more effort on Europe because of the dollar situation; we want to get the most out of Europe whatever the dollar situation.’