Friday, July 16, 2010

What went wrong with GSI?

What’s going to happen to GSI? GSI announced in May that it would emerge from restructuring this summer. We got some interest this summer from investors checking out the laser market. One can imagine that some pieces of GSI will get traded. There will be news soon enough. As one of my smarter bosses used to say, “it will all become obvious” in due time.

The other question is, what went wrong? First, it got slammed in the downturn in the semiconductor and manufacturing sectors. Semiconductors turned down in 2007 and didn’t stop until last year. GSI is heavy into the semiconductor tool business, and it got hit hard. Equipment sales dropped as much as 90% or more from the peak. The rest of manufacturing turned down in 2008 with the recession. That business was hit with a 50% drop in equipment sales, plus or minus. That's brutal.

Second, GSI is really well positioned in lamp-pumped solid-state lasers, and it has a wide range of other laser and system products in many nice niches. But lamp-pumped lasers have been in a decline for several years while fiber lasers are on the rise. Lamp-pumped lasers won’t disappear, but it’s just not the place to be these days.

Finally, we’ve heard comments about certain decisions made by management along the way, particularly regarding the whole restatement thing. The gist of these comments is that the process was badly mishandled. It certainly made a bad situation worse, and it’s relevant enough. But, you expect Wall Street types to point that out first. They look at financial statements for a living.

To me, I take the macro, long-view perspective. The downturn came at great cost to companies and to the people who work in them. Some got caught out in the storm. Let’s hope that things work out for the best from here.