CyberOptics battles to come back

CyberOptics Corp., a maker of electronic eyes that inspect tiny computer circuit boards for flaws, is trying to look beyond its worst year ever.

The 25-year-old Minneapolis company is near the bottom of the consumer electronics food chain, and that has not been a good place to be during the Great Recession. In chronological order, the very bad past year or so for CyberOptics looks like this:

•In the second half of 2008, CyberOptics' business went over a cliff when the recession hit. That financial drought has resulted in six quarters of net losses, including the current one.

In the third quarter, the company lost $841,000, compared with $772,000 last year, on revenue of $8.6 million, down 26 percent.

The drop-off reflected how CyberOptics is tied to the health of the consumer electronics market. Most of CyberOptics' customers are manufacturers of computer circuit boards that go into gadgets as diverse as cell phones, computers, computer memory expansion modules and GPS products. Half of its business is optical sensors costing as much as $10,000 that align circuit boards so that electronic components are installed in the right places. The other half is sensor systems costing as much as $130,000 that check to make sure components were installed correctly, right down to the amount of solder that holds them in place.

•CyberOptics missed the second-half rally. The shares are up just 12 percent, to $5.75, since the bear market low March 9, while the Standard & Poor's 500 index has soared 63 percent. At one point this year, the company was valued at just more than the dollar amount of its cash reserves.

•In June, CyberOptics' founder and chairman, Steve Case, was killed in a plane crash. While he had not been involved in day-to-day management for several years, Case had been the public face of the company, and his death was a blow to employees and may have alarmed some investors.

The company has been restructuring to deal with its problems. CEO Kathleen Iverson, who answers her phone as Kitty, oversaw a shift of inspection systems manufacturing to Singapore. That was a money-saving move she said was planned before the recession but accelerated by it. She also cut salaries and laid off 50 employees, or 25 percent of the workforce, leaving the firm with about 150 people.

While the company hasn't turned around yet, there are reasons to hope 2010 will be a better year, Iverson said. One favorable trend is a rebound in revenue for chipmakers, who provide the components that go on circuit boards. She thinks enough money will seep down through the supply chain for CyberOptics to recover beginning in the second half of 2010.

Some analysts agree.

"This year there will be an 11 percent decline in semiconductor industry revenue, but next year we're predicting 16 percent revenue growth," said Len Jelinek, an analyst at research firm iSuppli Corp. in El Segundo, Calif. "It's being driven by demand for miniature circuit boards for cell phones, laptops and netbooks (ultra small laptops.)" However, the chip industry had dropped so far during the recession that it will take until 2012 for it to return to its pre-recession revenue levels, Jelinek said.

Another problem, CyberOptics' depressed stock price, may not be solved until a financial recovery arrives, Iverson said. Because the stock is thinly traded -- average daily trading volume for the last three months has been 6,758 shares, one-tenth of 1 percent of the 6.7 million shares outstanding -- its stock will continue to fluctuate as a result of even minor stock transactions, she said.

"If somebody sells 20,000 shares, the stock price takes a hit," Iverson said. "But the stock dropping to almost $4 a share was crazy. We have no debt, we have $3.40 a share in cash [$22.8 million in cash and marketable securities as of Sept. 30] and our customers haven't left, they've just stopped ordering."

The stock price might also be affected by the death of Case "if investors don't know that Steve was not actively involved in day-to-day management," Iverson said.

A former CyberOptics executive agrees.

"Steve was always sort of the public face of the company, so it wouldn't surprise me if there were investor perception issues there," said Jeff Jalkio, a physics professor at the University of St. Thomas in St. Paul, who a decade ago was CyberOptics' vice president of research and development. "But the reality was that Steve had done a very good job of making sure there would be folks around doing the work in his absence."