Interview with New Focus CEO
Kenneth Westrick
Good Morning, this is Danny H. Chan with StreetSideInvestor’s
Executives’ Corner. Today’s Executives' Corner is
sponsored by TradePortal.com, Winner of Technology
Investor Magazine's "Editors Choice Award for the Active
Online Trader."
Today we're speaking with Mr. Kenneth Westrick, President,
Director, and CEO of New Focus, Inc. (Nasdaq:NUFO). New
Focus designs, manufactures and markets fiber optic products
for next-generation optical networks under the Smart Optics for
Networks brand.
StreetSideInvestor:
Mr. Westrick, what does New
Focus actually do?
Mr. Westrick:
New Focus is a company that
provides components both
passives and actives to system
companies.
StreetSideInvestor:
Who are some of your biggest
customers?
Mr. Westrick:
Our largest customers are
Corning, Corvis, Alcatel, and
Agilent. Those were all ten
percent customers in our last
quarter.
StreetSideInvestor:
Could you give us an update on
the capacity expansion that New
Focus has recently taken?
Mr. Westrick:
Certainly. We are seeing
tremendous demand for our
products, and we made a
decision a little more than a year
ago to go offshore and add some
significant capacity in southern
China that complements capacity
that we have here in northern
California. From a pure
manufacturing space point of
view, we started 2000 (this year)
with about 16,000 square feet of
actual manufacturing space. As
we went into Q3 of this year,
July, we had about triple that
amount. As we go into 2001, we
will have about 160,000 square
feet of manufacturing space. So,
in the space of about twelve
months we have gone up ten-fold
in terms of actual manufacturing
space.
StreetSideInvestor:
Are there any plans for additional
expansion in the future on top of
this?
Mr. Westrick:
Absolutely. Our facilities in China
have quite a bit of additional room
for expansion. Secondly, we are
adding manufacturing space in
buildings here in Silicon Valley.
So we will continue to be
responsive to the demand that we
see in the market place.
StreetSideInvestor:
What are some of your most
prominent products and what new
products are in the pipeline?
Mr. Westrick:
We essentially have three
products that we are shipping into
the Telecom market: two are
called passive components and
one is an active component. A
passive component simply deals
with photons or light and does not
have any electricity. The two
passive components that we are
shipping today are called a
circulator and then secondly, a
polarization beam combiner. And
those are simply devices that
help route light in a network. Our
active product that we are
shipping today is a tunable laser.
The application currently is for
test and measurement. People
use our tunables for work in the
lab as well as in manufacturing.
As we look forward, we have
additional passive devices that we
will be introducing including an
array isolator, which combines
multiple isolators into one
package. In the active area we
are working on tunables that will
be used in the network itself. So,
as a company we invest very
aggressively in the R&D side. In
fact our long-term financial model
is to spend 12 to 14 percent of
sales in R&D. So we have a
pretty rich pipeline of products
that will be introduced over the
next twelve months.
StreetSideInvestor:
Are the concerns of bandwidth
glut a real potential problem?
Mr. Westrick:
From our perspective, it is not.
Let me explain. In my experience
as you provide more and more
bandwidth to people, they use
more and more. Maybe it’s a little
like being addicted. If we think
about it personally and think
about our use of the Internet, we
see there are a lot of limitations
today in terms of bandwidth. You
just can’t do the things you want
to do today as quickly as you
want to do them. So, if let’s say
our horizon is several more years,
I frankly don’t see any bandwidth
glut in that time frame.
StreetSideInvestor:
With the downturn in the markets
it seems as if people are looking
down upon huge capital spending
with earnings in the distant future.
Being a growth company
depending on expansion, how are
you dealing with this issue?
Mr. Westrick:
Well, profitability is a very
important issue. As a company
we do believe in aggressive
investing in both R&D as I stated,
but secondly aggressive
investment in capacity. I think we
would be remiss in our duties if
we didn’t really plan for the kind
of demand that we see out there.
As we’ve introduced products
we’ve been very excited to see
the response from our customers,
and in turn unless we can provide
a lot of capacity to them in terms
of the kinds of volume that they
need, they simply won’t have us
as a vendor. So there is a lot of
opportunity and necessity to be
investing in this business. Having
said that, the beauty of fiber
optics is that you can become
very profitable, and what we have
stated is that in the year 2002,
probably sooner rather than later,
we expect to become profitable.
So, we have a lot of emphasis
internally in terms of improving
our yields, reducing costs of
design and manufacturing, and so
forth. As a company, while we
are investing very aggressively,
we also understand that getting
profitable is very important.
StreetSideInvestor:
Who are your biggest
competitors at this point?
Mr. Westrick:
Well, certainly JDS Uniphase is
the largest, most direct
competitor, and there are other
folks out there as well. But our
strategy is, I think, a bit different
from some of our competitors.
We go into select product areas,
and we only go into those product
areas where we believe that the
combination of better design and
better manufacturing can drive us
to number one market share in
that product area. What we are
not trying to do is cover the whole
waterfront. We’re not trying to
have fifty different products out
there. We want a couple hands
full of products where we can in
fact dominate that space. My
belief is that when you do that,
you then win the lion’s share of
gross margin dollars available for
that particular product area. So,
with that kind of focus and drive, I
think that we can in fact
distinguish ourselves and drive to
number one market share in
different product areas.
StreetSideInvestor:
Mr. Westrick, on a more personal
level, can you tell our readers a
little more about your background
within the industry?
Mr. Westrick:
Certainly. I came out of the
computer peripheral business and
I was there for 15 years. I came
into New Focus, and into the
photonics and telecom industry
about three years ago. So, it’s
been frankly a learning
experience for me in terms of the
space, in terms of what is
photonics, how do you apply it to
telecommunications. Having said
that, I think that in many ways
business is business. What I
mean by that is the principles
that one learns in a very highly
competitive fast growing
computer world is very applicable
to photonics and
telecommunications. I have to tell
you, I am having a great time
here building a business and
seeing the kind of success that
we are seeing.
StreetSideInvestor:
If you could just say one thing
about your company to readers,
what would it be?
Mr. Westrick:
To think about New Focus, I think
that it is important to know that
we are in this game for the
long-term. We are here to build a
very significant business. It is not
done overnight, and it’s not done
by taking any shortcuts. It’s done
by fixing your eyes on the
long-term and long-term success,
putting the right kind of
infrastructure in place, putting the
right kind of investments in place.
Over the years I think that you
will see that New Focus is a very,
very significant player in this
marketplace.
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