Jim ... thanks for the news item ... this appears to be a rehash of the last news announcement a couple weeks ago.
When I talked to IR the other day (was it yesterday?)
IR said they are shipping, this month, on the new contract, they rec. in July .....
I suppose ... on this awful news ... is why OIS is trading at 3/16 ... what a shame
Demise of OIS said to loom as 'crisis' for big defense
contractors -- Top military display maker could go lights
out
David Lieberman
Northville, Mich. - Unless some corporate angel comes to its rescue, it
appears that OIS Optical Imaging Systems Inc., the premier U.S. military
display supplier, will soon cease operations, becoming the third North
American active-matrix LCD venture to bite the dust in recent days. The
possible demise of OIS and its implications were pervasive topics of
discussion at last week's Flat-Panel-Display Strategic and Technical
Symposium in nearby Ypsilanti, Mich. Sources said the company's major
backer has decided to pull the plug, with hopes that a customer or group of
customers will "bail out" OIS because of their dependence on its displays.
Should OIS cease operations, the who's who of military integrators will be in a
bind. OIS is the cockpit-display supplier for most avionics programs-including
the F-16, F-18, F-22 and AH-64D Apache helicopter-and for the M1A2
Abrams tank. Those affected include AlliedSignal, Boeing, General Dynamics,
Honeywell, Kaiser and Lockheed. Two weeks ago, OIS revealed that at a
recent board meeting, its majority shareholder, Guardian Industries Corp.,
said it is seriously considering discontinuing funding for OIS, which sources
said has been racking up losses in the range of $30 million annually.
"What we're doing right now is praying," said a source from General
Dynamics who requested anonymity. The Abrams tank is nearing production,
he said, using 10.4-inch-diagonal OIS displays, several hundred of which have
been delivered out of a total of about 8,000 that will be needed. "We're doing
a lot of contingency planning, depending on which way the cat jumps. There
are probably 15 major programs that will have to be requalified if different
displays have to be used. There's quite a chess match going on right now."
OIS president and chief executive officer Rex Tapp denied last week that
Guardian has made a definitive decision to abandon OIS. There have,
however, long been signs of Guardian's growing impatience with OIS losses.
According to an OIS statement issued two weeks ago, the company has been
"exploring a full range of strategic alternatives, with the encouragement and
cooperation of Guardian" since at least February, when BancAmerica
Robertson Stevens was hired to seek investors to finance or purchase OIS.
That effort failed.
In the company's fiscal 1997 financial statement, Tapp reported "ongoing and
increasing losses," and said that "management anticipates that substantial
losses will continue for fiscal 1998, but we also believe that we are laying the
foundation for financial improvements in subsequent years." According to the
company's Securities and Exchange Commission report for the first three
quarters of fiscal 1998, ending March 31, revenue more than doubled over
the same period in FY'97, to about $17 million. At the same time, net loss
decreased by over 30 percent to $15.5 million, with the company borrowing
$9 million from GD Investment Corp., an affiliate of Guardian. The same
report contained the ominous statement: "The sales volume required to achieve
profitability exceeds the existing markets for the company's products."
Traded on the Nasdaq as OVON, OIS saw its public shares range in value
over a 52-week period from 1/32 to 2 9/16, closing last Tuesday at 3/16.
"We're working very hard to bring a positive outcome to this," said Tapp.
OIS is "in discussions with its major avionics-display customers to explore the
possibility of a sale of the company's operations to one of these customers or
a consortium of these customers," according to the statement. "If these efforts
are not successful and Guardian discontinues its funding, the board of OIS is
considering the dissolution of the company and an orderly liquidation of its
assets." Should this occur, "OIS expects to pay all of its current trade
creditors in full . . . [but] it is not considered likely that the shareholders of the
company would receive any proceeds in the event of a sale or liquidation."
Richard Van Atta, analyst at the Institute for Defense Analyses think tank
(Alexandria, Va.), labeled the OIS situation a "crisis," especially for the
Apache helicopter and F-16, which a number of foreign governments have
committed to buying. OIS scored the Apache contract for a 6.25 x 6.25-inch
color display with AlliedSignal Government Electronics Systems (Teterboro,
N.J.) in April. The contract, estimated to be worth $15 million, is to run
between October 1998 and September 2000. The F-18 program, Van Atta
said, has a second source, Xerox-spin-off dpiX (Palo Alto, Calif.), whose
active-matrix LCDs are ruggedized by Planar Systems Inc. (Beaverton, Ore.).
"But the question is, can they ramp up and how long will it take to do that," he
said.
The OIS situation has the industry revisiting the issue of ruggedized
commercial displays from foreign vendors vs. custom displays from domestic
suppliers. "Several display integrators believe it would be imprudent for DOD
to become dependent solely on foreign commercial-FPD [flat-panel display]
producers," said Van Atta, "but the U.S.-based options are tenuous."
OIS has scored some commercial display business-specifically in the Boeing
777, 727, 747 and DC-10-and is also selling sensors to Sterling Diagnostic
Imaging for its DirectRay X-ray systems. But Van Atta said that 80 percent of
its business is military. "Relying on just the small volume of very demanding
defense applications does not appear to be a viable business for domestic
suppliers," he said.
Elliott Schlam, principal analyst and consultant at Elliott Schlam Associates
(Wayside, N.J.), said that OIS shot itself in the foot trying to provide low-cost
displays to the military. "There's a big disconnect between their cost structure
and pricing," he said. For the Abrams tank displays, he said, OIS locked itself
into a fixed-cost contract before it actually had product, leaving it to sell
displays for $5,000 "when, based on costs, they should have been a minimum
of $14,000 to $15,000, and Litton was charging about $35,000 [for
essentially the same display]."
Van Atta favors a scenario in which OIS customers pick up the ball. "There
needs to be a customer-driven solution," he said. "[Military integrators] must
demonstrate a willingness to work together to quickly develop a solution to
maintain some level of [OIS] production."
Darrell Hopper, chief of the displays branch of the Air Force Research Lab
(Wright-Patterson Air Force Base, Ohio), agreed, saying, "It's in their interest
to get together."
Gary Jones, president of display maker FED Corp. (Hope-well Junction,
N.Y.), called the OIS situation "not atypical" in the industry. Late last year,
Korea's Hyundai pulled the financial plug on now-defunct active-matrix LCD
maker ImageQuest (Fremont, Calif.), and this year, Litton Industries dissolved
its AM LCD operation in Canada. |
