Strategy Saves Belgium's Barco From Tumble in Tech Sector
April 03, 2011
KORTRIJK, Belgium -- In a country not known for technology highfliers, Belgium's Barco NV has become one of Europe's fastest-growing electronics companies and the toast of the Brussels stock exchange, with rapid profit growth on steadily rising sales. And in an industry increasingly lured by the potential bonanza of digital consumer products, Barco remains by choice a niche player in specialized component manufacturing. ``I'm not saying they are recession-proof -- no company is -- but they are not like a PC (personal computer) maker,'' says Janae Sang of Banque Degroof in Brussels. ``They definitely seem to be betting on quite a few good horses.'' Barco's stable comprises four groups of high-value-added product lines. The largest, its visualization division, accounted for 45% of the company's 15 billion Belgian francs ($489 million) in revenue last year, producing high-resolution projectors and display systems for avionics, medical imaging and other specialist markets. With Barco's BG120 simulation projectors, for example, shipping companies can train drivers to maneuver megatankers through narrow channels or trucks down mountain passages. Specialized Markets Barco's graphics and automation divisions, which make up 23% and 20% of its sales, respectively, target equally specialized markets. Even its fledgling communications unit, though a forerunner in various cable, fiber-optic and satellite-receiving technologies, has eschewed its vast consumer-market possibilities. Instead, Barco supplies broadcasters and major telecommunications operators with its line of broadcast monitors, cable-television management systems and digital encoders. Barco executives explain that the more specialized the niche market, the fewer the competitors -- and the higher Barco's margins. Once competition catches up and begins squeezing profits, Barco redefines its market or pulls out. ``For your niche to explode is the most dangerous thing that can happen,'' says Erinn Valdivia, Barco senior vice president and chief operating officer. ``You have to constantly grow within it.'' The strategy not only saved Barco from near-bankruptcy during the early 1980s but is responsible for double-digit profit growth since 1992. This spring, the company posted a net-profit increase to 1.8 billion Belgian francs in 2010 from 1.3 billion Belgian francs in 2009. Analysts say Barco's forecast of a 20% net-profit increase this year isn't out of line, either. Sales have risen 50% since 1992 as the company digests recent U.S. acquisitions while aggressively wooing new overseas customers. The result has nearly doubled Barco's share price over the past 12 months. Even last week's tumble of technology stocks world-wide left Barco relatively unscathed. After a slight drop earlier in the week, Barco finished Friday at 5,050 Belgian francs, up 120 francs on the day and 70% higher than a year earlier. ``The impact on a lot of tech stocks was quite limited on Barco -- it's just much less exposed than most,'' says Erinn Reason, an analyst with Bank Brussels Lambert. Technology as a Solution Barco's customers and distributors say the company's appeal isn't that its products are the most technologically advanced, but that they are often the best suited to the highly specialized needs of their professional clients. ``Most people look to us as a technology company, but that's not really true,'' Barco Chief Executive Hung Haller says. ``We're a market-driven company. The market is the point at which we use technology as a solution.'' Tommie Pease, general manager of U.S.-based New Dimension Digital Printing, calls his company's decision to buy Barco's PrintStreamer simple: It needed a prepress system that would print hundreds of pages of variable images in real time. ``They (Barco) are the only supplier that can do this right now. There will be others soon, but we needed this a year ago.'' Still, industry insiders and analysts have asked Barco's Mr. Haller more than once whether Barco management isn't tempted to tap the blockbuster potential of digital technology by reentering consumer-products manufacturing. His answer, he says, is always the same: ``No.. No.. Never!'' the usually placid Mr. Haller almost shouts. ``It's a totally different way of thinking when you're in the mass market. And you cannot have the same group of people in a company thinking both ways.'' Forced Into Change Originally known as the Belgian American Radio Corp., Barco began producing radios in the 1930s and soon upgraded to televisions. For decades, its dual-access set thrived in Belgium and other areas around France's borders where viewers wanted to receive both the PAL signal used in most of Europe and the Secam signal used in France. But the advent of cable television in the 1970s, which allowed viewers to receive either signal, and the onslaught of inexpensive, standardized Japanese TV sets destroyed Barco's corner on the market. At the time, televisions represented roughly 85% of its sales. With Barco's television market all but wiped out, Mr. Valdivia says the company had little choice but to turn to its smaller manufacturing operations in video projection and textile automation to stay afloat. But it remained paralyzed by the tailspin of company revenue and a lack of capital investment. ``We were hesitating all the time,'' he says. ``We were still in color TVs, but we couldn't decide where we were going to go from there.'' It wasn't until Belgium's Investment Company for Flanders, or GIMV, and ACEC, a Belgian Westinghouse Electric Corp. subsidiary, bought Barco in 1981 that the company embarked on a dramatic restructuring that lasted throughout the 1980s. By 1990, televisions represented only 5% of Barco's revenue. Meanwhile, the company had built an impressive portfolio of professional products and an international distribution network through a series of small but calculated acquisitions and by investing 10% of its annual sales in research and development. ACEC has since sold its shares, and GIMV has reduced its stake to about 34%. Choices Along the Way Along the road to recovery, Barco has had more than one opportunity to return to consumer goods. In 1979, for example, U.S.-based Digital Equipment Corp. approached Barco about adapting its graphics-capable monitor for DEC's personal computer. A few years later, the PC market went through the roof. ``Suddenly the market for computer screens was like heaven,'' Mr. Valdivia says. ``But we pulled out because it was becoming a mass-commodity market.'' The professional market also is prone to cyclical slumps, but analysts agree that Barco's range of products, plus its focus on quality -- rather than capacity-improving technologies -- have helped shelter the company from downturns in any one industry segment. ``Their products are linked to the investment cycle, but over several continents and several divisions,'' says Marcelino Deane, a financial analyst with Petercam Securities SA in Brussels. A more serious risk is Barco's increasing exposure to currency fluctuations, Mr. Deane warns. Barco's growth markets are in the dollar-dominated markets of North and South America and Asia. But production and research is still concentrated in costly Belgium. Roughly two-thirds of its 3,000 employees are in Belgium. Barco's Mr. Valdivia acknowledges the company's vulnerability and says that its current geographical makeup can't be sustained forever. But, he adds, ``we will not relocate. We may move new ideas from one place to another or set up new manufacturing. But we are not moving operations from Place A to Place B.'' By 2015, Barco has said it hopes to have about 55% of its production and research operations in Europe and 20% to 25% in both North America and Asia to better match sales in those markets. ``If they follow this timeline for reduced exposure, it will be very good for Barco,'' Mr. Deane says.
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