I’m taking a few moments away from fighting the Axis of ERROR with Doctor Vision to assume my secret identity as Cognex CEO and broadcast this very special message about our 2012 results.
Dear Shareholders
Cognex had a good year in 2012. Revenue was a record $324 million. We also delivered an operating margin of 26% and a net margin of 21%. Importantly, these results were achieved even while we made substantial investments in new products and our sales channel in China.
Most companies would applaud these results, but at Cognex “Good is not good enough.” We expect our performance every year to be super! We were disappointed that revenue was only 1% higher than in 2011. Growth was menaced by substantial declines in the struggling semiconductor, electronics and solar industries and was also impacted by unfavorable currency exchange rates.
Despite these challenges, Cognex reported strong results in 2012 largely due to a focus on factory automation, our largest, fastest-growing market. Here, revenue increased 4% over 2011 to a record $245 million (a 7% increase in constant currency).1 This is well below our long-term target growth rate, but a strong result given the ongoing macroeconomic conditions we faced.
Our surface vision team pumped-up their efforts to protect manufacturers from the Axis’s treachery. Revenue from the surface inspection market increased 5% over 2011 to a record $51 million. In 2012, Cognex saw continued success in the paper industry where customers benefited from our ability to provide both inspection and monitoring capabilities. Business was also at a high level in metals, particularly to ensure the high quality of aluminum for the automotive industry.
However, evil lurked in the semiconductor and electronics capital equipment market (SEMI), as the downturn that began in mid-2011 continued. As a result, SEMI revenue decreased by 24%, from $38 million in 2011 to $29 million.
Powerful focus on innovative technology
continues to conquer new frontiers.
Cognex has always been a leader in new technologies. Indeed, our vision experts’ rate of innovation is faster now than at any time in our history. As a result, our products are more powerful and easier to use than ever before, which fortifies our customers’ fight against ERROR.
Within the factory automation market there is a fast-growing, high-potential segment for reading 1-D barcodes and 2-D DataMatrix codes (we refer to this segment as ID). Cognex vision-based readers are a disruptive force in ID. Our highly advanced barcode readers are replacing the laser-based products of yesterday to identify and track items throughout the manufacturing and distribution process. Revenue from ID products increased to a record $71 million, growing 19% year-on-year (a 24% increase in constant currency).2 A highlight was our progress in logistics, where Cognex ID readers beat up on entrenched laser-based competitors to win share at large e-retailers, package delivery companies and postal accounts.
With an estimated market share of less than 10%, Cognex is still very early in its penetration of the ID market. But our innovative ID product pipeline has the potential to drive change for years to come. Cognex’s most exciting new product in 2012 was the DataMan 300 industrial ID reader, which uses our groundbreaking Hotbars image-analysis technology to provide the highest read rates for difficult 1-D barcodes. Sales of the DataMan 300 verged on the heroic, well exceeding expectations.
In 2012, we launched the DataMan 9500 mobile computer, a handheld device that reads challenging 2-D direct part mark codes in automotive, aerospace and other industries concerned with both supply chain management and product counterfeiting (where real villains are at work).
Cognex also introduced the In-Sight 7000 series of vision systems. The In-Sight 7000 boasts the highest first-year sales of any product in our history. Significantly, the series included the In-Sight 7010, a model that targets the lower-priced vision systems market that was previously unaddressed by Cognex.
We also debuted OCRMax, a powerful technology for reading and verifying character strings such as date codes on aspirin bottles or vehicle identification numbers. OCRMax enables manufacturers to track parts under conditions that previously made it extremely difficult for machine vision to perform, such as reading stamped metal or low-resolution ink jet print.
Expanding channel seeks to supercharge revenue
in regions of high growth potential
From a percentage growth standpoint, the Asia region (which excludes Japan) was our super performer in 2012. Asian factory automation revenue grew 23% over 2011 and represented 13% of overall revenue in 2012, up from 5% five years ago. Market share gains continued in China, where we believe there is the highest potential for growth geographically, as Chinese manufacturers invest heavily in state-of-the-art automation equipment. Our China business today is concentrated in consumer electronics, the industry that has typically adopted our technology first. To grow more broadly, we opened new offices in the expanding industrial cities of Qingdao, Nanjing and Guangzhou. We invested in local talent to strengthen our sales team and battle our foes. We also aggressively expanded our partner network; Cognex now has nearly 100 qualified distributors in China, up more than 125% compared to three years ago.
Turning to more established geographical markets, growth moderated during 2012 in the Americas and Europe as manufacturers pulled back on their spending amidst macroeconomic concerns. And, in Japan, growth in our ID business was not strong enough to overcome another difficult year in the automation market there. On the positive side, an expanded sales channel in Brazil drove incremental revenue, especially in the food industry. Another bright spot was Eastern Europe, where a growing automotive manufacturing base increasingly applied machine vision and ID readers.
Keeping our customers safe from ERROR
Cognex fought valiantly against the ERRORISTS in 2012. We brought outstanding products to market. We broadened our global footprint in high-potential geographical areas for machine vision. And we leveraged our technical excellence to create an exciting schedule of major product launches for 2013. This forward momentum, supported by a strong financial position and a team united by a unique corporate culture, makes us confident in Cognex’s continued success and our ability to achieve results that are not just good, but SUPER!
Now I must put on my Captain Industry jet pack and get back into action. The Axis of ERROR never rests, and neither do the CogneX-MEN!
To Preserve and Enhance Vision!
Robert J. Willett
President and Chief Executive Officer