 |
Innovation: |
ABOVE: CEO Rob Willett with Cognex’s two most recent product offerings: AE2 Advantage™ vision engine (left) and DS1000 3-D Sensor. |
 |
 |
 |
Dear Shareholders,
Flip through the pages of any SkyMall catalog and you’ll quickly see why we’re so excited about Cognex’s business. From super-smart toilets to laser-guided Frisbees to electronic matchmaking devices, there isn’t a product out there that can’t benefit from our technology!
With the applications for Cognex technology so incredibly widespread, it’s no wonder that demand for Cognex products was high in 2013, and our strong execution drove record financial results. We reported record annual revenue of $354 million, an increase of 9% over the $324 million we reported in 2012. We also achieved record net income of $74 million, and record earnings per share of $0.83.
These great results were driven by growth from factory automation, where customers are using Cognex vision and barcode reading products in a wide range of manufacturing operations. Factory automation revenue totaled $283 million in 2013, an increase of 16% over 2012, and accounted for 80% of our total business. Revenue from factory automation customers grew across all geographies in constant currency, with Asia and the Americas reporting the strongest results, and new annual records were set in each region except for Japan.
From an industry perspective, consumer electronics and automotive, both early adopters of machine vision on the factory floor, were important contributors to our factory automation revenue growth in 2013. And several newer adopters of machine vision, such as the logistics, consumer products and medical device industries, also showed substantial growth and momentum. Over the last 5 years we have seen in excess of 20% compound annual growth in factory automation revenue overall, and we remain very optimistic about the long-term prospects ahead of us in this market.
The remainder of our business came from two smaller markets served by Cognex—semiconductor and electronics capital equipment (SEMI) and surface inspection. Revenue from SEMI totaled $25 million, down 13% from the level reported in 2012. After a promising start to the year, revenue fell off in each subsequent quarter, with little new capital investment to drive our customers’ businesses. Sales to SEMI customers accounted for just 7% of our total revenue in 2013.
Our surface inspection business—which makes large, specialized systems for inspecting materials made in a continuous process, such as paper and steel—reported another year of bookings growth in 2013 helped by strong demand in the metals industry. However, reported revenue of $46 million was somewhat below expectations because of revenue deferred at year-end related to a new software release. Aside from this timing issue, we are pleased with our surface inspection results, and Cognex continues to do well in this market.
ID products take off!
Within the high-performing factory automation area of our business, ID products continued to be the largest contributor to growth. Overall, revenue from ID products increased in excess of 30% over 2012 helped by a steady stream of highly advantaged new products and several significant sales in the logistics market.
In 2013 two important customers selected Cognex’s DataMan® barcode readers to read codes on packages and pallets in their automated distribution centers. These multi-million dollar wins came after lengthy evaluation periods in which DataMan exceeded the performance of outdated laser scanners and cumbersome line scan vision systems from the market’s incumbents. Cognex’s superior barcode reading capabilities—powered by innovations such as our patented Hotbars™ software technology and advanced optics capabilities—are providing a significant competitive advantage in this growing market.
In 2013 Cognex introduced several new products that will allow us to leverage our reading technology across a wider range of customer applications. These include the DataMan 503, a high-performance barcode reader that handles the most challenging logistics and industrial code reading applications; and the DataMan 50 and 60, two compact but powerful barcode readers designed to outperform laser scanners in the fast, reliable reading of 1-D barcodes.
Vision business is steady and climbing
Sales of Cognex vision products—which include our In-Sight®, VisionPro® software and Checker® lines—continued to rise as the year went on, and reported a combined overall growth rate in factory automation of 8% year-on-year.
In markets such as automotive, electronics and food packaging—where Cognex vision products are already widely used in the manufacturing processes—we continued to leverage the strength of our products, brand and salesforce to grow faster and gain market share.
Cognex also made progress in some highly promising new markets for vision with the introduction of two exciting products—the Advantage vision engine and the DS1000 3-D Sensor.
The first of these new markets is life sciences, where our tiny, embeddable new AE2 Advantage vision engine has been positively received by original equipment manufacturers (OEMs) serving that market. During 2013 Cognex closed several OEM accounts with machine builders designing equipment used to store, track and retrieve clinical samples. Each of these new OEM accounts has the potential to deliver ongoing revenue for Cognex for many years to come after the regulatory approval and launch of their machines.
The second new market is displacement sensing, a significant existing market where some of our competitors have traditionally done very well, but where Cognex had no presence. To address this market, Cognex introduced the DS1000, which adds new 3-D capability to our powerful vision tools and gives Cognex the ability to tackle new applications that require height, tilt and volume measurements. Our first product in this market offers substantial advantages over our competitors in speed, precision and ease of use, creating significant growth opportunities for Cognex.
In addition to these new products, Cognex enhanced its existing product lines by introducing the In-Sight 7010C, our latest entry-level color vision system; In-Sight Track & Trace 2.0, a new version of our identification and label verification software for the pharmaceutical industry; and Cognex Directory Server software, which centralizes the control and authentication of vision systems on a factory network. We also enhanced existing products with improvements that contribute to performance and ease of use, such as the addition of auto-tune capability for our OCR tools and new defect detection tools and enhanced communication protocols for our In-Sight vision systems.
The journey ahead
We have strong momentum at our backs as we move into 2014, and we believe all the pieces are in place for another year of growth. Investments made during 2013 in R,D&E (14% of 2013 revenue) will drive new product introductions. And our fantastic team of smart and creative Cognoids, a strong portfolio of 642 patents issued and pending worldwide, $455 million in cash and investments and no debt give us lots of confidence in our future.
So when you get ready to manufacture that remote-controlled talking dog collar, cold-beam laser light device to stimulate hair growth, or other hot new product for SkyMall...remember that Cognex can help you make it better, cheaper and more efficiently!
Thank you for your attention. We’ve now reached our cruising altitude…so put your seat back, pull out your copy of SkyMall and enjoy your flight!
Robert J. Willett
President and Chief Executive Officer