Automotive supplier Donnelly Corp. is considering selling a chunk of its high-technology, plastic optical lens subsidiary after absorbing an earnings blow to its annual financial results.
The Holland, Mich.-based supplier plans to restructure or reposition Donnelly Optics Corp., a wholly owned subsidiary, in the wake of disappointing bottom-line figures, said spokesman Randy Boileau.
The publicly held auto parts producer needs to find a better fit for its fledgling optics operation, said equity analyst David Andrea of Roney & Co. in Detroit.
``Donnelly's strategy is to isolate Donnelly Optics from a financial and management standpoint so its earnings don't spill over into its core automotive business,'' Andrea said.
Donnelly Optics, of Tucson, Ariz., makes advanced polycarbonate lenses using diffractive optics and other pioneering lens techniques. Its products, which battle glass lenses for market share, are used in automotive, medical and computer applications.
Donnelly Optics, spun off last year by Donnelly, opened a $2.8 million plant in November and installed 12 injection presses with clamping forces of 55-250 tons.
Donnelly, a maker of automotive mirrors, said its optics subsidiary had recorded nearly $2 million in start-up operating losses to develop the highly precise lenses, according to a Securities and Exchange Commission filing in February.
Any company in an emerging, high-tech industry should expect a slow climb to profitability, Andrea said. ``It's the financial variability that a publicly held company like Donnelly needs to account for,'' he said.
The lens supplier had planned to turn the corner with its largest contract, one with computer chip maker Intel Corp. of Santa Clara, Calif.
Donnelly Optics expected to make a lens system for Intel's new digital camera kit, which would have been sold to outside camera producers, Intel spokesman Bill Kircos said from the company's Chandler, Ariz., digital imaging and video division.
However, Intel backed off from its proposed 971 PC camera kit in May when the company signed an agreement with Eastman Kodak Co. of Rochester, N.Y., to develop a family of digital cameras, Kircos said. A month later, Intel canceled its contract with Donnelly Optics.
As a result of the Intel contract loss, Donnelly will take a onetime charge against earnings of 22-25 cents per share for its fourth-quarter results, Boileau said. Figures are due out the second week of August.
The write-off will account for tooling and other capital expenditures directly related to the Intel project, said Donnelly Optics President Daniel Joseph.
The write-down will reduce fourth-quarter earnings by about $2.2 million and cut earnings-per-share figures by more than 15 percent, Andrea said.
Parent company Donnelly plans to re-evaluate its optics subsidiary to find better ways to safeguard shareholder investment and reduce future impact on earnings, according to Boileau.
Those plans could include finding a partner to buy some of the operation or selling the subsidiary, Boileau said. But those are only part of a range of options, he added.
``The results to our earnings can't be allowed to go on for the long term,'' Boileau said. ``The [digital imaging] industry hasn't materialized as quickly as we expected it would several years ago. We have to evaluate the need for the technology.''
Joseph said he recognized that his company competes in a high-risk industry, where expected projects do not always pan out. He added that the firm was on a course for success with many products in development with several high-growth industries.
Those include introducing more standard camera lens sets to supplement the company's existing lenses, Joseph said. The new lenses will accommodate a variety of new image sensors both on the market and in development, he said.
The firm's relationship with Intel remains strong, Joseph said.
``Setbacks are disappointing, but the mark of a successful company is to come back swinging and pull in new opportunities,'' Joseph said. ``I'm more optimistic today than I ever have been. We have a number of projects in various stages of development that have great upside potential.''
Donnelly placed fifth in Plastics News' North American injection molders ranking this year with company-estimated sales of $400 million.