Cognex Corporation

Cognex Corporation

"Work Hard, Play Hard"

“To preserve and enhance vision,” recited Bill Silver with his hand held vertically on the bridge of his nose, as he entered the office of Robert Shillman. With his usual smile, the CEO looked up from the Cognex Corporation's 1998 Annual Report and returned the corporate salute, adopted from "The Three Stooges.. Silver, the Vice-President of Research and Development, joined Shillman to discuss the future of Cognex Corporation, the company they started together 18 years ago. In spite of its leading position as a manufacturer of machine vision systems, Cognex has hurdled over changes in the industry in recent years. It has survived an industry shakeout of competitors in the early 1990sand managed to sustain stable growth during the slump of the semiconductor industry. However, competitors have recently begun to tap into the OEM (original equipment manufacturer) market, the cornerstone of Cognex's business, and have beaten Cognex to the punch in the international marketplace. Finally, the 1998 Annual Report shows that Cognex's revenues and profits have fallen from the peak levels they had reached in 1997 (Exhibit 1). Robert Shillman, Bill Silver, and their fellow executives must decide which direction the company should take to realize growth and remain the number-one manufacturer of machine vision systems.

COMPANY BACKGROUND

Two brand-new bicycles and $100,000 constituted the initial investment made by Robert Shillman to start Cognex Corporation. A professor in hl1man visual perception at Massachusetts Institute of Technology (MIT), near Boston, Shillman had a vision for the future of machine imaging analysis. In the summer of 1981, with a help of the bicycles, he convinced two graduate students, Marilyn Matz and Bill Silver, to work for him. This small group of artificial-intelligence experts went to form the Cognex Corporation and develop machine vision devices.

The machine vision technology works by capturing an image of a part through a video camera, convert to digital data and, via software, analyzes the data and derives answers about the image, such as where an inject is located and whether or not it is defective. This formation can then be sent to other equipment-such as a robotic arm to remove the defective part-and, fed to an automated feedback loop.

In the early days of the company, machine vision technology was limited to black-and-white image analysis. Although reliable, this technology was slowing process, and the systems used were extremely expensive to develop and implement. In 1982, harnessing the of algorithms written by Silver, Cognex pioneered the industry's first optical character-recognition system and built the company's first machine vision system, called DataMan. This system was able not only to quick process grayscale image data to locate patterns and shapes, but also to reliably read numbers. Priced at proximately $30,000, this revolutionary product was sold directly to end-users on the factory floor, and success attracted many investors, allowing Cognex to grow rapidly in the early 1980s. This machine vision market, however, became quickly flooded with competitors, all looking to find a place in this new profitable segment.

In the mid-1980s, Cognex modified its strategy and decided to target OEMs, which had the technical expertise for systems integration. The company designed the first machine vision system built on a single printed circuit board, called the Cognex 2002, specifically to support OEMs. Two years later, Cognex also introduced the world's first custom vision chip, the VC-l, which quadrupled the processing power of the company's machine vision system without increasing their size.

In 1989, the company had its initial public offering. Within one year, the price of the company's stock jumped from $2.75 per share to $33.50 per share. In the following five years, Cognex successfully introduced many products, including the Cognex 5000, the first machine vision system designed to plug into a personal computer, and in 1994, after $5 million in research and development, a revolutionary user-friendly machine vision system-the Checkpoint vision system.

DR. BOB

Dr. Robert Shill man enjoyed life in academia-his research on the study of human visual perception was innovative, and his unique style gave him a reputable presence among the community at MIT. However, he had the idea that artificial intelligence could replicate the accurate process of human vision to make computers that can “see.” With such an innovative technology, he could introduce new manufacturing applications and open the doors to the machine vision industry. With a life savings