Marriage of convenience
Ever since the rise of the smart camera, the imaging industry has been wondering when a frame grabber maker would merge with a camera maker. So when Dalsa and Coreco got together it was as inevitable as Brad Pitt marrying Angelina Jolie. And just as with Brad and Ange, everyone has been wondering when they will produce babies, and will they be as beautiful as their parents.
Dalsa was a big public company with access to capital and an appetite for growth, while Coreco had access to an extensive library of vision software that drove its sales of frame grabber hardware to OEMs in machine vision. Dalsa had a good name in high-end Camera Link cameras, and the products of the two companies were far from complete strangers, often appearing in the same OEM application together. In pursuit of potential
offspring, Dalsa parted with C$74m in cash and shares to win its bride. It was an extremely eligible groom with a vertically integrated business model, making everything from image sensors to the world’s first digital cinema camera, but Coreco filled a great hole in Dalsa’s life and they are now one happy family – alsa Digital Imaging.
Not that everything has been rosy. Dalsa and Coreco are both Canadian companies and, like many other non-US suppliers who rely heavily on the US market, they have suffered from the low relative value of the US dollar. Problems in the flat panel display inspection market contributed to a drop in profits from C$4m in the second quarter of 2006 to just C$20,000 on sales of C$47.7m in the second quarter to June 30 this year. In September this year it took some pain following the appointment of Brian Doody as CEO, replacing Dalsa founder Savvas Chamberlain, who has moved to become executive chairman.
Costs were cut by a small reduction in head count and the company started the process of divesting itself of its operations in Colorado Springs, which were acquired in 1999 as Silicon Mountain Design.
Philip Colet, vice president of sales and marketing at Dalsa Digital Imaging, says the two companies always had a certain amount in common. Their channels were very similar and they were addressing broadly the same customers with different products, so it was a natural match.
He says: ‘In 2004 Coreco was gaining market share in the frame grabber industry. We have grown since then in frame grabber sales and we have continued to gain market share, although there is a certain amount of price erosion. Coreco had been part of the consolidation process through its acquisition, and some companies had gone out of business. This gave us the chance to increase market share and gain new customers. We have since gained new customers in embedded processing from our new products, which do a lot of processing on board. So we were well positioned.
‘We were certainly not ignorant of what was happening in the industry – that there was a GigE thing happening and the competitive threat that it posed. We decided that the only way to counter this threat was to join it and to lead it. We recognised that GigE Vision is effectively a software protocol, where the frame grabber is in the camera. Then there is a lot of software in the computer to manage the image data properly. We had a mature software product on the market for many years, which did exactly that and all we needed to do was write the appropriate drivers. We recognised that we had that competitive market and all we needed to do was to develop a camera to utilise it.
‘There were many ways of doing this. We could buy somebody or try and recruit the talent or use the talent we already had. We decided to develop the camera line in house.
‘We looked at the analogue camera market and decided that this was going to go digital. Customers are going to evaluate two standards: Firewire and GigE Vision. We decided that GigE Vision was the stronger of the two protocols, even though it had not been ratified at the time. This was long before Dalsa started taking an interest in us (Coreco).
‘It proved to be a learning exercise with lots of things to figure out. The advantage of using Sony sensors is that a lot of issues are already sorted out. That resulted in a camera called the Genie line. A year later, the Dalsa acquisition was completed and we have had access to a lot of useful resources in electronics and manufacturing. We let ourselves be acquired in some sense, because being backed by Dalsa gave us some credibility in the camera market.
‘Dalsa has an advanced programme in CMOS sensors and they have come a long way in terms of image quality. Dalsa was strong in line scan and TDI cameras at the very high end, and also the very high definition area scan cameras, but they were not in the mid-range of industrial cameras. What attracted Dalsa was that we were already working on the Genie range, which allowed them to enter to mid-range market. They had technology, but it was licensed from another company. We brought the whole process of getting the data in the camera and they had the sensor technology and have worked out how to make cameras over the years.’
Colet says that, while the results of the merger are about the future, the present is still quite attractive. About half of the Dalsa frame grabber sales are into applications using analogue cameras. Of the digital applications Camera Link still dominates. He says that OEM customers just keep placing repeat orders, because once they have a successful design they don’t want to change and reengineer the imaging part of the ultimate application. For most OEMs, they add value through their knowledge of the application and they can get more benefit from re-working that side of the machine. There are also field support issues around having 400 machines with one technology and 50 with another. He says frame grabber sales are keeping up, because customers do not change until they get a real benefit from doing so.
But the huge numbers of analogue cameras out there are the targets. Dalsa believes that they will eventually want to switch over or at least develop new products with digital cameras and that as PCs are being delivered with Gigabit Ethernet already installed it is the natural choice.
What Dalsa can offer against other GigE camera makers is access to its huge library of software tools created by Coreco. The Sapera software line is hardware-independent and is likely to emerge as a higher proportion of the Digital Imaging Division sales.
The Genie range was on the verge of being launched when the takeover happened and since then it has been expanded to about 10 cameras. The company has continued to evaluate various sensors from Sony and Kodak and recently even produced a version of the camera with a Dalsa sensor called the Genie HM series. Colet says: ‘This has a resolution of 1,400 by 1,000 running at 60fps and that is a unique resolution running at that speed. We have a lot of customers very interested in that because you cannot get a Sony sensor running at that speed. You can get the speed, but not necessarily at that resolution. There are three models of the HM, including a VGA camera, running at 200fps. There is only one company with that sensor and that is Dalsa.’
Apart from new kinds of products the main thing that customers will notice is that there is no longer any distinction between Dalsa and Coreco. The Camera Link camera is marketed under the Dalsa Falcon name and the frame grabber line is the Dalsa Xcelera. Colet was formerly VP of sales for Coreco, but has now broadened his responsibility to include the digital imaging business of old Dalsa under the one name of Dalsa Digital Imaging. Although from the outset the two companies had similar channels, there was a clear need to do some rationalisation as a result of the merger.
Colet says: ‘Dalsa has always been recognised as an OEM supplier and customers are happy that the product lines will continue. But whenever you bring two competing companies together, you have to do some rationalisation to produce a distribution channel that works for you. The same applies when you merge with a company that has complementary products. Customers just want to deal with the one company.
‘We had some channel partners in common and some that were different and we had to go through a process of aligning them. A few partners have changed on both sides. But it has always been our policy not to take customers away from our partners; if anything we will go the other way.
‘When it comes to support, the service has improved, because when you buy a camera from one company and a frame grabber from another there is a danger of finger pointing. We work closely with our colleagues in Waterloo and make sure that our frame grabbers work seamlessly with our camera. We have software that performs a lot of configuration and improves the ease of use. This is a direct result of the two companies coming together.’
Dalsa's Genie Gigabit Ethernet Camera
The two parts of Dalsa Digital Imaging are quite widely separated geographically, with the old Dalsa camera line centred in Waterloo in Ontario and the old Coreco line and new GigE line in Montreal, Quebec, about 700km away. Dalsa has another presence in Quebec at Bromont, where there is a wafer fab facility making its CCD sensors for professional camera and its MEMS product (Micro Electromechanical Systems), about an hour south of Montreal. Colet says there is little likelihood in the short or medium term of any rationalisation, because each part of the company is effectively immersed in a different culture (Ontario being English-speaking and Quebec being Frenchspeaking). It is very unlikely that the key knowledge workers from each part of the company would want to move to the other site.
He says: ‘There is a fair amount of interaction with the group at Waterloo. It is not realistic to shut this facility down and move everyone over to Waterloo, and why do you need to? You have R&D here and manufacturing here. There may be some support services that can be consolidated, but why would you want to move. We have very little to do with the division in Bromont; all we do is buy sensors from it.’
Like any great show-business marriage, the joining of Dalsa and Coreco continues to attract a lot of attention and commentators are eager to see whether it will trigger any future mergers. Just down the road from Coreco is Matrox, which is heading in its own direction with its own line of smart GigE cameras. If Dalsa emerges with the sales it is expecting from its new product lines, while also holding on to the traditional frame grabber business, it will be a compelling story for other camera makers as well as frame grabber makers.
There will always be room for the specialist, but GigE is promising a new era of standardisation in the mid-range of the market that may lead to further consolidation, be they voluntary or shotgun weddings.