Incorporated: 1964 as LeCroy Research Systems
Sales: $121.4 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: LCRY
NAIC: 334515 Instrument Manufacturing for Measuring and Testing Electricity and Electrical Signals
LeCroy Corporation is a world leader in the development, manufacture, and distribution of mid- to high-end digital oscilloscopes, used primarily by electronic engineers involved in the research and development of new products or upgrades to existing products in the communications, automotive, computer, and electronics industries. Oscilloscopes help to detect problems by allowing engineers to compare the actual shape of a signal within an electronic circuit to its ideal. Because it originally served a highly specialized scientific market, LeCroy emphasized digital technology well before its much larger competitors, all of whom were analog-based. As design engineers work with faster and more complex electronic signals, LeCroy is well positioned to achieve significant future gains in the high-end digital oscilloscope market, despite a lean period for the company in the late 1990s.
Walter LeCroy Starts his Business in 1964
The company’s founder, Walter LeCroy, received an undergraduate degree in physics from Columbia University, then worked as the chief electronics engineer in the school’s physics department. A number of people recognized his talent for developing instrumentation and encouraged him to start his own business. In 1964 LeCroy set up shop in a former Irvington, New York, Laundromat, naming his new company LeCroy Research Systems. Focused on high-energy physics instrumentation, LeCroy was an innovator in capturing and analyzing the signatures of transitory subatomic particles traveling close to the speed of light. It was a highly specialized market, limited to nuclear and particle-physics laboratories, yet the small company prospered. By 1965 LeCroy was able to leave the former Laundromat for larger facilities in Elmsford, New York, followed by another upgrade to West Nyack, New York, two years later. In 1972 LeCroy took a major step forward when it opened an instrument design and production facility in Geneva, Switzerland, near one of its most important customers, CERN (Centre European Recherche Nucleaire), which operated a giant accelerator for high-energy physics. The company then established sales and service operations in the United States, Europe, and Asia. In 1976, the company moved its headquarters to its present location in Chestnut Ridge, New York.
By the early 1980s LeCroy controlled an 80 percent share of a narrow market that not only was not growing, but was beginning to contract. The company decided to change its name to LeCroy Corporation and transfer its expertise to electronics to design more general purpose instrumentation. Management settled on oscilloscopes and by 1983 began to apply high-energy physics technology to its new product line, as well as conduct extensive market research. In 1985 LeCroy introduced its first digital oscilloscope, finding a niche in the fast-growing commercial test and measurement market. And just as high-speed electronics was beginning to take off, government funding for high-energy physics was being cut, thus confirming the wisdom of LeCroy’s shift in business.
Branching into oscilloscopes required changes in LeCroy’s approach to sales and marketing. For 20 years the company had sold to a very small number of customers, mostly heads of university physics and research laboratories. With technical backgrounds, LeCroy’s 46 salespeople were well suited to this environment. According to one LeCroy executive, “Our salespeople were used to visiting ’Herr Professor’ or ’Herr Doktor’ at the lab.
They would talk to them about the instruments and projects and when it came time, the customers would buy from us. But that doesn’t work in business. Business works at a much faster pace.” LeCroy conducted a number of seminars to both prepare and motivate the sales force before it began to sell to corporations. Although most embraced the change, a number of salespeople left the company. The focus of the sales call remained the engineer, but now LeCroy’s representatives also had to cater to less knowledgeable executives who, although they wouldn’t be using the instruments, were key in the buying process. The sales force had a further problem: convincing engineers that they should buy from a company unknown in their field, instead of the well-established Hewlett-Packard or Tektronix. The fact that LeCroy was well respected by physicists and that the company offered a superior product was simply not enough. LeCroy had to convince its new customers that it could deliver on service and, in short, make their lives easier.
LeCroy posted oscilloscope revenues of $20 million in 1985. Five years later annual sales increased to $55 million, enough to show up on the radar screens of its larger competitors. By the end of 1993 digital oscilloscopes would account for 70 percent of corporate revenues, then increase to 75 percent the following year, and 80 percent the year after that. At the same time, sales of instrumentation for high-energy physics research steadily eroded.
Challenges By a Rival in 1992
Not only did industry-leader Tektoronix notice LeCroy, in 1992 it sued the company, alleging patent infringement. LeCroy vowed to vigorously contest the charges, and the case made its way through the legal system for almost two years before the parties reached an out-of-court settlement. In the end, LeCroy signed a license agreement with Tektronix regarding four patents. It paid $1.5 million up front and agreed to pay royalties of at least $3.5 million over the ensuing ten years and up to an additional $3.5 million, depending on sales. Tektronix could also terminate the agreement should LeCroy acquire 20 percent or a controlling interest in any rival company on a restricted list. Likewise, if any company on the list acquired 20 percent or a controlling interest in LeCroy, or LeCroy attempted to transfer its Tektronix license to a restricted company, Tektronix could terminate the agreement. In essence, Tektronix looked to solidify its dominant position in the oscilloscope industry.
At the time, Tektronix generated $1.3 billion in annual revenues. With sales of only $63.4 million in 1994, LeCroy was simply looking to solidify its revamped business. The company had been barely profitable in 1992, earning $200,000 on revenues of $59.9 million, followed by a loss of $200,000 in 1993 on revenues of $61.2 million. The company lost an additional $1 million in 1994. Nevertheless, with the Tektronix litigation settled, LeCroy was positioned to take its business public. The process began in 1993 when Walter LeCroy decided to bring in more seasoned management to replace technically knowledgeable but less commercially aware officers. He remained chairman of the board and named Lutz P. Henckels to serve as chief executive officer. According to Henckels, his predecessors “wouldn’t even have known what matters to a Wall Street audience. When our underwriter asked us all those probing questions, they would have said, ’Why does that matter?” Born in Germany, Henckels moved to the United States after high school, earning undergraduate and master’s degrees in electrical engineering and a Ph.D. in computer science from the Massachusetts Institute of Technology. He gained business experience by founding HHB Systems, Inc., a computer-aided design and test company. As CEO he took the company public in 1987. He also served as the president of U.S. operations for Racal-Redac, Inc., an electronic design automation company, from 1989 until January 1993, when he began a short stint as a consultant at LeCroy before taking the reins.
Under Henckel, LeCroy cut back further on its high-energy physics products and phased out older oscilloscopes, narrowing its offerings to the high-performance 9300 series, which accounted for the lion’s share of company revenues. LeCroy also began efforts to develop oscilloscopes better suited for use in testing in such growth areas as computer equipment, LANs (Local Area Network), and communications. Although these changes would cause short-term pain, reflected in the $1 million net loss for 1994, the company was better positioned for the future. For the fiscal year ending June 30, 1995, LeCroy’s revenues rose significantly, topping $82 million and resulting in a net profit of $2.6 million. In November 1995 the company was ready to make an initial public offering of stock, selling 2.1 million shares at $12 each. Of the $16.1 million raised, $14.7 million was spent to pay off debt. By the end of 1995, LeCroy maintained a 10 percent share of the digital oscilloscope market, trailing only Tektronix with 44.5 percent and Hewlett-Packard with 17.8 percent.
LeCroy introduced the 9384 family of mid-range oscilloscopes in 1996 to compete with Tektronix and its 50 percent share of a $250 million market. Prices for the units ranged from $19,490 to $28,990. The company also signed a technology licensing deal with Fluke, a maker of handheld signal instruments, which ranked fourth behind LeCroy in digital oscilloscope sales with a 5.8 percent market share. In exchange for royalties, Fluke would gain access to the technologies that LeCroy developed for its bench-top oscilloscopes. In turn, LeCroy was able to participate in a growing market segment. For fiscal 1996, revenues grew to $101.5 million and net profits to $4.3 million. The following year, revenues jumped to $117.1 million, and the company posted a net profit of $7 million.
LeCroy Corporation, headquartered in Chestnut Ridge, New York, develops, manufactures, and markets electronic signal acquisition and analysis products and services. The company’s core business is the production of high-performance digital oscilloscopes, which are used by design engineers and researchers in a broad range of industries, including electronics, computers, and communications.
In general, LeCroy continued to evolve into a large company with far-flung operations. With its engineers split between Switzerland and New York, weekly video conferencing became necessary. The Swiss proved to be more detail oriented and thorough, while the Americans were more innovative and willing to take risks. They worked well together, and LeCroy continued to push the envelope on high-performance oscilloscopes. As computer processing speeds expanded rapidly, and the signals to be tested grew longer and more complex, the market for oscilloscopes was clearly moving in the direction of LeCroy’s expertise and boded well for the company’s future.
In October 1997 LeCroy made its first stab at external growth, acquiring Preamble Instruments, Inc. of Beaverton, Oregon, for stock and $411,000 in cash. Preamble manufactured stand-alone differential amplifiers and probes. After introducing a LAN analyzer called NEWSLine, LeCroy supported the new product offering by acquiring Digitech Industries, Inc. and its LAN and WAN (Wide Area Network) protocol analysis technology used in data communication and telecommunications. LeCroy then aligned itself with Anixter, Inc., a $2.8 billion network and cable solutions company. During fiscal 1999 LeCroy formed a subsidiary called Vigilant Networks, Inc. for its network analysis business, into which it folded Digitech.
LeCroy moved next into Asian markets. In 1998 LeCroy acquired Woojoo Hi-Tech Corporation, its Korean distributor since 1991, and formed a wholly owned subsidiary, LeCroy Korea Ltd. LeCroy also made a $7 million equity investment in Japan’s Iwatsu Electric Company, Ltd., which along with its subsidiary, LeCroy Japan, had been distributing the company’s digital oscilloscopes. An expanded partnership deal included a technology transfer agreement, as well as granting LeCroy sole distribution rights to North America and Europe for complementary Iwatsu products, to be marketed under the LeCroy logo. It was the Far East and its economic woes, however, that hindered LeCroy’s growth in the late 1990s and lead to falling revenues and net losses.
Asian Economic Woes in the Late 1990s
Although revenues grew to $131 million in 1998, LeCroy posted a loss of nearly $2 million. The following year, revenues dropped to $126.2 million, despite increases in sales in the United States and Europe. In the rest of the world, in particular Asia, revenues fell off by 30 percent. The result for 1999 was a net loss of $6.8 million. Customers in the Far East simply weren’t able to buy products, so that LeCroy had no choice but to retrench and wait out the downturn. It slashed its work force and closed down its Swiss manufacturing operations, electing to shift the work to its New York facilities. Sales continued to slide in 2000, coming in at $121.4 million, and restructuring costs resulted in a net loss of $3.4 million. In August 2000, LeCroy agreed to sell Vigilant Networks to GenTek Inc. for $12 million. The company had tried to develop a new product and deliver it to an unfamiliar market, but learned that it lacked the necessary expertise and resources. In the future, Henckels vowed to find partners and to design its technologies so that they were easy for others to deploy. In fact, the Vigilant sale created something of a partnership with GenTek, which as part of the transaction agreed to source Vigilant products from LeCroy.
LeCroy continued to spend money on research and development. In 1997 the company had combined its high-energy physics operations with the oscilloscope group to form a team to develop technologies, as well as to take advantage of the technologies acquired from Iwatsu and Fluke. In 1999 LeCroy increased its R&D spending by some $4 million, up from 13 percent of sales to 15 percent. Over a three-year span the company also spent more than $11 million to upgrade its facilities and management systems. It was also willing to make strategic acquisitions. In July 2000 LeCroy purchased Lightspeed Electronics, which provided microwave communication analysis technology for high-speed communications components and systems. With an increasing demand for broadband Internet access, this area was poised for tremendous growth.
During the first three quarters of 2001, LeCroy experienced a turnaround in its business and reported strong financial results. The past three years had been difficult, but management was optimistic about the future. Although the low-end part of the oscilloscope market appeared to be declining, the high-performance end was growing. Signals continued to gain in complexity, and design engineers needed analysis in real time, a level of sophistication that LeCroy, with its high-energy physics heritage, was well suited to meet. Instead of accommodating their high-performance technology to commercial needs, after 20 years LeCroy saw the market growing in its direction. It had a number of products waiting in the wings to meet the demand for high-end products. Within five years management expected the company to be generating $500 million in annual revenues. LeCroy’s R&D had also made a software technology breakthrough that would bear watching in the years to come. Called MAUI (Massive Advance in User Interface), the software technology held the potential, according to management at least, to do to oscilloscopes and electronic instruments what Windows did to the personal computer. This advantage in signal analysis would, he hoped, provide LeCroy with the competitive advantage needed to make it the leader in the high-end oscilloscope market.
Digital Industries, Inc.; LeCroy, Ltd.; LeCroy GmbH (Germany); LeCroy, S.A.R.L.; LeCroy, S.R.L.; LeCroy Japan Corporation, K.K.; LeCroy Korea, Ltd.; Preamble Instruments, Inc.; LeCroy Lightspeed Corporation.
- Walter LeCroy starts the company.
- After several moves within the United States, the company opens a second facility in Geneva, Switzerland.
- The company moves to Chestnut Ridge, New York.
- The company introduces the digital oscilloscope.
- Lutz P. Hickels becomes president and CEO.
- The company makes an initial public offering of stock.
- The company acquires Lightspeed Electronics.
Tektronix Inc.; Acterna Corporation; Agilent Technologies, Inc.; Danaher Corporation; Keithley Instruments, Inc.
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“LeCroy,” Wall Street Reporter, December 8, 2000, p. 1.
Lium, Alice Fussell, “R&D is the Key,” Design News, December 7, 1998, pp. 82–83.
Mulqueen, John T., “LeCroy’s New Line’s a Big Seller,” Communications Week, October 30, 1995, p. 75.
Neale, Ron, “On the Shoulders of a Giant,” Electronic Engineering, January 1999, p. 7.
Runyon, Stan, “Scopes Fight it Out on High-end Turf,” Electronic Engineering Times, March 3, 1997, p. 43.