After confronting the realities of the new market, difficult decisions needed to be made. Here the “engineer” in Jerry proves very helpful as he tackles the issue, at least in some ways, as an engineering problem. Cutting costs and establishing new operating procedures required far reaching changes. Also, I find it impressive that Jerry did not pocket his billions, and bail, leaving the turnaround to someone new. He stayed to shepherd his baby.
SM: So what did you do? How did you cope with the situation? JR: It was very sobering. The first thing we had to decide was if we were going to stick with it, if it was a business we were going to stick with long term, not only eith our lives but our money.
We concluded that in the long term we think optical communications is a growth market. The physics are such that there is really no way to move data any distance at high speeds other than over optical fiber. Our view was that optics is part of the infrastructure of the Western world, or the industrialized world and long term it is going to be a growth market.
There is a correction and there is an overcapacity, and the issue is how do we survive? How do we, as what we thought of as a strong company, how are we going to come out of this?
The answer for us was, maybe it was simple but it did not seem very simple at the time, was we really have to change the way we do business. We have to change our cost structure, we have to change our expense structure, and we have to be a much more cost competitive company, in this era of overcapacity.
In 2001 we bought a factory in Malaysia. Everybody else in the industry was moving as fast as they could to outsource their manufacturing, get rid of their factories, get rid of their fixed costs, and here we were buying a factory. Our rationale was that we had outsourced our manufacturing, we were the first optics company to outsource manufacturing in South East Asia, we understood the positives and the negatives, but we believed we could control our costs better if we ran our own factory.
We were sure we could produce better quality, because we have our names on the product and we would be committed to quality. We also knew we could protect our intellectual property. In optics a lot of the intellectual property has to do with the manufacturing process. Not only, how do you take a die, a semiconductor device, you get light out of it, but now how do you steer that light through an optical fiber that is smaller than a human hair. That is part of the trick, if you are able to do that rapidly and automatically, and be able to run the measurements and the test and get the confirmation that you had done well. This was all about the things we had to develop proprietary techniques for, and there was no point exposing that IP to competition.