InFocus Joint Venture Cuts Jobs to Lower Expenses

The companies are considering several funding options for SMT, some of which could result in InFocus reducing its stake and losing seats on the board of the joint venture, CEO Kyle Ranson told analysts in a conference call. InFocus’s share of SMT’s profits and losses also could be reduced, he said. InFocus recorded a $1.5 million loss in the first quarter as its share of SMT’s losses. SMT’s goal is to land an OEM contract, something that hasn’t been achieved, Ranson said. SMT builds projectors for InFocus for the U.S. and China markets, he said. InFocus initially invested $10 million in SMT.

“We're aggressively pursuing strategic alternatives for SMT,” Ranson said: “It’s not InFocus’s intention to own our own manufacturing. We are not putting additional working capital into SMT.”

The realignment of SMT came as InFocus reported it would miss 2nd-quarter sales and profit targets. Revenue was expected to be about $110 million, down from $112 million in the first quarter, analysts said. InFocus also will miss its goal of turning an operating profit 2nd quarter, Ranson said. The lowered forecast was tied to disappointing sales of its DLP-based IN72 entry-level front projector ($1,299), which has suffered from a “tidal wave” of competition from LCD and plasma TVs, Ranson said. Chains like Best Buy and Circuit City have positioned the IN72 in the TV department, where its sales have been “weaker than expected,” Ranson said. The IN72 offers 854x480 resolution, 900 lumens and 2,000:1 contrast ratio. Sales of InFocus’s commercial projectors sold through the same retailers but merchandised with PC peripherals have been stronger, he said. InFocus experienced stronger sales of the step-up IN76 ($2,999), which features 1,280x720p resolution, 1,000 lumens and 3,000:1 contrast ratio. The IN76 is sold through specialty CE chains with a commissioned salespeople.

“With the IN76, the consumer is engaged by a sales person and shown the experience,” Ranson said: “The IN72 is not showing well at retail. We do have a challenge on the consumer side in communicating the experience.”

In light of the disappointing initial sales of the IN72, InFocus may reconsider fielding entry-level consumer product, Ranson said. InFocus’s ScreenPlay 4805 entry-level consumer front projector, which helped launch the company in the category, was successful when it was introduced in 2003 but attracted competition from larger companies, Ranson said. “It seems a consistent problem in your low-price strategy with the consumer that you haven’t been able to get products that sell and to me that raises question as to whether this is a viable strategy to waste corporate resources on the low end of the consumer market,” one investor said.

The shortfall in 2nd-quarter revenue also was tied to a 3-week delay in the delivery of InFocus’s IN24 ($699) and IN26 ($999) business projectors, which shipped in late May after “some glitches” in the product were resolved, Ranson said. InFocus unveiled on Wed. the IN32 ($1,099) and IN34 ($1,299) front projectors that feature 1,024x768 resolution and 2,000 and 2,500 lumens, respectively. The projectors ship this summer.

The revised 2nd-quarter earnings forecast didn’t sit well with some investors, with at least one pushing for a sale of the company. “It’s our strongly held belief that you should aggressively explore the sale of the company,” an investor said. “The simple fact is that you develop really neat products and you're successful in niche markets. But you're a small player and when you're successful you attract a tremendous amount of competition fairly quickly… It’s unfair of the board to ask the shareholders to continue to suffer through your attempts to execute your strategy while we watch the [stock] price wallow.” Ranson didn’t comment more specifically than to say he understood the investor’s concerns.

Meanwhile, InFocus said external and internal investigations into its international sales practices and accounting turned up no serious issues. InFocus last week filed quarterly and annual reports with the SEC that had been on hold while its accounting and international sales practices were reviewed internally and by federal regulators. The probes found no accounting issues, InFocus said. A federal investigation into whether a foreign subsidiary had violated technology export laws found problems to be less significant than expected, InFocus said. The company said the Office of Foreign Assets Control will issue only a “cautionary letter” to the company, although the Bureau of Industry & Security is still reviewing InFocus’s findings. InFocus accrued $1.6 million as a potential charge against 2nd-quarter earnings to cover any possible settlement of the federal investigation. A separate internal investigation into the company’s financial controls and business practices in China also didn’t raise any issues, company officials said. InFocus spent about $2 million on the investigations, it said. The expiration of a $20 million letter of credit with one of InFocus’s suppliers also was extended to Aug. 2 from May 2, InFocus said. InFocus is using $23.6 million in cash and securities as collateral for the letter of credit, the company said.