Dr. Subodh Kulkarni, President and CEO of CyberOptics, talks with Mike Konrad of The Innovations in Technology Podcast, about what’s driving the market and CyberOptics’ business growth.
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Innovations in Technology: Mike Konrad
CyberOptics: Dr. Subodh Kulkarni, President and CEO
MK: Welcome back to another episode of Innovations in Technology. I am so glad you’re with me today. I am Mike Konrad. I’ll be your host for this episode. The complexity within the electronics industry is at historic highs within all segments of the electronics industry, and perhaps that is what is creating a greater need for inspection in all aspects of the electronics industry, which brings me to my guest today, Dr. Subodh Kulkarni. He has been a director of CyberOptics since 2009. He has been the president and CEO since 2014, in addition to his past roles as lead director and executive chairman. Dr. Kulkarni has held several management positions at Prism Computational Sciences, Imation, 3M and IBM. He’s also serving on the board of directors of Keytronic. Dr. Kulkarni received his Bachelors of Science degree in Chemical Engineering from the Indian Institute of Technology in India, and went on to obtain a Masters and a PhD in Chemical Engineering from MIT. He has won a number of awards for commercializing technologies that he and others have developed within the electronics industry. Today, he is all ours as he joins me for our conversation about his current venture, maybe adventure is a better word, with CyberOptics. Dr. Kulkarni, welcome to Innovations in Technology. So glad you are my guest today.
SK: Thank you, Mike, thank you for the opportunity.
MK: Let’s start off talking about CyberOptics. Since that’s your current gig right now and you have been there quite some time in various capacities. How long has CyberOptics been around? When did it start? What types of products do you produce? What kind of markets do you sell to?
SK: CyberOptics has been around since 1984. It was founded by Professor Steve Case from the University of Minnesota, and that’s why we are still headquartered in the Twin Cities in Minnesota. He and his graduate students started the company when lasers were relatively new, and they were looking at applications to do detection and inspection using lasers at that time. The company focused on laser based inspection for the first decade or so, and then eventually they got more vertical, doing in-line solder paste inspection and in-line automated optical inspection, since early 2000’s.
Lately the focus has been on two technology platforms that we are investing in and pioneered. One is a 3D non-contact optical sensing technology that we call MRS™. That stands for Multi-Reflection Suppression™. Another technology that we have pioneered is called WaferSense®. These sensors are used in-situ for various measurements (airborne particles, relative humidity, leveling, vibration, teaching, gapping, resistance) in semiconductor tools and they’re in wafer or reticle form factors.
The company is fundamentally a sensor technology company, developing innovative sensors for two vertical markets SMT, which stands for surface mount technology or electronics assembly, and semiconductors. Even though they are related, they do operate as two distinct market segments. So again, CyberOptics is basically a sensor technology company coming up with innovative solutions for SMT and semiconductor markets.
MK: Excellent. I always look at the semiconductor market as a crystal ball to what is coming toward the electronics market. It seems to be a precursor. If semi’s high, business is coming our way. If semi suffers, hold on right, fasten your seat belt. How did you get into this industry? You have a pretty wide experience serving with other companies, all within the high-tech industry. So, what brought you to CyberOptics and what is your background?
SK: I mean, my love and fascination for the semiconductor industry started actually in grad school when I was at MIT. My PhD thesis was silicon surfaces. I was looking at literally the fundamentals of epitaxial deposition of silicon. That took me to IBM, I was a fab engineer for a while working on CBD and plasma etching processes. Over time, I’ve always been in and around the semiconductor industry for the last 30 plus years. What got me into CyberOptics, first as a board member, is my know-how about optical technologies and I had the good fortune to meet the founder of CyberOptics. Terrific guy. Unfortunately he passed away some years ago, but he is the one who got me involved in CyberOptics. He was looking for a board member with a technical background and I was available to be a board member at that time. Once I became a board member and saw the technologies being developed inside the lab and the company had the opportunity to have a new CEO, because the previous CEO wanted to retire, I did think hard about taking this job. Because of the technologies, I decided to join the company, even though it was a much smaller company than my previous experiences. The technology was too exciting to turn down the offer, if you will. And I have loved every minute of it. I mean, we have essentially worked on commercializing the two technologies that were very attractive to me. We are penetrating both the semiconductor as well as SMT markets with our two technologies, with differentiated products. Really, at the heart of it, our technologies enable better ROI for our customers in terms of yield and productivity improvement. That is really what we are up to; we are commercializing new innovative products in semi and SMT to help our customers.
MK: Excellent, I feel like I have come full circle. The word ‘optics’, obviously, is in your company name, CyberOptics. One of my past guests was Dr. Eric Folsom, who was the inventor of the CMOS image sensor way back in the day. So to talk to the inventor of digital image technology, and then talk to someone who has exploited that technology for the benefit of the electronics industry, and taking it kind of to its limits, feels like a very full circle event. Now I know that you weren’t the founder of CyberOptics, but I’m sure that you probably have an answer to this. When companies get started, they either get started because they want to just pile on, they want to be ‘also run’ kind of companies and they just go, well, if they can do it, we can do it too. Or they see something missing in the industry that no other company has been able to address. I’m assuming CyberOptics is the latter. What was missing from the inspection industry that created a need for CyberOptics to fill that need?
SK: Over time things have changed obviously. When the company was founded, and again, I was not involved. I was still in my college days in the early 80s. When the company was founded, I can clearly see that lasers were new, they were literally coming off the shelf, if you will, as a technology in early the 80’s. Electronics assembly was becoming more and more robotically driven. Many pick and place companies were beginning to launch these robotically handled assembly lines. There was a need for fast inspection to keep up with the robotic speeds. Human eyes were no longer sufficient to meet the inspection criteria. So lasers were a natural solution that Steve and many other people at the same time knew. I mean, if you think about it, Cognex was founded around a similar time period, and many other companies too. And I believe they must have all been thinking along the same lines where lasers were a terrific tool, if you will, that they had available suddenly, and they had the speed and the accuracy to meet some of these robotic placement inspection requirements.
That’s the way the company started. Obviously, over time, things have changed quite a bit. Lasers have given way to what was laser triangulation, and it still remains a good part of 3D inspection technology. There are many applications that can be well solved with laser triangulation, even today. But over time, parts got smaller and they continue to get very, very small. Assembly boards – if you look at an assembly board today versus what it was 10 years ago, and certainly what it was 30 and 40 years ago, it looks dramatically different and flexible substrates started coming in.
And most recently, in the last five years or so, semiconductor technology has taken a drastic step towards stacking. I mean, it’s almost like the third dimension got invented for the architects of semiconductor technology. I can just imagine what the early architects in the 1900s went through when they suddenly discovered that they can put skyscrapers together, and all the freedom that it unleashed and all the creativity it unleashed. And to some extent, that’s what’s going on in the semiconductor industry, right now. Suddenly you can stack multiple chips on top of each other, in addition to the stacking that’s happening in the NAND technology. Now all kinds of creative packaging solutions are being unleashed. Essentially, it’s giving us these modern improvements. If you look at our smartphone today, versus what it was five years ago, it’s certainly isn’t what it was a decade ago. There’s a day and night difference in the performance, bandwidth, and all kinds of performance aspects.
At the heart of all of it, is the hardware improvement that many of us are responsible for, and semiconductor technology and electronics being two of the drivers of this improvement. It’s almost a little innovation, if you will, in creativity. For 40-50 years, the semiconductor industry had become a, don’t get me wrong, I mean, it was doing its job and shrinking the transistor and it kept shrinking the transistor per the Moore’s Law at a nice clip. Maybe in the last decade, Moore’s Law slowed down a little bit. Instead of 18 months, it became 27, or maybe even 36 months. Then came the third dimension. Now suddenly, things are looking very different, very rosy. Everyone is projecting now that in the next 10 years, those improvements that we have been seeing in the last decade will continue, if anything, they will accelerate. It’s going to be a fun decade for semiconductors and electronics coming along with all kinds of creative solutions being deployed.
MK: Kind of like a new country discovered, all of a sudden they can build up rather than out. We’re no longer in a two dimensional world.
You are showing your customers things they did not know they had in terms of problems, or the quality or integrity of a solder joint, or a wire bond, or whatever it is that you are inspecting. You’re in multiple markets within the electronics industry. But you know, people think of electronics if they’re civilians outside our industry. They think electronics is basically computers. And that’s it, right? Obviously, there are many facets and many segments within the electronics industry, and you’re in multiple markets. And each one of those markets I would imagine have very different dynamics at play. So, talk to me a little bit about the major market dynamics that you currently see at play within the different market segments that you’re supporting.
SK: That’s a very good question, Mike. Indeed the electronics market gets lumped in together, but there are many facets within the electronics market. Probably the driver continues to be a smartphone. I mean, smartphones have done a really good job of driving the electronics market over the last decade, and will be one of the drivers for the next decade or so. And that’s because of the complexity of electronics that smartphones use and the density and stacking of chips I talked about, and many other innovations that are coming along. Smartphones are driving a lot of them.
Auto has become a big driver of electronics of recent. If you look at an EV car, it’s practically chips on wheels right now, and that is driving a lot of demanding applications. Because the auto electronics tend to use much higher currents than smartphone boards, for obvious reasons. We are driving batteries and real wheels and stuff like that, so they do need higher power. And that changes the complexity of electronics, and what is involved and what is not involved.
There are many other interesting areas of electronics that are pioneering the whole electronics area too. One of the areas that we became involved in a few years ago, and is a big driver of our current business, is mini LED backlights for display screens. Right now the display screens are either LCD, or OLED technologies and both have their pros and cons. And out comes mini LED backlight with LCD filter in front of it. That seems to have the best of both worlds. It still has a few drawbacks, but it seems to have the best of conventional LCD and conventional OLED. That makes the display look dramatically better and consumes a lot less power. Right now there is a single consumption of power in your smartphone if you will. So just imagine not having to worry about charging your smartphone for a few days. Some would say even for a few hours.
There are many fun little facets within the electronics areas, but I would still say smartphone, auto and other things like mini LED, which are unique applications, are main drivers. The memory industry continues to be another driver of electronics. If you look at what the memory industry is going through, it’s staggering rate at which they are advancing the chip technology right now. But behind the chip, there are many other things that the electronics industry has to keep up with to make sure the memory boards are working okay.
There are many other drivers too. Medical devices have been a good driver of late again, because these are devices that actually end up in the human body. They have to be FDA approved or other regulatory agency approved. And unlike other electronic items, you don’t want to get re-operated on once every year or once every two years.
MK: It is not like changing a battery, right.
SK: Yes. Once you put a part in the body, the patient and the doctors are expecting that part to be there pretty much for the lifetime of the patient. That puts severe constraints on electronics, the battery technology, and all others. So very different areas that are driving electronics right now. Certainly, I would still highlight smartphones, automotive, medical devices, probably are the three, plus memory probably are the main drivers right now.
MK: I think all of that is being at least partially driven, if not entirely by internet of things, by IoT, or our huge appetite as a society to surround ourselves with connected devices. And these electronics, maybe class one, they may not be life or death, high reliability electronics. But, when we buy something, even if it’s a connected toothbrush, we do expect it to last, and in that example, these parts are going into what are arguably harsh environments, and therefore are subjected to the same factors that could kill a more safety-critical application.
It appears that we are applying inspection techniques and the importance of good inspection to way more than just high reliability devices – classic class three space type devices. I think IoT is driving it and it’s pulling that technology down to its level, in terms of being able to produce a product that just functions. Not necessarily life/ death, but certainly to, you know, support the reputation of the manufacturer.
SK: One good example is, lately if you look at the cost of a silicon wafer, by the time it reaches the end of its processes in the front-end area, the cost can approach as high as $100,000 per 300 millimeter wafer. So, every wafer lost is a huge loss for the entire production ecosystem, if you will. Tt’s imperative for the manufacturers to make sure they minimize losses when the cost of each of the chips is so high. And that’s where the inspection comes in. You could live without inspection, and that’s what many people did. They were relying on human eyeballs for inspections for centuries. That’s how manufacturing and the world used to work. The whole concept of inspection, and certainly, optical and laser based, or pattern light based inspection, or X-ray inspection, most of it is in the last 30-40 years.
One of the reasons is because as parts get complex, you cannot afford to have those losses. You cannot afford to throw out even a single silicon wafer anymore if the cost is $100,000 or something like that. So, you’re right, the end product maybe something simple like a doll. But if in the process, you have to incur tremendous losses, you just can’t do that. That is where most sophisticated manufacturers right now put inspection at various points in though in the production workflow, right from the starting point to the final product. That is how yields are as high as they are, productivity is as high as it is, and there is no stopping there.
Right now, as you mentioned, IoT is a big driver. But AI has come a long, long way in the last decade. Now we are expecting robots to be running factories. If you go to the most recent three nanometer node semiconductor fab, and I was there before the pandemic, in one of those places in Korea, it’s a little spooky to enter a factory that is running full gear and there’s no lights wherever you go, lights turn on. Finally, you almost have to ask, is the factory running? The say, yeah, but why have lights when there are no human beings in the factory? The entire factory is being run by robots right now. That is the future of production. This is just little insight into how future factories are going to look, but those future factories will need inspection. Robots are terrific, but they do need periodic feedback on where they are, and what the part is supposed to be. If something is not going right, how do you get it back to normal, if you will? So that is the future of automated production. AI is going to play a huge role and that’s is how we are going to bring cost down and complexity in production.
MK: Yeah, evolution always starts with a buzzword. The buzzword is lights out factories. Now, obviously, that is a buzzword, but it has a basis in reality in the fab world, as you are saying.
SK: I have seen one, and it is a little spooky.
MK: Yes, it’s so hard to imagine, in other applications and other segments of the electronics industry, y, the assembly side, for example, how we can have lights out, but then again, I’m sure 10 years ago if I had told you that the fab shops would be lights out, you would go, Yeah, not really, that’s crazy. So it happens. And for all those people who are worried about losing their jobs, don’t worry, someone has to build all those robots. You know, ultimately, they’re going to be factories that are well lit, to create the environment where we can have lights out factories. So, in business, if your business isn’t facing challenges, then you’re probably not a very innovative business. I can only imagine that CyberOptics has faced challenges over the years. My business faces, every business faces challenges, and the survivors dominate and those that do not, do not. So tell me what types of challenges that each of your market segments face. Let us start with semi, then we will get into SMT and then more specific products, like printer cartridges and mini LEDs and things like that.
SK: I mean, you are right about the fact that every business has its challenges and the markets we serve, and including our own track record shows that we have seen plenty of challenges over our history, and we’ll continue to see them.
Starting with semi and the challenges we touched on earlier. You absolutely have to do these advanced processes like stacking. EUV has been a huge challenge, EUV being extreme UV lithography. It was supposed to be in full production by now. It is just starting to get there. So on the front-end side, EUV deployment has been a massive challenge for the industry and on the back-end or mid-end side, stacking, all of these various advanced packaging technologies that are being deployed right now, driven by the performance needs, create a massive amount of challenges for people who are putting these processes together and controlling the processes. That leads to challenges for companies like us who have to design inspection and metrology equipment, to monitor those processes and make sure we are giving accurate feedback so the processes can be dialed in for perfection. There are massive challenges in the kinds of technologies that are being deployed in both front and back-end, along with people like us who have to inspect those processes and provide continuous feedback.
Probably the biggest challenge, as I said, on the front-end is EUV.
On the back-end it is probably stacking, but there are plenty of other challenges that are driving the semiconductor industry. Not to mention, and that this is getting headline news all over the world right now. Chips are in severe short supply as you can see just about every day the news right now. The cost to put a new fab in is as high as 15 to $20 billion. Even if you had the money, it takes you two to three years from the day you make the decision, to get your production in a decent form, with decent yield and decent productivity, so it’s a long time span. It is an expensive business proposal, and not too many places in the world can afford to invest that kind of money. That is why you see governments, including our government here, getting involved now, because chips are the heart of many, many things in the future, including national security related devices, and suddenly the awakening has come to some extent that if you want to control your future, you do need to control your own chip technology if you will.
You are seeing more investments being dialed in right now in different parts of the world, including the US. That is a challenge by itself. I mean it is not trivial. The financial industry loves some businesses where the ROI is obvious, where you say I invest x and I will deliver x plus 10% or 20% next year or two years from now. Even though they like to say they are long-term oriented in the chip world, in semi world, we are dealing with really long term horizons. The ROI has to be done on a five-year or ten-year or even a twenty-year basis, not a one, two, or three year. Unfortunately, the chip industry to some extent has suffered because of that. That is a challenge. If you go to the financial world, the investor world, and for capitalism there is need to go there to get money, they have historically not been good for the chip industry, if you notice. They have been very reluctant to loan money to semiconductor companies, because they see long time horizons, they see cyclicality’s in the marketplace. Those are all challenges. So as an industry, we have many challenges. I would say there are technical challenges, there are financial challenges, and there are policy challenges at a government level, to convince them why they should be doing investments in these kinds of industries. So hopefully that answered a little bit of about your question about the kinds of challenges we are seeing at the semiconductor industry level.
MK: I think in the semi world that if you make a decision to open a new foundry, you are probably going through one or two economic cycles before you produce your first chip out the other side. I can see why investors stay away. What about the surface mount world, the actual electronic assembly world. Any unique challenges there?
SK: Again, the semiconductor industry gets closely coupled with the electronics industry, as you said earlier, and even though there are different industries, they are definitely linked. So some of the challenges in the semiconductor industry flow to the SMT side, although there are differences. Clearly it does not take the kind of investment to put SMT lines together as it takes for a foundry, if you will. At the same time, some of the challenges I mentioned like advanced packaging challenges that are happening in the backend area right now with stacking, fan in and fan out, those kinds of processes. They are creating significant challenges for the SMT industry. What was a conventional PCB with discrete devices and chips where you could see most of the things either with optical technologies or with X-ray technologies are no longer sufficient. The stacking creates unique structures. There are heterogeneous materials that are being used that create unique challenges both for optical as well as X-ray or whatever. Even EBEAM types of solutions that are being used sometimes. We need to be inspecting very difficult kinds of parts, and try to make sense out of those inspections.
Our job at the end of the day, is to improve our customer’s yield and productivity. We have to give them valuable feedback so that they can control their processes better. If it is difficult to look at the data, because of the structures, it just makes our job challenging. Just like any other part of the economic cycle, the SMT industry has its own ROI to worry about. The lines are getting expensive, clearly, with all these complicated parts, whether it is a pick and place machine or an inspection machine. It was not too long ago that you could actually put an assembly line together for a couple of million dollars, if you will. Now with the complexities in those structures, and all the peripheral equipment that goes on the line, you are talking two or three times that price tag today than what used to be a decade ago. It is becoming a challenge for the SMT industry to invest in those kinds of lines to make sure that they can meet their customers’ requirements. That is where the industry has moved and will continue to move. I do not think they are ever going back to what used to be the situation. Flex circuits are here, advanced packages are here to stay. Those things are not going back, they are just going to get more and more complex as we go forward. Certainly, there are a lot of challenges in the assembly industry today, and they will continue to grow. But they are different than the semiconductor industry challenges.
MK: I think that the cost of a surface mount line, as you said, certainly has risen. It is expensive if we only look at that aspect. If we compare it to the semiconductor world, it it’s cheap. $20 billion to open a semi plant and 2 or $3 million to put a surface mount line in seems like a bargain.
SK: Fair enough, but you have to remember that for every foundry that is manufacturing wafers out there, you need 1000’s of SMT lines to keep up with them.
MK: That is true, maybe even more expensive. Do we inspect because the technology exists, or does the technology exist because we have an increased need for inspection? What is driving the need for all this?
SK: I am absolutely sure it’s the latter. Which is, the technology has always been around. Inspection gets implemented only because there is a need. Whether it is a semiconductor customer or an SMT customer says I want to implement inspection technology because this brand new technology exists. Inspection at the end of the day is a tax on their productivity. It is going to cost you something to implement inspection, and more in-line inspection means more cost. That just goes without saying because you’re buying equipment, and you have to have some labor associated with it. Even though most of the inspection is automated, you still need some labor involved periodically. There is a cost to injecting inspection in anything. At the same time, they are doing an ROI on what is the cost of not injecting inspection. If the ROI is good, they implement inspection and in-line inspection, then that is where people like us step in. Invariably, we never are called in because we have a new shiny object that they love. We are called because their processes are complex, they are having a tough time controlling the processes, their yield is a problem, or their productivity is a problem. They need inspection to help them with those problems. That is invariably the way we are pulled into the picture. It has been that way for a few years, and I suspect it will continue to be that way. The one thing that has changed, as you have mentioned, is what used to be a simple microscope or metrology lab in the corner somewhere where you periodically took your part and to make sure everything was okay. The attitude has changed quite a bit. Given the complexity of the products and processes. Sophisticated manufacturers, I would say, accept the fact that you are going to need in-line inspection. You do need periodic feedback to maximize your productivity and yield. People are much more open to talk about what the in-line inspection needs are today than what it used to be several years ago, and certainly several decades ago.
MK: Excellent. Switching subjects, there is a term that CyberOptics uses, I don’t know if it’s a CyberOptics term or if it’s an industry term that I’m just ignorant of, but ‘hero products’. That would be your SQ platform, WX platform, things like that. How does CyberOptics address the needs within those particular product lines and tell me what ‘hero products’ means?
SK: I believe the term is generically used in the industry. Certainly in companies that are developing some kind of gadgets, if you will, most companies have their ‘hero products’, or maybe their word may be different internally. The concept is the same. It is the key products that are driving your current results and will continue to drive your results for the next two to three years. That is the way we are using it. In our domain right now we have two or three key hero products. One is the SQ3000™ Multi-Function system. It can do SPI, it can do AOI, but it can also do CMM, coordinate measurements. We can do all three processes on the same machine with a flip of a software switch. It can go from a solder paste inspection, to automated optical inspection, to being a coordinate measurement machine. This is a key product that is driving our current financials, and will continue to drive our financials for the next three to five years.
Another one is MX3000™, which is our memory module inspection system that is being used by both DRAM and NAND manufacturers right now as a final vision inspection system. That is driving their yields and productivity right now.
WX3000™ is a new system that we just launched. It will be a hero product in the future. As of today, we are still demoing it to many customers. The system is used for wafer level inspection and metrology for things like bumps and pillars.
We have other hero products in our WaferSense® category, like the Auto Resistance Sensor™ and In-Line Particle Sensor™, (IPS) is what we call it. It’s an in-line in-situ particle-monitoring product. The IPS can be installed in pumping systems of EUV lithographic systems in the front end of semiconductor fabs, and continuously monitors the particle counter and it bins the particles in different buckets, and it is reporting the GL particle count. Right now, what happens without that product is if there is a particle surge, your EUV system goes down and then you have to flush it with the argon or nitrogen, and that can take several hours. These are extremely expensive systems. The cost of a typical EUV system is $130 million apiece right now. Even a few hours of downtime can be catastrophic for the manufacturer. Our IPS product is essentially monitoring particles and then informing an engineer that the particle count is drifting, so they can do periodic flushes to avoid several hours of downtime by having a couple of minutes of flushing every x hours. That is a huge value to them.
The SQ3000, MX3000, WaferSense, and In-Line Particle Sensor are some of the key products that are driving our results, and we expect the WX3000 system to add to our results, but I like to view them in technology buckets. Maybe it’s my technical background that makes me think along those lines. Most of the products that we are selling today which are driving our results, are put into what we call the MRS bucket, the Multi-Reflection Suppression 3D sensing technology we use. So, they are all tied with the kind of sensor we use. The other is the WaferSense bucket, which is where we are doing in-situ diagnostics, by choosing extremely small sensors, and coupling it with a lithium ion battery, and a Wi-Fi or Bluetooth to make them capable of doing in-situ diagnostics. So, the two buckets, MRS and WaferSense, are really the hero categories for us, and will continue to be for the foreseeable future.
MK: Interesting. So let us switch subjects again and talk about pandemics, shall we. No one saw that coming. Clearly, if you were investing in a fab business two months before March of 2020, which hit everyone by surprise. Particularly that industry and every industry for that matter. How has CyberOptics been doing, relative to the pandemic? I am sure that you know travel kind of came to a stop, I do not know if travel is a big part of your model. How has the pandemic affected CyberOptics and how have you managed to trudge through all of the challenges that a once in 100 year global pandemic can bring?
SK: Overall, we have done very well to manage through the pandemic. Starting with the employees. I mean, it has been a challenge for about every company that has people, obviously where you have to follow the protocols as carefully as you can. We have two big areas of where we have people. One is the Twin Cities in Minnesota, and another is Singapore. We are fortunate that are our governments have done a reasonably good job both in Minnesota, as well as in Singapore where we have manufacturing. Policies like masking and social distancing were generally practiced quickly in our local population, and we have followed the local laws and protocols. We try to do over and above what the local leaderships are telling us. We have been very careful with how we have managed our employees because our factories have been running nonstop throughout this period. We have had a few COVID cases unfortunately, but we have kept the number of cases down to where you can count them on one hand because of the policies that are in place. We have been fortunate in how we have been able to respond and address any cases quickly.
On the business front, we have done very well. Part of it is, and maybe some are arguing that COVID did not really change anything per se, but it accelerated trends in technology. Things that were already happening, whether it was IoT, or 5g, or cloud, or many of the trends that we talked earlier about was already in place, and it was shifting towards that anyway. But COVID pulled in a lot of that stuff, partly because many of us, instead of traveling, we started working from home. We needed better bandwidth at home; we needed better gadgets at home. Most of us have essentially replicated our office setup at home right now. So a year ago, or a year and a half ago, my home had some basic stuff that I could use to function remotely. Right now, my home is pretty much a replica of my office. Clearly, that meant buying a lot of gadgets and bandwidth and stuff like that. I am not an exception. I believe many of us have done the same, and that has driven extremely high demand for semiconductor chips. So overall, if you say ‘what has COVID done to the industry’, I would argue that COVID has grown the semiconductor industry and demand, and that has followed now into electronics. Budgets that were being spent on discretionary things like travel and stuff like that are coming towards this industry, to our industry. If anything, semi cap posted a good growth last year, about 15% I believe was the final number for semi cap in 2020. You look at the global economy that declined in 2020 because of COVID and many sectors in the economy, like retail, and airlines and so on, were hammered pretty bad. But in that climate, semi cap actually posted a 15% growth, right? I mean, that is very unusual. I think COVID may have shifted dollars towards semi to some extent, and it is continuing. For 2021, now that the books are closed, I would not be surprised if semi cap shows 20 plus percent, and maybe even the 25 plus percent growth. Time will tell exactly how different industries got impacted by COVID, but I am pretty sure semiconductor and electronics has overall benefited because of some of the things that the pandemic has done to us.
MK: Completely agree. We manufacturer capital equipment for the assembly space. It has been a very good year and we have been very blessed. It is tragic how certain segments of the market, you mentioned airlines, hospitality, things like that, you know, were just decimated and other industries blossomed because of the pandemic. I think one of the takeaways is, as a business owner looking back at the chart of accounts, which I like to do at least once a year. In seeing historically travel, travel, travel, travel, and then 2020, no travel expenses. We still managed to communicate with customers. We still managed to provide service, we still managed to provide training, we still managed to produce educational content. We did not have to sit on an airplane and in a car, in a hotel room, etc. We were able to maintain a pretty high quality of life at home with our families, and we didn’t skip a beat. I think there is going to be a lesson after the pandemic for every company in that is all that travel really necessary. Is every trade show really necessary? Does every symposium have to be in person? I think this may continue.
SK: I agree with you, things have changed. Some people have said, “When will the pre pandemic days be coming back?” I think they will be back in some form or shape, but it will not be exactly the same. I think many of us are, or have gotten used to a new norm now. Some of the things are actually good about it, right? I mean, there is a real value in not having to travel and sit in congested flights, and taxis.
MK: All the road warrior stuff. Yes, exactly.
SK: Yeah. I think airlines are seeing exactly that. I believe they are seeing the consumer back for personal travel, but they are not seeing business travel pick up again. Many of them are afraid now that it is not coming back for at least three or four years. I think similar stuff is happening in many other industries, some for good.
MK: Yeah, many for good. As much tragedy as there is and none of these advantages are worth one human life, there are definite silver linings from this pandemic. I think the biggest thing that companies have learned and I am sure you are among those, is when employees stay home, they actually get work done. Everyone was always concerned about all the inefficiencies of being home; taking care of the dog, getting the mail, watching TV, whatever distracts you. But it turns out, there are probably more distractions at the office place within a cubicle environment as people are walking by, coffee breaks and chit chat, all that stuff, and it turns out you can get a lot of stuff done at home when you’re not surrounded by a bunch of coworkers. Right?
SK: Right. I mean, we have been blessed to be to be having all the devices that we have, again, around us to enable that stuff. Most of our systems, because they are complex, you need to send an engineer or two, for install and training. When the pandemic started, we went remote, as you can imagine. We were shipping the systems, but our engineers were virtually helping install and train. I thought it was not going to work. Not only did it work, but now customers love it because they can literally be anywhere and the engineer can be in any other part of the world. We take over the system through remote desktop, linkages and similar applications, where it becomes so much more efficient than actually standing next to the person and trying to drive the mouse. Now both of them can drive on the same virtual screen. If anything, it has improved the quality of installation and training than what it used to be. It was an eye opener for myself that yes, going remote was actually really, really good.
MK: Yeah, I totally agree. Let us wrap up with this question. Reach into your back pocket, pull out your Subodh Kulkarni crystal ball, and let us see your fortune telling skills. What is the outlook for the future? Not just within the inspection industry, but the electronic/ semi industry in general. In addition, what is next in the CyberOptics world that you can talk about?
SK: I am an optimist by nature, you need to be, to be in our industry and high tech world. Because there are many years that things do not look that good, and you have to go through them, plow through them, so I am an optimist. I do believe semi and electronics are well poised for the next decade or so. I’m not the only one saying that, there are many other people saying that as well. There are some real genuine, factual data points to support that statement. You look at how much the industry has grown in this year, or last year, and expectations for growth are continuing for the next three to five years, at least and maybe the next decade or so. I’m very optimistic about the whole industry in general.
Certainly when it comes to CyberOptics, where I have more control, we are very optimistic about our future. We actually have outdone the market for the last five years or so. If you look at our actual financials, we have done better than what semi and electronics as a whole have done this year.
Last year, we grew about 18%. This year analysts are expecting us to grow about 30% or so. Next year, we do not put out forward guidance, but clearly, given the backdrop of the industry, we expect us to continue to grow profitably for the next decade or so. I feel very good about how as a company we have done financially, but financial is just one part of it. I look at the morale of employees; I look at our employee headcount, the diversity among employees. I believe we are firing on multiple cylinders at the same time. Our headcount is increasing, our diversity is increasing, I feel we are better integrated with our broader society at large, if you will, and moving in the right direction. Not only as the whole semi electronics industry, but also certainly as a company. I am very optimistic about the next few years here.
MK: Excellent. You know, there are people who are not in business that do not understand this, but growth is challenging. Growth has a unique set of challenges, probably even greater than negative growth. If a company is if a company is contracting, its cash flow actually gets a little better, right, because they’re not investing all that cash into growth and growth is, I find extremely challenging, particularly too much growth. To be able to, in a pandemic environment, to manage a double-digit growth really says a lot about the company and the leadership of that company. As I said earlier, just a unique challenge on its own. So anything new coming out of CyberOptics? You do not have to get into too much specificity. Are there new avenues? Are there new market segments that you are looking to get into?
SK: We always look at getting into new market areas, and where we could take our technologies. For the foreseeable future, expect us to continue to innovate in the two technology buckets that we already have well established, MRS and WaferSense. Continue to expect us to innovate and come up with new technologies and products within those two buckets, again, primarily servicing the semi and electronics markets. Right now, as you correctly pointed out, we are going through double-digit growth for a few years now, and we expect that to continue. It is a challenge. It is a challenge I am gladly embracing. I would rather have that challenge than negative growth, but it is a challenge. Working capital is always a challenge. You have to watch out for double-digit growth because it creates its own set of issues. To be honest, we look at acquisition opportunities and we have plenty of cash on our balance sheet as a company. We look at getting into new vertical markets. I am refraining from doing either of those just because we are experiencing double digit, solid double digit growth in the two markets we are in and we don’t want to mis-execute and miss those opportunities. So for the foreseeable future, expect us to continue to focus on and invest heavily in MRS and WaferSense for semi and electronics. If there is a good opportunity that comes along the way we will obviously take a look at it, but that’s not what we are counting on.
MK: Very good. Dr. Subodh Kulkarni, CEO, CyberOptics, thank you so much for being my guest today. I really appreciate your time.
SK: Thank you, Mike. Appreciate the opportunity.
Statements regarding the Company’s anticipated performance are forward-looking and therefore involve risks and uncertainties, including but not limited to: a possible worldwide recession or depression resulting from the economic consequences of the COVID-19 pandemic; the negative effect on our revenue and operating results of the COVID-19 crisis on our customers and suppliers and the global supply chain; market conditions in the global SMT and semiconductor capital equipment industries; trade relations between the United States and China and other countries; the timing of orders and shipments of our products, particularly our 3D MRS SQ3000 Multi-Function systems and MX systems for memory module inspection; increasing price competition and price pressure on our product sales, particularly our SMT systems; the level of orders from our OEM customers; the availability of parts required to meet customer orders; unanticipated product development challenges; the effect of world events on our sales, the majority of which are from foreign customers; rapid changes in technology in the electronics and semiconductor markets; product introductions and pricing by our competitors; the success of our 3D technology initiatives; the market acceptance of our SQ3000 Multi-Function systems and products for semiconductor inspection and metrology; costly and time consuming litigation with third parties related to intellectual property infringement; the negative impact on our customers and suppliers due to past and future terrorist threats and attacks and any acts of war; the impact of the MX3000 orders on our consolidated gross margin percentage in any future period; risks related to cancellation or renegotiation of orders we have received; and other factors set forth in the Company’s filings with the Securities and Exchange Commission.