This is ‘very much a profitable thing for Faro’
LAKE MARY, Fla. – Faro bought its way into the laser-scanning marketplace with the purchase of iQvolution for $4 million in cash and $8 million in stock in 2005. At the time, iQvolution had $7.5 million annually in scanner sales.
Seven years later, Faro CEO Jay Freeland wouldn’t be specific about what scanner sales are now, but he reports that the Focus3D, unveiled to some fanfare in October of 2010, is now the second-leading generator of sales for Faro, behind only the Faro Arm laser measurement system. Correlate that information with Faro’s most recent SEC filings of $109 million in product sales for the first six months of 2012 and you can see that Faro has done its share to grow the laser-scanning marketplace in that time.
(Further, if you look at the Faro share price of $23 on the day the iQvolution deal was announced, versus its current price of $42 today, it would seem the deal worked out for everyone.)
Recently, on the Friday before Labor Day weekend, Faro announced its latest big move in the marketplace, an OEM deal with Trimble that will see a Focus3D in Trimble colors for sale in the near future.
In essence, said Freeland in a phone interview, Trimble will become Faro’s sales force in the construction and survey verticals: “We don’t intend to sell direct in those spaces with our guys.”
Trimble distributors were already carrying the Focus3D, Freelance said, and with the construction and survey spaces being new to Faro as a company, when Trimble started showing interest in a private-label unit, “we said, ‘You know, this is a good opportunity for us.’” (See Trimble’s comments on the deal here.)
He further cited Trimble’s mindset as a company, looking to democratize scanning technology and push 3D into the mainstream, as a good fit with Faro’s.
But can Faro make a profit with an OEM deal for the Focus3D, when many in the industry already can’t understand how the company can sell the scanner so inexpensively?
“Very much so,” said Freeland, “it’s very much a profitable thing for Faro. Any time we sold through distribution, we were already taking a discount off the topline, and this isn’t tremendously different from what we were doing in the marketplace anyway. It may affect our gross margin a little bit, but the volume increase should be fairly substantial.”
In the short term, Freeland can envision a world where Trimble sells more Faro scanners than Faro does, even as he believes Faro currently sells more laser scanners than any other manufacturer in the market. “If you look at the second quarter results,” he said, “we sold 57 percent through distribution, and 43 percent through direct sales. So, just by the sheer presence of the number of distributors, it’s far greater than our account managers, so in the near term you’d expect that trend to continue.”
He also elaborated on what Trimble’s “differentiated” Focus3D would look like. “You’ll have Trimble colors,” he said, “on the housing, the shell, similar to the rest of their scanning portfolio, and that’s part of their brand.” However, he said, “there will be elements related to the software, which will be related to Scene, but with a Trimble flair, and that will be familiar to those people who are already using their software. That’s an area of expertise that they have, and it will allow them to differentiate the product a little bit.”
Of course, not all distributors are Trimble resellers. Topcon signed a distribution deal with Faro in Europe this past spring, and Freeland said that would continue. “There will be incidents where a Trimble Faro unit will be going head to head with a Faro unit being sold by Topcon,” he acknowledged. “Both sides are comfortable with that.”
At many events, there may be a Faro Focus3D being displayed right across the aisle from a Trimble Focus3D (they haven’t announced what they’ll call it). It already happens with Surphaser and Trimble – and with Leica and Z+F for that matter.
How does this jibe with Faro’s aggressive marketing plan? Won’t they effectively be selling against themselves? “We’re still going to be marketing ourselves,” Freeland said, “that’s something we enjoy doing … When you look at it from our perspective, it’s hard to imagine the scanner being TOO available.”
However, the Faro team will definitely focus where Trimble is not as traditionally strong – places like the forensics market, entertainment and gaming, historical preservation, and other applications that aren’t directly descended from the survey profession.
It’s possible, too, said Freeland, that Faro could do a similar OEM deal with another company if it helped them attack a market where they lack penetration. “There might be another logical partner where it wouldn’t overlap with the Trimble agreement at all,” he said.
Finally, what does this OEM deal do to Faro’s product development? Almost 24 months in, should the market expect a version 2.0 or some other update soon? “We always feel that pressure [to continue to innovate],” Freeland said. “I’m a firm believer that if you don’t disrupt yourself, someone else will find a way to do it. People will not be surprised to know that we’re looking at subsequent generations of the Focus right now. They are clearly in the works. I just won’t say when.”
