Uniroyal lowers outlook as it builds for the future

By KYLE PARKS

© St. Petersburg Times, published July 4, 2000

TAMPA -- At Uniroyal Technology Corp.'s new plant in Tampa's Sabal Park, workers run million-dollar production chambers around the clock, cranking out state-of-the-art light-emitting diode chips, or LEDs.

This is no simple process. As 80 layers of gases are added to the semiconductor chips -- each layer so thin it can only be measured in atoms -- technicians monitor 150 different points of the process.

"The testing is done all along the way," said George Zulanas, chief financial officer of Sarasota-based Uniroyal Technology. "And in terms of tweaking the machines, some of that will go on until the end of time."

Wall Street isn't willing to wait that long.

Uniroyal Technology's stock price has fallen 66 percent in the past four months, and last week two analysts downgraded their ratings on the company, an offshoot of the old tiremaker.

The reason: Uniroyal badly underestimated how many LED chips it would be able to make this year.

The company's changing projections have sent the stock on a roller-coaster ride. From about $4 a share in November, it rose to $36 in February. Then, as investors got nervous, it fell to $18 a month ago. Even though it rallied a bit Monday, it closed at $11.94, up 88 cents.

The situation shows it can be tough for technology companies to predict how new production processes will work. Uniroyal faces steep challenges because it's moving cold into a high-tech business with top executives whose backgrounds are in investment banking and juicemaking.

Uniroyal's success is important for the Tampa Bay area. It's a foray into cutting-edge technology, and success would help the area's campaign for credibility as a high-tech center.

Analysts had assumed Uniroyal would bring in $40-million this fiscal year from LEDs, which are used in everything from auto taillights to scoreboards. Instead, the company now expects LED revenues in the $20-million to $30-million range for its fiscal year, which ends in October.

"We were just overly aggressive in our expectations," said Uniroyal's Zulanas. The company started LED production nine months ago and once expected to work out the kinks by this summer; now, the goal is November or December.

The good news for the company? Wall Street is still bullish on Uniroyal's long-term prospects.

The demand for LEDs, which emit light when given an electrical charge, far exceeds the supply. Uniroyal is flush with $75-million in cash, thanks to the sale of its plastics business. And analysts see the production issues as short-term challenges.

"This is a tough technology," said John Lau, an analyst with Wit Soundview, a Stamford, Conn., firm. He downgraded the stock to a "buy" from a "strong buy" June 26. "That's the reason everybody's uncle and mother aren't jumping into this thing."

Fewer than 10 U.S. companies make LEDs, which require millions of dollars in start-up capital -- Uniroyal has spent $50-million already -- and a highly trained staff. By September, Uniroyal expects to have five machines making chips. By April, it plans to have nine, and by the time it finishes building out its 77,000 square feet of space, it will have as many as 15. Each machine costs about $1.25-million.

"Having a lot of cash helps them, there's no doubt," said Lincoln Werden, an analyst with H.G. Wellington in New York. "If they were growing with borrowed money, it would make people much more nervous."

Werden downgraded his recommendation to "hold" from "buy" last Tuesday. But he and Lau think Uniroyal can solve the problems by the end of the year.

"This is going to be a case of deferred gratification," said Werden, who expects Uniroyal to have a loss of $3-million to $4-million this fiscal year. Analysts had expected the company to break even.

Uniroyal's Zulanas, who's comfortable with the analysts' new estimates, shrugs off questions about what the company could have done differently. One of Uniroyal's competitors, Cree Inc., has been at this since 1989, said Zulanas, who came to the company with president Bob Soran from Tropicana Products Inc.

"We have customers saying, "Give me anything you've got,' " he said, "but we want to make sure the product is of a quality that can build long-term relationships."

That demand isn't going to go away, because the LED market is projected to grow 25 percent a year through 2003. The appeal: LEDs last as long as 100,000 hours compared with 2,000 for traditional light bulbs, and use one-tenth the power.

So for the next few months, Uniroyal employees donned in white suits in the facility's "clean rooms" will keep doing the painstaking work of improving the reactors' performance. It takes a full eight-hour shift to run a batch of the chips, "and if the testing shows something isn't proper, you just have to start again," Zulanas said.

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