Polatechno Acquires Moxtek

January 2004

In a move we see as aiding the development of the projection supply chain, Polatechno Co. (Tokyo, Japan) (PLC) (www.polatechno.co.jp) will acquire Moxtek Inc. (Orem, UT) (www.moxtek.com) by the end of January, if approved by Moxtek shareholders. Polatechno is a subsidiary of Nippon Kayaku Co. and makes polymer-based polarizers for LCDs, including projection systems. Moxtek is the sole developer of a wire-grid polarizer (WGP) technology for polarization control and beamsplitters.

The WGP offers high performance and high-temperature operation for polarization control and for beamsplitters - a feature that is important in projection systems. It is gaining wide acceptance as a pre-polarizer in LCD projection systems, especially systems that output over about 2000 lumens. And, it is gaining design wins in LCOS-based RPTVs, where the beamsplitter components can produce a high-performance optical core.

The two companies have worked together for a while, with Polatechno acting as a production and distribution partner for the WGP components in Japan and China. The two companies will now merge to form a new wholly owned subsidiary that will retain the Moxtek name, as well as company personnel and facilities in Orem, Utah. The value of the deal was not disclosed.

Moxtek also makes components for industrial X-ray analysis equipment parts. "We are excited about the significant technology which Moxtek has in the analytical instrumentation field," said Sanji Arisawa, chairman of PLC. "We are very impressed with their new products in handheld instrumentation and the environmental market, as well as the traditional measurement markets served by Moxtek's foundation products. We think that the combination of these two leading-edge technologies positions PLC to be a world leader in the analytical instrumentation field," concluded Dr. Arisawa.

Moxtek was founded in 1986 and has had only one investor (in 1993). For four of the past five years, Moxtek has achieved double-digit growth while maintaining profitability. Over the last year, it reported about $9.4M in sales and has about 60 employees.

Polatechno was established in July 1991 as a joint venture between Nippon Kayaku Co., Ltd and Arisawa Manufacturing Co., Ltd. PLC has developed specialized polarizers for LCD projector applications optimized for R, G and B channels, respectively. Front and rear LCD projectors require retarders as well as polarizers in order to increase contrast and compensate for optical drawbacks. PLC has more than 70% market segment share in this application.

PLC represents ColorLink Japan in distributing its products in Asia. ColorLink Japan is a joint venture between ColorLink (Boulder, Colorado) and Arisawa Manufacturing. The ColorLink color management system is expected to play a significant role in the LCOS display area.

Arisawa makes Fresnel screens for CRT-RPTVs and has about a 50% global market share. It has nearly a 100% market share for the A/R coating used on acrylic RPTV screens.

The acquisition of Moxtek will expand PLC's leadership in polarization components used in business presentation and home entertainment systems, as well as in Moxtek's industrial market segment. As a result, Polatechno hopes to boost polarizer sales to Y15B in fiscal 2007, up from a projected Y10B in fiscal 2003.

With the new corporate structure, Moxtek will have access to the capital it needs to expand capacity to meet growing demand. Currently it is using about one-third of its established capacity, which netted about $3.4M in polarizer component sales in 2003. Most Japanese LCD projector companies are sampling or using these components in projectors already, with LCOS applications starting to heat up. After 2004, Moxtek expects it will need to add more capacity.

Over the next few months, Moxtek and PLC will be planning this capacity expansion. This will involve the purchase of etchers, coaters and patterning equipment. The new equipment will likely be chosen to handle 8-inch wafers instead of the 6-inch wafers used in the current foundry. The cost of this expansion to double capacity is in the $5 to $10M range. Moxtek president and CEO Glen Stewart says this manufacturing can be done in the US, and done profitably.