Scitex spinoff Aprion Digital is aiming high and believes that its parent company stands to profit, no matter what. Aprion CEO the ExScite Miki Nagler says: “We don’t compete with any other Scitex companies. We’re friends with all of them. It’s unnatural for a country to protect local industry with high customs duties, because it will harm local industry in the long run. In the same way, we believe the development of a company with basic technology of value for its potential customers shouldn’t be stopped it because you think it might later conflict with someone else. I believe that Scitex looks at it this way, and the proof is that we’re here, with strong backing from Scitex.”
Bank Hapoalim economists estimated Aprion’s value had fallen to $46M from $100M in 2001.
Scitex’s next way to print money
Scitex spinoff Aprion Digital is aiming high, doesn’t think the group’s other companies will get in the way, and believes its parent company stands to profit, no matter what.
Globes, Israel, Gilad Nass 2 May 02 15:25
In answer to a question whether Scitex’s multiple progeny might cause collisions between their various technologies, Aprion Digital president and CEO Dr. Michael (Miki) Nagler includes a swipe at Israel’s trade policy. “We don’t compete with any other Scitex companies. We’re friends with all of them. It’s unnatural for a country to protect local industry with high customs duties, because it will harm local industry in the long run. In the same way, we believe the development of a company with basic technology of value for its potential customers shouldn’t be stopped it because you think it might later conflict with someone else. I believe that Scitex looks at it this way, and the proof is that we’re here, with strong backing from Scitex.”
Nagler’s confidence in the company he manages is also evident when he quotes the company value at which Aprion obtained its investment from Toyo Ink over a year ago – $100 million, before money. He of course prefers not to discuss the current value, although over $25 million has been injected into the company since. In late March this year, before the announcement of IBM (NYSE: IBM) and Hitachi Koki’s most recent investment in the company, Bank Hapoalim economists estimated Aprion’s value had fallen to $46 million, based on Scitex’s results for the fourth quarter of 2001.
Mutual recriminations aside, Aprion believes Scitex’s gamble will hit the jackpot. At the beginning of the 1990s, when the focus in the sector switched to inkjet printing, Scitex understood that its former growth engines could no longer lead it safely into the coming years and began to consider digital printing. Since the company’s expertise was in software and electro-optic systems, without any basis for further development in printing, Scitex decided to use acquisitions to achieve its goal.
The first acquisition was a small company from Boston called Iris Graphics in 1992, whose sales at the time were less than $10 million per year. Nagler, a physicist by training, who had worked at Scitex for 17 years, was appointed vice-president. During his term, connections were made that led in 1993 to the acquisition of an Eastman Kodak division that became Scitex Digital Printing (SDP). The last two acquisitions, Idanit in 1997 and Matan in 1998, were in Israel and provided the basis for Scitex Vision.
The brain behind Aprion was Prof. Amiram Carmon, who originated an idea that Nagler describes as “a fax machine that prints 60 high-resolution pages per minute and costs up to $1,000.” The futuristic (at the time) fax idea did not last long, but with the help of Haggai Karlinski, now Aprion manager for inkjet technology, the technology for the device was used to develop a printer head for Scitex’s future printer. Scitex invested $15 million developing the technology in 1992-1998.
In 1994, Nagler returned to Scitex and was appointed head of its output division, where he recruited Avi Huppert as VP development. In 1996, when Nagler became VP for Scitex’s division for the product, Huppert replaced him as head of the output division, which developed the Lotem product to compete with Creo. Creo later merged with Scitex.
Nagler and Huppert then decided to return to the inkjet idea, which was still floating around in Scitex. They gathered up all the fragments into one venture. Nagler: “In mid-1997, we decided that we had the technology for a real market breakthrough, not just for a 20-30% improvement in the current inkjet technology, in which a great many companies were investing hundreds of millions of dollars.” In late 1998, the team persuaded Scitex management to spin off the venture from the parent company in order to raise external capital for further development. The spinoff was named Aprion Digital, after the month of April, in which the initial decision on independent activity was taken.
Aprion develops industrial inkjet printing technology, and plans to offer drop on demand. The company asserts that the technology will facilitate printing on a variety of materials, from ordinary paper to corrugated cardboard and vinyl sheets. The printed pictures have long-term resistance to environmental damage, as required for billboards.
Aprion originally planned to develop printer heads only, but later discovered that combining the heads with special ink yields even better results. 60 printing head and ink patents to date have either been approved or are in the pipeline. Profits from ink development and sales are more substantial than from printer heads; as everyone with a home printer knows, the ink is the biggest cost in the long run. Aprion plans to sell the printers at $350,000-700,000 each, while revenue from the ink will amount to hundreds of thousands of dollars per machine, per year.
At the heart of Aprion’s technology is a sort of absorbent material in which the holes are randomly distributed, that the company manufactures. The material, contained within the printer head, is responsible for two results. The moment the ink is pressed out of the dropper, the material’s absorbent structure expedites more rapid reloading of the printer head from several directions simultaneously, for producing the next drop. In addition, when the tail end of the drop is about to be separated by gravity from the rest of the drop, it is sucked back into the ink container, and the structure of the material prevents it from re-entering the chamber. According to Aprion, the greater speed of the ink in entering and exiting makes possible higher printing speeds in practice – currently 160 sq.m. per hour, at a resolution of 600 DPI (drops per inch)
Using its own applications, Aprion has now achieved a drop size of 20-30 picoliters (a millionth of a millionth of a liter). Nagler explains, however, that the basic technology is capable of producing either larger or smaller drops, as required. According to Huppert, currently general manager and executive VP, the fact that Aprion’s ink is based on water, not the industry’s usual oil base (used by NUR Macroprinters (Nasdaq: NURM) and Scitex Vision) enables to company to benefit from environmental chic. This is particularly true of many regions in Japan and Germany, where there is a trend towards more environmentally friendly products.
On the face of it, the link Aprion has created between the printer head and the ink itself should make customers wary of a long-term commitment. Aprion is a young company liable to get into financial hot water more quickly than an established firm. In addition, it might be assumed that such a connection between the machine and the proprietary ink it uses would lead customers to seek an alternative more tolerant of other types of ink.
Nagler admits this is a problem that the company has discussed. He believes, however, that if the price of the ink enables the customer to guarantee reasonable profit margins in his business, while the ink’s advantages justify that price, “The customer will think 17 times before seeking out alternatives.” Even the possibility that the alternative ink industry, which is gaining momentum in the home printer sector, could muscle in on his market does not disturb Nagler. He responds, “I have a home printer, and every time I go to buy a printer head, I feel ill over having to pay, relatively speaking, $1,000 per liter. I know how much ink costs them in my business, and it’s certainly nowhere near that price. Nevertheless, I prefer to buy the original ink. I’m not going to take a risk for a 20% saving. Furthermore, I don’t think a customer buying a printer for hundreds of thousands of dollars will take even the smallest risk that a different kind of ink could cause damage, just in order to save money.”
Aprion’s business model resembles that of Indigo, which Nagler is careful to praise (perhaps hinting at a future exit of a nature similar to that of Indigo’s). The model is based on developing printer head and ink technology, building technology-based components, and selling the components to its customers. Nagler says he would have chosen this model, which requires a lot of investment in development and manufacturing, even without backing from Scitex. “Scitex has had organic development for seven years, but there are examples of companies that began independently and were successful with this kind of business model: Indigo, Optrotech, Orbot, and Elscint (NYSE: ELT).”
Aprion has 150 employees in its three-storey building in Netanya. The building contains its printer head manufacturing facility, which produces 20,000 printer heads a year, and its assembly plant, which is designed to produce up to 100 printers a year in the future. An ink factory has also been set up in Beer Tuvia with a payroll of five, which is capable of manufacturing 3,000 tons of ink yearly.
The company is confident that digital printing will eventually replace conventional printing, even though fulfillment of this vision may take decades. They are encouraged by the industry belief that a substantial share of the market will go digital as early as the next few years. Nagler believes Aprion’s big market breakthrough will be achieved through deals like the recent ones with IBM and Hitachi Koki, which also investment in Aprion. The company declines to discuss details of the two giants’ contribution to “cooperation”, but describes them as “non-financial investors.” Aprion predicts the technologies will later be included in the future products of IBM and Hitachi Koki, as well as others that have signed as yet unannounced transactions. According to Nagler, these agreements grant the partners certain rights, but there are no significant limitations on Aprion’s future business and no exclusive cooperation agreements with those partners.
Scitex’s three largest competitors are not only large in comparison, but also in absolute terms. German company Heidelberg (HBGRF.PK) is making noises about moving to inkjet printing; Xerox (NYSE: XRX) was rumored to be considering the acquisition of Scitex; Hewlett-Packard’s (NYSE: HWP) inkjet operations are well known. There are also other companies, such as Barco, known mainly for its projectors, Elcorsy of Canada, which has Aprion investors Toyo Ink as one of its shareholders, and British company Xaar (LSE: XAR).
Aprion is now entering package printing, and recently signed a distribution agreement for its printers with Chicago-based company Belcom North America. Scitex Vision is also serving as a distributor for wide-format printing products. Aprion will soon consider whether the time is right to enter the wallpaper printing industry, and is also taking a look at entering textiles by constructing machines for Italian cloth printing equipment manufacturer Reggiani and Swiss ink manufacturer Ciba. For the more distant future, Aprion is talking about products for digital inkjet printing with the speed and quality of offset. The company hopes to reach $100 million in sales within three years.
Nagler calls the reports in the past year of a possible merger between Scitex Vision and NUR Macroprinters, as well as between Scitex Vision and Aprion “press rumors. We discuss various plans with all sorts of concerns every day. Although we have the same parent company as all of Scitex’s’ printing ventures, our agreements with them are do not take into account the link between these concerns. I can’t comment on these rumors, either positively or negatively.
”Where Scitex is concerned, and I also said this at the shareholders meeting, the fact that it is involved with two technologies simultaneously enables it to reach the same point or customer in the future in two different ways. I think it will be to their benefit, no matter what happens.”
Aprion Digital
Spun off from Scitex in 1998.
Location: The Poleg Industrial Zone in Netanya, with an ink factory in Beer Tuvia.
Technology: Digital inkjet technology.
New operations: Developing printer heads and ink for the packing, industry, textiles, and signs.
Financing rounds: $70 million, including $15 million by Scitex before the spinoff, $25 million I the first financing round in 1999, $27 million in 2001, and an undisclosed sum invested by IBM and Hitachi Koki at the beginning of April.
Shareholders: Scitex (43%), Clal Electronics Industries, Discount Investment Corporation, Toyo Ink, IBM, Hitachi Koki, Bank Hapoalim, Israel Infinity Venture Capital Funds, Templeton, and two undisclosed strategic investors.
