Candescent delays plant, replaces CEO

Technical problems slow flat-panels

By Jerry Ascierto -- Electronic News, 3/1/1999

The company, which only last fall was touted as this country's best hope of wresting a piece of the booming flat panel display (FPD) market away from Asia, has also laid off about 10 percent of its 400-person workforce.

Candescent attracted widespread publicity in November when it broke ground here on a 340,000-square-foot FPD plant, the largest outside of Asia. With the company backed by $400 million from investors including Sony Corp., luminaries including San Jose's then-Mayor Susan Hammer declared Candescent a new star in Silicon Valley.

But that support is now at risk because of problems with the field emission display (FED) technology the company is hoping to use for its flat panels. "Our development activities are a little behind where we'd like them to be right now," acknowledged David White, the company's chief financial officer, who was named interim chief executive officer about two weeks ago. "We had planned on sampling product at the end of last year but ran into basic delays that were the result of some contamination issues here at our development facility."

As a result, the company has delayed purchasing capital equipment for the new factory, which in November was said to be on track for completion by late this summer. That factory is now scheduled to be finished "sometime around the end of the year," he said. He added that the contamination issues are behind it, and the company hopes to ship its first FPD demos to customers in the next 60 days.

Observers might point out, though, that given the history of difficulties in perfecting the FED technology, those new schedules could slip once again.

Harry Marshall, who was replaced by White as CEO, said he isn't being pushed out. "The transition is being done in an amicable way. It's not a forced situation at all," according to Marshall. He said the company had been looking for a new CEO for about 6 months, but hadn't found the right candidate. Marshall remains chairman of the firm. "I have no intent of going away from the company," he added, saying he would now have the opportunity to focus on financial matters.

A source close to the company, however, said investors who were impatient with the lack of progress were behind Marshall's replacement. That source added that Sony may be backing out of its option to be a manufacturing partner because of fears the technology may not be viable.

While White denied that Sony was wavering, a spokesman for that firm was less positive. Hiro Takahashi, at Sony's offices in Park Ridge, N.J., said the company hadn't exercised its manufacturing option, "which may happen or it may not." Sony is "still feeling the situation out," he added.

Sony last fall had committed $50 million to help commercialize the FED displays. A team of six Sony; engineers have been working in-house with Candescent in the development phase, with parallel programs initiated in Japan, according to Candescent. The companies hope to produce 14-inch displays.

The layoff of 40 part- and full-time employees, from every level of the company, was a routine "trimming of dead weight," according to White, resulting from the delay in building the manufacturing facility.

Last May, in the latest round of financing, Candescent raised $125 million through the sale of senior subordinated convertible debentures. The company has received financial backing from CitiCorp and J.P. Morgan, and entities including Hewlett-Packard, Compaq and the Department of Defense have also supported the firm.

HP, one of the initial investors in the project, had made an offer to acquire the company about 15 months ago. Candescent held firm, seeking to remain an independent company. HP still has priority rights over any output of production, but their initial technology agreement is now coming to an end.

Candescent was born out of Silicon Video, founded in 1991. Its entrance into the flat panel display market, projected to reach $40 billion by next year and dominated by Asian giants such as Hitachi, NEC and Samsung, was deemed risky by many observers at the time. Over 30 U.S. companies are said to have tried, and failed, to eke out a place in that industry.

The principal display standard for mobile computing is active-matrix liquid crystal display, or AMLCD. That technology isn't well suited for fast-moving graphics in portable devices, though. Viewing angles are restrictive, clarity is relatively low, and power consumption is great.

Candescent seeks to develop field emission displays, or FEDs, a technology that employs an emissive approach, not unlike the technology employed by cathode ray tubes, or CRTs. But while CRTs use one electron gun to spray the inside of a large vacuum tube, FEDs use a flat panel, or cathode, with millions of tiny electron emitters. Each of these emitters control a single pixel that is placed directly behind the faceplate.

While CRTs use high-voltage phosphers to provide clear images quickly, FEDs use low-voltage phosphers that require more power to illuminate than a CRT. As a result of the heightened power consumption, FEDs age rapidly. What Candescent hopes to do is engineer an FED with high voltage phosphers.

Candescent has been in the research and development phase for the last six years, and has been showing the same small prototype for several years. David Mentley, a senior display analyst at Stanford Resources, expressed disappointment at the progress Candescent has made. "I as well as a lot of people in the industry have been a little bit disappointed to not see larger samples. I'm still waiting to see a demo other than the 3 or 4 inch one they've been showing for the last couple of years."

If done correctly, FEDs have the potential to offer such features as a wide viewing angle, high brightness and contrast, the same response time as CRTs, the possibility of reduced power consumption, low cost construction and excellent color quality.

Martin Reynolds, a display analyst at Dataquest, commented that most firms seeking to develop high-voltage FEDs, including Motorola, have stumbled. The problems facing this technology are numerous. The alignment between the cathode, the support and the screen must be exact, and once in place, the entire unit must be heated to about 450 degrees Celsius, whereupon any number of things can go wrong.

The company has spent $18 million so far on the factory, which is ultimately projected to cost about $500 million, including equipment. The shell of the plant is scheduled to be up by April, but a construction worker at the site who asked to remain anonymous said that after the shell is completed, a two month "limbo" period will go into effect. He said that the construction has been hampered by numerous delays, mainly regarding permit problems.

But the company claims that their product development must be in synch with the rest of their efforts before they can fully move forward. "Because we're not an Intel or Motorola it's extremely important that those three activities are in synch.with one another and converge at the same time. We're working with three sets of gas pedals and three sets of brakes: product Development, putting up a building and ordering equipment. Those latter two are on schedule. The development is a little bit behind right now so we're modestly slowing down those other activities."

The company's IPO, once scheduled for the fourth quarter of 1997, has been pushed back indefinitely as well. "We ended 1998 with $112 million in cash, so we're not up against any timeframe," White said.