Sterling component provider hit by operational difficulties

October 1, 1998

Sterling component provider hit by operational difficultiesDOC issues directive to continue production, howeverSterling Diagnostic Imaging's market introduction of its iiRAD digital radiography systems may have hit an unexpected snag last

Sterling component provider hit by operational difficulties

DOC issues directive to continue production, however

Sterling Diagnostic Imaging's market introduction of its iiRAD digital radiography systems may have hit an unexpected snag last month with an announcement by active-matrix liquid crystal display developer Optical Imaging Systems that it had ceased manufacturing operations. OIS, whose majority shareholder discontinue funding for the company, contributes thin-film transistor arrays to Sterling for its DirectRay technology.

OIS received at least a temporary reprieve shortly after the shutdown announcement when the U.S. Department of Commerce issued a directive requiring the firm to continue operating its TFT array production facilities to meet national defense production requirements. In addition to its contributions to Sterling, OIS is a major component supplier for displays used by several defense contractors, including Boeing, Lockheed Martin, Honeywell, and Allied Signal. Current OIS customers have agreed to fund OIS until another solution for the company is found.

In any event, Sterling has enough TFT arrays to meets its product needs through the end of the year and believes that several hundred arrays are currently in the development process at OIS. The Greenville, SC-based company is working with OIS to confirm the number and production stage of the arrays, as well as to complete as many in-process arrays as possible.

Sterling has not determined what impact a shutdown could have on Sterling's Direct- Ray technology and iiRAD equipment production. That will depend on the number of finished OIS arrays and the time it takes to qualify a new supplier or find another solution, said Ernest Waaser, Sterling COO. In addition, a consortium of OIS customers has made viable offers to purchase certain assets of OIS, and Sterling remains optimistic that a new operator will acquire the assets and continue supply from these facilities, he said.

The U.S. Department of Defense and the Department of Commerce are both actively involved with OIS and its principal customers to find a workable solution, Waaser said.

Meanwhile, Sterling has begun discussions with other companies about potential TFT array supply relationships and is moving to begin the qualification process to ensure that components from these companies meet Sterling's criteria. The qualification process for another supplier typically takes six to 12 months, although Sterling would expedite that process as much as possible, said Jayne Seebach, director of global marketing and communications.

OIS found itself in trouble in February, when the Northville, MI-based company decided to secure additional financing or sell the firm. To that end, the company engaged BancAmerica Robertson Stevens to approach strategic and financial investors, which proved unsuccessful.

In early September, OIS announced that that its majority shareholder, Guardian Industries of Auburn Hills, MI, was seriously considering discontinuing its funding of OIS, and on Sept. 18, OIS shut down its manufacturing operations, laying off approximately 220 employees. The firm was considering dissolution and liquidation of its assets, according to a company release. OIS declined to return calls seeking additional comment.