Meade Instruments Corporation

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Meade Instruments Corporation

6001 Oak Canyon
Irvine, California 92618
U.S.A.
Telephone: (949)451-1450
Fax: (949)451-1460
Web site: http://www.meade.com

Public Company
Incorporated: 1972
Employees: 455
Sales: $126.8 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: MEAD
NAIC: 333314 Optical Instrument and Lens Manufacturing

Meade Instruments Corporation is the world’s largest manufacturer of telescopes for serious amateurs and academic astronomers. It designs, manufactures, imports, and distributes a full line of telescopes, telescope accessories, binoculars and other optical products. Its telescope line includes over 50 models in a wide variety of sizes and designs, which include refracting, reflecting and the state-of-the-art Schmidt-Cassegrain telescopes, which range in price from less than $100 to over $15,000. Meade’s computer-controlled telescopes, which are able to locate thousands of celestial objects automatically, have changed the face of amateur astronomy. Meade manufactures its products in two facilities. One is located at its headquarters in Irvine, California, and the other in Tijuana, Mexico. Some telescopes are also produced for Meade by firms under contract in Taiwan. Meade products are sold by over 3000 dealers in the Unites States and Canada, and are further available in more than 30 countries the world over. Meade also produces optical components for fiber optic networks manufactured by TeraBeam Networks Inc.

Modest Beginnings in the Early 1970s

Meade Instruments Corp. was the brainchild of John C. Diebel, an electrical engineer who was trained at the California Institute of Technology and the University of Southern California. In the early 1970s, Diebel was a late twenty-something engineer employed by the Hughes Aircraft Company in a job he quickly grew to dislike. “I was miserable,” he later told Sky & Telescope’s David H. Levy in July 2000. “I’d never held a job before, and I hated working for someone else.” In the fall of 1971, he began browsing the periodicals at the Los Angeles Public Library for business opportunities, and sent out letters to companies that seemed to be good potential candidates. Months passed before Diebel finally received a single response. The Towa Optical Manufacturing Company—a Japanese maker of telescopes—agreed to let Diebel distribute their products in the United States.

The telescope business was a natural match for Diebel. His fervent interest in astronomy dated back to a science class he had taken in the eighth grade. Afterwards, he had read everything he could about the subject, and even built his own 6-inch telescope as a science project. “I ground the mirrors myself,” Diebel recalled to Jerry Hirsch in the September 14, 1997 edition of the Orange County Register. “They were pretty crude, but they worked.” Although the idea of an astronomy-related career had not entered Diebel’s mind at the time, his interest in the topic drew him to astronomy courses offered in college by cosmologist Jesse Greenstein at Cal Tech.

In 1972, armed with his agreement with Towa, the 29-year-old would-be entrepreneur managed to get a loan of $2500 from the credit union at Hughes Aircraft—the bank he asked for $500 credit flatly refused. He ordered $2000 worth of Towa telescopes, got a post office box, and set up business in the kitchen of his small apartment. The name Meade occurred to him after a vacation trip to Lake Mead in Nevada—he added the “e” because he thought it looked better. Finally, he took out an ad in the July 1972 issue of Sky & Telescope —then the only mass magazine targeted at amateur astronomers—offering his line of refracting telescopes at prices ranging in cost from $49 to $235. “It was very slow at first, but within six months I was making about $300 a month,” Diebel told Hirsch. “It was enough to live off of so I quit Hughes Aircraft.” By the end of his first year in business, that little ad had netted Meade Instruments $8000 in sales.

The following year, Diebel moved the company to a warehouse in Costa Mesa, California, where his parents lived. There, his father—a retired furniture store owner—joined Meade to help with the rapidly expanding product line. The elder Diebel was far more than just additional manpower, however. “I didn’t know anything about running a business,” Diebel told Hirsch. “He taught me everything, from preparing financial statements to talking to the bank.” His father remained with Meade until his death in 1988.

Entering his second year of business, Diebel realized that he had tapped into a huge market, not only for telescopes but also for telescope accessories. In 1973 Meade began distributing Orthoscopic and Kellner eyepieces, and then added a line of precision rack and pinion focusers, viewfinders, filters, and camera adapters. The company had uncovered a sizable body of amateur astronomers in the United States whose demands were going unmet. Through Meade, they could purchase items that were difficult to find anywhere else. Meade products were attractive to these buyers because of custom features not usually available in models from other companies. Such features included spring-loaded gearboxes for smoother resolution, and viewfinder eyepieces with wider fields. Astronomy buffs soon flocked to Meade. In 1975, the firm turned a profit of $55,000 on $259,000 in sales, up nearly eight-fold from its first year.

Meanwhile, as Meade handled more and more Towa Optical products, the relationship between the two firms grew closer and closer. In the late 1970s, Diebel actually married the daughter of Towa’s founder.

Astronomical Revolutions at Meade

In 1976, as the result of an unexpectedly high demand for tube assemblies for reflecting telescopes, Diebel shifted the direction of his young company away from distribution and began manufacturing the assemblies at Meade. “We were selling them by the hundreds overnight,” he told Levy.

Later in 1977, Meade released the first telescopes of its own production—the model 628 and 826 six-inch and eight-inch reflecting telescopes. Meade’s product quality and prompt, dependable delivery enabled it to win a large portion of the market in a very short period of time. In 1978, its sales topped $2 million. Success came with a price, however. Although it promised delivery within six to eight weeks, the flood of orders suddenly confronted the firm with a six month backlog. Each customer was written a personal letter explaining the problem and offered a full refund if they wished—an offer few actually took Meade up on. Overtime shifts and extra workers eventually enabled the company to cut the waiting time in half.

By the late 1970s, amateur astronomy was undergoing a remarkable transformation. A radical new type of telescope was introduced—the so-called Schmidt-Cassegrain model, which utilized both mirrors and lenses to produce remarkably high resolution images. Meade threw all of its resources into the development of a Schmidt-Cassegrain for serious amateurs. Three years later, in September 1980, the company announced its first Schmidt-Cassegrain model, the eight-inch 2080.

In 1984 Meade released the LX3, an innovative telescope equipped with an electronic drive system that automatically adjusted the telescope for celestial motion. The company continued to release new models and new accessories, and by 1985, it had surpassed competitor Celestron International as the number one telescope manufacturer in the world. The news came the same year that the famous Halley’s Comet was about to return, an event which unleashed an unprecedented wave of interest in amateur astronomy among the general public and boosted sales even more.

Cataclysmic Days at Meade: The Late 1980s

By 1986 John Diebel and his company were the main stars in the telescope industry. The company employed a staff of about 100 people, and had achieved approximately $13 million in sales. After fourteen years, though, Diebel was ready for a change. “I personally guaranteed all of the company’s notes with the bank, and being a financially conservative person by nature, it grew on me over the years that one mistake and all this work, 14 years, was for nothing,” he told Tim Stevens in the January 15, 2001 edition of Industry Week. “I thought it was time to take on a larger partner.” Thus, he sold Meade for $6.5 million to the Harbor Group, a holding company based in St. Louis, Missouri.

Diebel remained involved as the company president; however, almost from the first day, the new arrangement seemed doomed. No longer his own boss, Diebel felt straitjacketed by the additional paperwork, meetings, and marketing studies required by Harbor. He and Harbor disagreed on how growth at Meade should be managed. Meade R&D suffered under the new bureaucratic management style, as well, and under Harbor new product development soon ceased almost entirely. Finally, in 1988, Diebel left the company. He moved to Hawaii, played golf, consulted Meade a day or two every week, and watched as the fortunes of the company he had founded dipped lower and lower.

Company Perspectives:

Meade Instruments, the world’s largest manufacturer of telescopes for the amateur astronomer, makes over 50 telescope models in a wide range of prices and sizes. Whether you are new to stargazing or an advanced observer looking to do serious astronomical research, Meade has a telescope that is right for you. From the smallest introductory model to the largest computer-controlled observatory instrument, every Meade telescope is made with one purpose in mind: to maximize your long-term enjoyment in the exploration of space and worlds beyond your own.

By the end of the 1980s, the telescope market had reached a saturation point and Meade’s sales were plummeting. In response to the crisis, the Harbor Group decided Meade’s survival depended on a merger with another telescope manufacturer. In July 1990, it announced that Meade would join together with its main competitor, Celestron International—a Torrance, California-based company—to form a new firm which would enjoy about $21 million in annual sales. The next October, however, the Federal Trade Commission (FTC) sought a court injunction to block the merger, which it maintained would create a virtual monopoly in the manufacture and sale of mid-sized Schmidt-Cassegrain telescopes. Eventually in late 1990, the FTC was able to prevent the merger entirely. By the time it did, Meade Instruments was hemorrhaging money—$2 million annually—a full fifth of its revenues. The firm was sliding rapidly toward bankruptcy while John Diebel watched from the sidelines.

In February 1991 the crisis came to a head. Meade’s creditors called in their loans and the company, which was $2 million in the red, was unable to pay. Diebel stepped in and loaned Meade $65,000 of his own money to meet the weekly payroll while he negotiated a buyout of the company with three partners. In the end, Harbor sold all of Meade’s stock along with all its assets and liabilities to the group of partners for just $1000. $510 of that came from John Diebel, who took over majority ownership of Meade once again.

Accepting an annual salary of only one dollar at first, Diebel set about to rebuild his old company. He put up $1.8 million of his own money; his three partners, all Meade employees, mortgaged their homes and came up with $250,000 in cash. That money was put toward revitalizing Meade’s R&D program, which had become completely dormant under Harbor. “Harbor hadn’t moved on any of the new products we left on the burners for them,” Meade COO Steven Murdock told Stevens, “so we had the luxury of having engineering and proof-of-concept waiting for us.”

One project was the ETX, which stood for Everyone’s Telescope, a quality instrument that anyone, regardless of his or her level of experience, could enjoy. Another project was the LX200 telescope. Planned as one of the most advanced instruments ever built for the amateur astronomer, a full $1 million was spent on its development. It came equipped with computer controls to automatically locate 64,000 various celestial objects. At about $2000—half the price of similar products then on the market—the LX200 was the first computer-controlled telescope priced for the average consumer. In the early 1990s, the company also contracted with a Taiwanese company to manufacture a line of less-expensive telescopes built to Meade’s exacting specifications.

On the Road to Recovery in the Mid-1990s

Within two years of Diebel’s return, Meade was in solid financial shape again. By 1995, Meade telescopes were outselling all competitors combined throughout the world. In 1996, Meade’s sales rose to $29.8 million. Sales would again double by 1998, and yet again by the end of the 2000 fiscal year.

In 1996, Meade introduced the Autostar Computer Controller, which could be attached to various Meade telescope models to locate 1400 celestial objects. Diebel told Business Week’s Ronald Grover on May 29, 2000, that seeing Bill Gates on television inspired the development of the Autostar. “I thought to myself, why can’t we do something really revolutionary in this industry the way he did in his.” Two years later, Meade engineers worked out a way to build the attachment at an affordable price.

In July 1996 Meade’s 170 employees were given a share of the company’s ownership. The Employee Stock Ownership Plan was developed by the firm’s four owners to raise money, to enable employees to take part in Meade’s growth, and to provide them with an incentive for remaining with the firm. Every year, employees were given stock in the firm equal to about 20 percent of their salaries. The stock was placed in a retirement account. Once workers were vested for three years in the plan, they could sell up to 50 percent of their accumulated stock. The arrangement did not directly affect the structure of the company, but employees received enough votes to elect one of Meade’s five directors.

An IPO to End the 20th Century

The following year, Meade announced that it was going public. Wall Street was cautiously optimistic about the offer. Meade earnings had risen 50 percent over the previous nine months, however, about half of Meade’s sales were concentrated among only seven customers. In the end, the offering on NASDAQ raised $18 million, which was somewhat less than had been hoped. $11 million was used to repay outstanding debt, and $6.8 million was used to buy out a venture capital investor. “What a wonderful feeling to be rid of debt,” Diebel told Roger Yu in the May 4, 1998 edition of the Orange County Business Journal. “I hate debts.”

Key Dates:

1972:: John C. Diebel founds Meade Instrument Corp. to import telescopes from Towa Optical Manufacturing Company in Japan.
1973:: Meade expands its product line and moves to a larger facility in Costa Mesa, California.
1977:: Meade begins manufacturing its own products.
1980:: Meade introduces the Model 2080, its first Schmidt-Cassegrain model telescope.
1984:: Meade brings the LX3 series of telescopes to market; features include electronic tracking.
1986:: Diebel sells Meade to the St. Louis-based Harbor Group.
1988:: Meade introduces the LX6 series, with a microprocessor control system; Diebel resigns as president of Meade.
1990:: FTC blocks merger of Meade with competitor Cel-estron International.
1991:: Diebel and three partners buy Meade from the Harbor Group for $1000.
1996:: ETX—Everyone’s Telescope—series introduced; within a year, the ETX-90RA is the largest-selling modern telescope in the world; introduction of the Meade Autostar Computer Controller; Meade initiates Employee Stock Ownership Plan.
1997:: Meade goes public.
2000:: Meade engaged by TeraBeam Networks Inc. to provide optical components for its fiber optic networks.

In 1998 Meade’s sales increased by 27 percent, despite a 40 percent reduction in shipments to the large Japanese market. Around that time, Meade became the first telescope maker to use plastic mounting instead of traditional aluminum parts—a decision which further lowered the price of Meade products, without any loss in quality. It moved to a new production facility in Irvine, California, which was three times as large and had its own observatory. The new plant helped relieve Meade’s ongoing backlog of orders.

In late 1998, the company began production in a brand new 26,000 square foot factory in Tijuana, Mexico that employed 40 people. The new facility enabled Meade to take advantage of the lower cost of Mexican labor, coupled with Tijuana’s proximity to the Irvine main plant, where testing, complex assembly operations, final assembly, and shipping continued to be handled. In September 1999, Meade acquired Bresser Optik, a German distributor of optical products for $5 million in cash and 101,000 shares of Meade stock. The purchase was intended to provide a basis for broader distribution of Meade products in Europe.

By the end of 1999, Meade was on a roll. It boasted a 70 percent share of the high-end telescope market and 40 percent of the low-end market. The firm’s inexpensive computer-guided telescopes had proved to be a hit with consumers. Much to the surprise of experts on Wall Street, the value of its stock doubled in a six month period, and some analysts were predicting a rise of another five points during the coming year. Instead, in March 2000, the value of its shares leapt 77 percent overnight—the result of rumors that Meade had made some kind of deal with TeraBeam Networks Inc., a Seattle-based manufacturer of fiber optic communications equipment. Speculation that Meade was considering entering the lucrative fiber optic field on some level set off frenzied trading in its shares. By the close of trading on March 15, 2000, its stock had risen to $53 with five million shares being traded—60 times Meade’s daily average.

At the same time, however, there was no confirmation that the two companies had actually made any deal. The next day though, following inquiries from NASDAQ, Meade announced officially that it had been engaged by TeraBeam to manufacture optical components for TeraBeam’s fiber optic networks. A month and a half later, in early May of 2000, Meade made public a 2-for-l stock split. As 2000 came to an end, the value of Meade stock leveled out and then began to fall. The fall was a result of a convergence of factors. First, the chain of “Natural Wonder” stores, following a merger with “World of Science”, stopped carrying Meade’s products. The slight downturn in the economy also led to a highly disappointing 2000 Christmas season, despite the introduction into Wal-Mart and JC Penney of Meade’s ETX-60, a computerized telescope selling for $295. At the end of the first quarter of 2001, the company reported a loss of $4.7 million.