Thermo Electron finds its focus

When Marijn E. Dekkers took over as chief executive of Thermo Electron Corp. of Waltham in 2002, he considered a radical finale to the extreme makeover the company had been through over the previous three years: dumping the Thermo name.

The previous chief executive, Dick Syron, had come on when Thermo was a 24-headed Hydra with two dozen publicly traded subsidiaries that neither Wall Street nor customers could make any sense of. Through ''spin-ins" and asset sales, Syron trimmed the company into an almost comprehensible collection of instrument, optical, and equipment businesses.

After such a radical transformation, why not dump the name, too?

As Dekkers recalls, corporate rebranding was all the rage, with Philip Morris renaming itself Altria, and other companies giving themselves the tummy tuck of a modern-sounding name.

''It was such a popular thing to do at the time," he said, ''but we didn't want to along with the crowd. The Thermo name still had a lot of clout on Wall Street -- maybe it wasn't all positive, but they knew what it meant."

Ultimately, Dekkers embraced the Thermo Electron name, which dated to 1956, when MIT professor George Hatsopoulos formed the company to develop a method of turning heat directly into electricity that never panned out. Dekkers eliminated scores of brand names from product lines the company had picked up over the years, and put the Thermo name on everything.

Dekkers also gave the company an industry to focus on: equipment for life sciences discovery. Why specialize in life sciences, when the company also has legacy businesses dealing with environmental monitoring, petrochemicals, semiconductors, chemicals, and the food industry?

Dekkers makes it sound like a no-brainer.

''The most active area where analytical instruments are being used is in drug discovery and life sciences," he said. ''Life science researchers are your most exciting customers who are going to buy the most equipment and at the same time will be the most demanding."

Then, he said, there are the mar-gins.

''The customers appreciate innovation. Being able to do something they couldn't do before is important to them and they're willing to pay for it. When you have a customer who doesn't care about a better-performing product -- like in a commodity business that wants to cut costs -- then you're in trouble."

Hence the sale of the remaining piece of Thermo's optical business, which had been known as Spectra-Physics, for $300 million last July. Thermo, which throws off about $200 million a year in spendable cash, also made acquisitions including Jouan SA of France, a lab equipment maker, for about $137 million in January 2004; US Counseling Services, which services lab equipment, for $57 million in April; and InnaPhase Corp. of Philadelphia for $68.5 million in September. It plans to complete its $833 million purchase of the Kendro division of SPX Corp. in June. Kendro makes a wide variety of lab appliances including incubators, freezers, centrifuges, and ovens.

''Our strategy is to be the absolute market leader in the life sciences tool space, and acquisitions are an important part of it," said Marc Casper, Thermo's senior vice president and, perhaps coincidentally, former chief executive of Kendro.

Thermo Electron is expected to generate revenue this year of $2.3 billion, according to Needham & Co., a level that's little changed from 2001 and well down from the $4 billion it earned when it had all those perplexing spinoffs.

But laboratory and life science equipment is expected to account for more than 70 percent of the total, and that pleases some analysts.

''Investors reward companies that are focused on one industry rather than conglomerates," said John Harmon, an analyst with Needham. ''Thermo is just getting started in terms of acting like one company. There's still lots of opportunities for them."

Harmon, who does not own any Thermo shares, rates the stock a ''strong buy," and predicts they will rise from Friday's close of $24.79 to $38 within 12 months.

The life-science focus is only part of Thermo's strategy. It is also moving beyond the orthodox specialty engineering model: invent neat machine, sell neat machine, try to invent another neat machine. As it broadens its product line, it wants to become a one-stop shop for biotech companies, providing all of the equipment needed, from the preparation of pieces of tissue, to the extraction of cells and proteins, to the analysis of the results. Along the way, it wants to provide installation, repair, and other services to keep the equipment running.

''In theory, they want to be a solutions company," said Tony Butler, managing director at Lehman Brothers, a brokerage firm that provides securities services to Thermo but does not serve as an investment banker.

Dekkers makes a good case that the strategy goes well beyond the dismal, overused buzzwords. He points to a collaboration with Massachusetts General Hospital in which Thermo is equipping and funding a laboratory to discover proteins in the blood that may give early warnings of potential heart attacks. The key technique in identifying proteins is mass spectrometry, in which molecules are identified by their mass and their electrical charge. (Thermo points to a positive reception for its Finnigan LTQ FT, a high-performance mass spectrometer that costs about $750,000.)

Thermo plans to fund the lab with about $1 million a year and work with MGH doctors for several years. The goal is not only discovering proteins, but also learning how best to arrange the work flow to speed discovery. It's not unlike UPS, the shipping company that works closely with business customers to handle the logistics of all their material handling. The lessons from the MGH lab can be sold to other customers as part of Thermo's total laboratory solution, Dekkers said.

The current wave of popular crime shows has given Thermo an opportunity for some savvy product placement. Thermo's devices are regulars on various ''Law & Order" and ''CSI" shows. In addition to the equipment, the company sends a consultant to ensure characters are doing the right things with the lab hardware. In one episode of ''CSI: Miami," actress Kim Delaney, as DNA specialist Megan Donner, referring to Thermo's mass spectrometer, declares, ''mass spec doesn't lie."

Thermo shares have appreciated smartly in recent years, rising from about $14 in July 2002 to more than $31 in April 2004. Since then, they have slumped. Some investors have taken profits and left.

Matthew Kaufler, a chartered financial analyst and portfolio manager at Clover Capital Management of Rochester, N.Y., said his firm bought about 1 million shares at about $13 a share in early 2000, but has sold off its position over the past six months at an average price of $28.

''It's been a great metamorphosis," said Kaufler, ''but we felt a lot of the real levers for value creation had already been pulled. It's a different investment decision today."

Other investors maintain their enthusiasm. One hedge fund manager, who asked not to be named, said his firm owns more than 500,000 shares. In addition to Thermo's dominant position in life sciences, he believes there's a chance the company could become a takeover target by an industrial giant like General Electric. He also thinks the shares are undervalued.

''This company is going better than Wall Street is giving them credit for," he said.

Jeffrey Krasner can be reached at krasner@globe.com.