II-VI Defines Success

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Diworsification: The process of adding to one's portfolio in a way that worsens the risk/return tradeoff. In a corporate context: the process of poking your nose into businesses you're not good at, or less good at than what you already do.

See: "The Internets," ref. Time Warner (NYSE: TWX), ca. 2000. Luxury cars, ref. Ford (NYSE: F).

See also: Northrop Grumman's (NYSE: NOC) exit from the night vision goggle business in favor of L-3 (NYSE: LLL) -- which should give Northrop more time to focus on competing with Boeing (NYSE: BA) for contracts.

Antonym: Concentration: Knowing what you're good at, and doing it.

See: Laser component maker and Motley Fool Hidden Gems pick II-VI (NYSE: IIVI), which, unlike Time Warner et al., and more like its customer-competitor Northrop Grumman, has discovered what it's good at and intends to focus on it.

Recently, II-VI announced that it intends to sell off its X-ray sensor division, eV Products. The asking price isn't disclosed (they're just starting the search for buyers), but in the big picture, it doesn't really matter how much II-VI gets for eV. This sale is a good idea no matter what they charge for it.

Why? Because II-VI does one thing really well: It makes high-tech laser parts. Sure, until now, it also made radiation detectors -- but not nearly as well as it makes laser parts.

Last year, II-VI's compound semiconductor group -- of which eV is a part -- generated the weakest margins of any of II-VI's four business units. Its 6.2% operating margin was four times less profitable than the company's flagship Infrared optics unit.

Foolish takeaway
Mr. Market initially sold off on II-VI news. I think that's a mistake. This company focuses on what it does best and tosses away the ballast of what it does less well. That's great news for Foolish shareholders.