SoftBank-Backed Katerra to Cut 200 Jobs, Close Arizona Factory

(Bloomberg) -- Katerra Inc., a modular construction startup, got an $865 million cash infusion from investors led by SoftBank Group Corp. last year. Now, the company is shutting down a factory in Phoenix and cutting 200 jobs.

The move will shift Katerra's manufacturing away from Phoenix and into its highly automated and lower-cost factory in Tracy, California. The transition will help the company grow more quickly in the U.S. and overseas, said Katerra Chief Executive Officer Michael Marks. It will also put the startup on track to turn an operating profit by the end of next year, and to double revenue to about $4 billion, he added.

Of the cost-cutting, “that's never good news for the people getting laid off,” Marks said.

SoftBank's investment into Katerra adhered to its typical playbook of pumping big money into potentially transformative startups. Katerra's mission is to shake up the construction industry with a combination of efficient factories, prefab parts and modular construction units. But SoftBank's methods proved risky this year, when one of its major investments, co-working startup WeWork, was forced to scrap plans for an initial public offering once investors got a look at its finances and corporate governance.

Katerra's large investment from SoftBank's Vision Fund allowed for rapid growth, in part driven by the acquisition of smaller construction companies. But integrating the other businesses hasn't always gone smoothly, and Katerra has been dealing with construction delays and issues with perfecting its modules, such as wall panels and floor panels.

“We've had some learnings,” said Matt Ryan, head of manufacturing for Katerra. “We've worked with lead engineering and architects to address those.”

Marks, a onetime interim CEO of electric automaker Tesla Inc., called such challenges normal in the construction business, and defended SoftBank's deep-pocketed investment strategy, driven by CEO Masayoshi Son.

“There's no question that if they hadn't led a bigger round than we expected, we wouldn't be where we are today,” Marks said, listing projects across the U.S., and in India, Saudia Arabia and other countries.

Many of Katerra's contracts and some of its top hires come directly from introductions made by SoftBank, he said, including that of the recruiting firm that found Katerra's new chief financial officer, General Electric Co. veteran Matthew Marsh. SoftBank can also be credited for lining up business for Katerra from other Vision Fund companies, including WeWork parent We Co. Katerra is designing a pantry and lighting system for use in future WeWork projects.

Of the Vision Fund's 88 portfolio companies, some are “just doing so wildly fabulous, and no one ever writes about that,” Marks said, calling much of the criticism about SoftBank “inflammatory.” Some of the Vision Fund's fast-growing companies include South Korean online retailer Coupang and blood-testing company Guardant Health Inc.

Katerra plans to keep the Phoenix factory operational through the end of the year. Marks said that despite the timing during the holiday season, he hoped that employees would be able to quickly find new work. Workers who are affected will get a 90-day severance package that includes full pay and benefits, the company said. 

In addition to the 577,000-square-foot Tracy factory, Katerra also recently opened a 270,000-square-foot cross-laminated timber factory in Spokane, Washington, at a cost of $130 million, and will open another production factory in Texas next year.

To contact the editor responsible for this story: Anne VanderMey at avandermey@bloomberg.net, Mark Milian

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