Diversify and conquer Westinghouse targets peacetime market

THE BALTIMORE SUN

The pilot of a commercial jet suddenly aborts a landing when radar detects dangerous wind shear conditions that could slam the jet to the ground.

A commuter zips past a tollgate while a sensor reads a sticker on her car's bumper and deducts the toll from a pre-paid account.

A police officer feeds the photo of a missing child into a patrol car scanner that almost instantly distributes a print to all other units in the region.

These are just a few of the commercial products that engineers at the Westinghouse Electronic Systems Group in Linthicum have begun working on in recent months, as the longtime military contractor combats a shrinking Pentagon budget.

Maryland's largest manufacturer hopes such products will stabilize its financial footing and protect jobs, as well as be the base of its extensive area supplier network.

Diversification hits snags

But not everything has gone as planned. The local group lost a few million dollars, for example, as part of a failed deal to help build the Worldbridge Center Asian theme park in Baltimore County.

And one of the first results of diversification has been a sizable bite out of the group's profits. Last year, operating profits fell from $329 million to $193 million -- a 41 percent drop caused partly by the investment needed to develop a commercial base.

When parent Westinghouse Electric Corp. released second quarter results last week, it reported a further, "moderate" decline in operating results for the Electronic Systems Group.

Why? The group still has more products in development, rather than the more profitable production stage, spokesman Ronald E. Hart said.

The group began its diversification effort in earnest in 1989. That was the year it established its Commercial Systems Divisions and selected Edward N. Silcott, one of the Electronic Systems Group's rising stars, to head the operation.

Mr. Silcott's assignment -- and it's a tough one -- is to have at least 50 percent of the group's annual revenues come from non-Department of Defense customers by 1995.

His success -- or failure -- will help determine the fate of a $3.2 billion operation that has been wracked by layoffs in recent years. And it will have a major impact on Westinghouse, which got about one-fourth of its revenue from Electronic Systems last year.

Industry record inauspicious

While Mr. Silcott paints an optimistic picture for the new commercial unit, he has his skeptics. "In our opinion, that [50 percent] level will be achieved by future deterioration in [Department of Defense] business as opposed to meaningful pick-up in other business," John E. Hilton, a stock analyst with Argus Research Corp., said in a research report earlier this year.

Turning guns into plowshares is not as easy as some people might think, says Murray Weidenbaum, chief economic adviser to President Ronald Reagan during the early 1980s and currently director of the Center for the Study of American Business at Washington University in St. Louis.

Mr. Weidenbaum, who has studied the defense industry's diversification, notes that history has shown that the moves produced more losers than winners.

Grumman Corp., for example, tried to build and market a minivan years before Chrysler popularized the vehicle. The project, launched in 1983, flopped because Grumman lacked the necessary marketing and distribution skills.

Norman R. Augustine, chairman of Bethesda-based Martin Marietta Corp., also has warned of the pitfalls of diversification. When asked by former Soviets how to convert a tank-producing facility into a refrigerator factory, he advised them to tear down the tank plant and build a new refrigerator plant.

Diversification could be easier for the local Westinghouse division, Mr. Weidenbaum said, because it is a subcontractor rather than a manufacturer of planes, ships, rockets or tanks. Subcontractors generally are not as specialized as prime

contractors and have a lot of capacity, like commercial &r; companies.

He warned, however, that Westinghouse still has an uphill battle. "There is no shortage of commercial-oriented companies competing in the high-tech markets," he said, adding, "They [defense contractors] all say they want to be 50-50, but very few make it."

Mr. Silcott concedes that the industry's track record "has not been that great." But there is not a hint of doubt in his voice when he talks about his own moves, which are designed to generate $2.5 billion in sales by 1995.

Will he make it? "If we don't we're going to come darn close," says the 51-year-old executive, who grew up in Catonsville and has spent his entire career with Westinghouse. He joined the local division in 1960 while attending night classes at the University of Baltimore, from which he received degrees in industrial engineering and law.

According to Mr. Silcott, the commercial division already accounts for a third of Electronic Systems' sales and about a fourth of its more than 12,000 jobs.

"My personal dream is to grow fast enough to sustain our people. We lost some people in recent years," he said of the group's approximately 2,500 layoffs since early 1991, "and none of us wants to lose any more talent. We have to have more business to sustain our employment."

Although Westinghouse is moving into a lot of new markets, including the electric car, alarms, automatic mail sorters and computer printers, Mr. Silcott says he is not taking a shotgun approach.

"We're not just grasping at business. There is a logic to how they fit together."

Five-pronged attack

Sitting at the round table in his office, where walls are decorated with dozens of framed photos of him meeting President Bush, flying a fighter plane and dressed as Duffy the Clown for a circus, Mr. Silcott spreads out a set of charts. They divide the commercial ventures into five rapidly growing markets: transportation management, airspace management, information systems, security and law enforcement.

There would be nothing wrong with the U.S. economy if other sectors were doing nearly as well as those that Mr. Silcott has targeted. Based on consultant reports, three of the market niches are are growing at an annual rate of 15 percent, one at 36 percent and the last at six percent.

The law enforcement market, which includes airborne radar to track the movements of drug dealers in air, on land and at sea, for example, is growing at an estimated 15 percent rate. It's expected to generate $8.7 billion in sales between by 1996.

Mr. Silcott expects Westinghouse's involvement in law enforcement to be a $100 million business in coming years.

"I would be very disappointed if it was not a half-billion [dollar] business by the end of the decade," he said.

He has similar plans in the security industry. Westinghouse moved into the home-security business last year and overnight become the industry's fourth-largest company, behind Brink's Inc., ADT Inc. and Network Systems.

"I want to be No. 1 in residential security by 1995, and I think we will be there before then," Mr. Silcott said.

In airspace management, Mr. Silcott says many airports are behind the times in air traffic control equipment, ticketing, luggage processing and security. As they move to upgrade facilities, he foresees "a couple hundred million dollars a year business" for Westinghouse.

The segment of the transportation management business that Westinghouse covets is growing at a 36 percent annual rate, Mr. Silcott says.

In this field Westinghouse offers electronic tollgates, as well as equipment that trucking companies and mass transit agencies can use to keep track of their vehicles.

And, in a warning to drivers who toss bottle caps or washers into toll machines, Mr. Silcott said Westinghouse is working on surveillance equipment that can identify violators.

"It's not our intent to turn the country into a police state. We don't want to be Big Brother watching over everyone, but states are having big problems with their tollbooths, and they want the people who use them to pay their fair share," he said.

Westinghouse also is teamed with Chrysler Corp. on the development of an electric car -- a move that could bring in $10 billion in new business over the next decade.

In information management, International Business Machines Corp. and Westinghouse are developing a system that would allow the Internal Revenue Service to transfer paper files to computers.

That could generate $10 billion in revenue over 10 years, he said, "if we win it." The IRS is expected to award the contract early next year.

Information management also includes terminals that handle hotel reservations, speed the lines at fast-food restaurants and keep track of the number of burgers and sodas in a restaurant's inventory.

The division already is producing equipment for the U.S. Postal Service that can read a handwritten address and send it on to its destination.

"This is not the totality of our vision," Mr. Silcott said running through a long list of new products.

"This is just what we can swallow at this time."

If Mr. Silcott's diversification efforts succeed, the Electronic Systems Group of the future will bear little resemblance to the company that made the radar system that detected the Japanese attack on Pearl Harbor.

For that matter, it will be different company from the one that is working on electronic warfare equipment for the F-22, the Air Force's next generation fighter plane.

What's up at Westinghouse

New products under development:

* ELECTRIC CAR: Teaming with Chrysler Corp. on the development of commercially viable electric car.

* LICENSE PLATE READER: To assist law enforcement officials in the recovery of stolen cars, the scanner can read tag number on car zipping by on the beltway -- even at night.

* COMMERCIAL SPACE FACTORY: Coordinating development of a low-cost rocket, satellite and recovery system that could be used by private industry to develop drugs or other products in gravity-free mini-factories.

* FBI DATA BANK: Teaming with IBM on the development of a computerized national crime information center that could be used by federal, state and community law enforcement agencies to solve crimes.

* VIDEOPAD: A hand-held wireless communication system that replaces a restaurant waiter's note pad. It can instantly transmit an order back to the kitchen. It can even retain information on a customer's favorite drinks or how they like their steaks.

* WIND SHEAR RADAR: Equipment to notify commercial jetliner pilots of dangerous wind shear conditions that have been blamed for some of the nation's worst air disasters.

* AUTOMATIC TOLL GATES: Scanners used at toll collection gates can read a sticker on vehicles that have paid toll in advance and deduct the fee from the driver's account -- without the vehicle stopping.

* MAIL SORTING SYSTEM: Producing machines for the U.S. Postal Service that can read the address on mail and sort it into the proper bin.

* SOVIET AIR TRAFFIC MANAGEMENT: Teaming with AT&T;, IBM, German and Japanese businesses, on a multi-billion upgrade of the former Soviet Union's commercial air traffic management system.

* EDGE EMITTER PRINTER: Teaming with Tokyo Electric Co. to develop a new computerized printing technology designed to make laser printers obsolete.

* DRUG INTERDICTION EQUIPMENT: Radar and infrared equipment for Coast Guard planes to detect and track drug traffickers on the highway, in the air or on the water.

* SMART POLICE CAR: Electronic equipment in patrol car could transmit live coverage back to a control center. Other equipment in the car could transmit the photo of a missing child to nearby police in a matter of seconds.

* HOME SECURITY: Westinghouse is the nation's third largest supplier of home burglar alarms.

* INFORMATION MANAGEMENT: Bidding with IBM on a $10 billion, 10-year contract to convert Internal Revenue Service files from paper to computers.

* INFORMATION KIOSK: Part of the MTA's light rail system, the system features tough screen monitors that provide information on Baltimore-area attractions, and how to reach them.

* POINT OF SALE MONITORS: Electronic equipment used by hotels to make room reservations and by fast food concessions to speed sales while keeping track of number of burgers, fries and Cokes in inventory.

* VEHICLE MANAGEMENT SYSTEMS: Equipment tapping into a satellite navigation systems used by public transit agencies and trucking companies to track vehicles. Could warn the driver of a refrigerated truck that the temperature is rising in the cargo bay and suggest that he check it.

* ILLEGAL SUBSTANCE DETECTOR: Hand-held device for use by Custom Service agents to detect illegal drug or explosives.

* OPTICAL IMAGING: Crime fighting equipment that can take a digital image of a suspect's face, transmit it to a central data base and get a reading back in a matter of seconds.

* SMART CARD TECHNOLOGY: Equipment could make it hard to forge a driver's license by putting driver's age, address and photo on an electronic strip. The card could also have information on a person's medical history or criminal background.

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