Dynatech Corporation

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Dynatech Corporation

3 New England Executive Park
Burlington, Massachusetts 01803-5087
U.S.A.
(617) 272-6100
Fax: (617) 272-2304

Public Company
Employees: 2,600
Sales: $458.4 million
Stock Exchanges: NASDAQ
SICs: 3825 Instruments to Measure Electricity; 3663 Radio & T.V. Equipment; 3845 Electromedical Equipment; 3674 Semiconductors & Related Devices

Dynatech Corporation is one of the world’s leading suppliers of products that support voice, video, and data communications. From its headquarters in Burlington, Massachusetts, the highly decentralized company oversees more than 30 subsidiaries located throughout North America, Europe, and Asia that make and sell a diversified line of high-tech electronic and microprocessor-based equipment, instruments, and systems used to support the generation, transmission, and presentation of information. More than two-thirds of its annual revenue is derived from the sale of information support products, while the remainder is generated by the diversified instrumentation segment of the company—a variety of medical and diagnostic products used in laboratories and health care facilities, including laboratory diagnostic equipment and computer software for the pharmaceuti-cals industry. A pioneer in developing hardware and software for the information superhighway, Dynatech is a top competitor in a number of niche markets. Some of its leading product lines include portable test instruments for telecommunications networks, packet switches used to break up data into “packets” for efficient transmission over public or private data networks, and airplane passenger cabin information systems, which display position defining maps, airport terminal charts, and in-flight information.

Like many of the high-tech companies that have flourished in the 1990s, Dynatech can trace its origin to a university laboratory. In the late 1950s, years before the advent of the Information Age, Dr. Warren M. Rohsenow, then a professor at the Massachusetts Institute of Technology, and J. P. Barger, one of his graduate students who later joined him on the school’s engineering faculty, began providing research and development services in the field of heat-transfer technology to a number of government and industrial clients. Discovering the potential for a lucrative business, the two incorporated their company in 1959.

During the early 1960s the company made the transition from being primarily a consulting firm to a manufacturer of high-tech electronics products. While Rohsenow and Barger’s academic colleagues and the investors in their company encouraged the founders to develop a strong, single product line, they opted for a different strategy: growth through diversification. “When we started we had an uphill sell,” Barger stated in Michael O’Connell’s profile of the company in the Massachusetts Sun. “People kept telling us, ‘You gotta remember the good old American sayings—that you have to stick to your guns ... you can’t juggle all these balls in the air at once.’” In an industry where research and development usually renders new products obsolete in a relatively short time, having only one or two product lines on the market, the founders believed, would make the company more vulnerable. A variety of products, on the other hand, would protect the company from the sharp downturns associated with the short product cycles. The company channelled its energy and resources in three general directions: data communications, medical products, and scientific instruments/research and development.

During the 1960s Dynatech began manufacturing breakthrough products in each of these three fields, enabling the company to build a sound financial base. In the early 1960s Dynatech made a name for itself in the field of data communications by developing a multi-circuit jack for the U.S. government. This pioneering data communications network management product, which later became known as the Dyna-Patch when it was commercialized in the 1970s, was used to redirect the “traffic flow” of data by breaking up information into smaller units, or “patches,” that could be transmitted more efficiently. The mid-1960s saw the company’s medical products division revolutionize the field of immunological testing with the introduction of the Microliter System—a miniaturized fluid handling system that dilutes a patient’s blood serum with reagents in minute, precisely measured amounts, enabling simple immunological and biological tests to be performed with greater precision. Meanwhile the company continued providing research, development, and consulting services in the fields of chemical and mechanical engineering to various industrial and governmental clients, while developing a number of testing instruments. By the end of the decade, Dynatech had grown to become almost a $5 million company.

Having made its first major acquisition of a public company in 1968 with the purchase of Cooke Engineering Company, Dynatech continued to expand its operations through the 1970s by taking over a number of niche companies. In 1977, for example, the company purchased a controlling interest in Artek Systems Corporation, a New York manufacturer of medical electronic instruments that automatically count bacteria and cells using television scanning techniques. The medical instrument segment of the company overtook the scientific instrument/research and development division as the company’s leading generator of revenue, accounting for nearly half of the company’s $27.5 million in sales by the end of the decade, with such products as the MIC-2000, a highly sophisticated and cost-effective test system used to provide proper antibiotic dosage information to physicians. The data communications division made up a third of the company’s revenues.

By sticking close to its policy of operating multiple business units, Dynatech was able to continue breaking performance records throughout the early 1980s, despite a recession in the U.S. economy and the introduction of unfavorable legislation. In 1982 the Reagan administration’s dismantling of the Department of Energy brought about the dissolution of several contracts with Dynatech, stalling the growth of the company’s research and development unit. Moreover, the relaxation of certain Occupational Safety and Health Administration (OSHA) standards caused a significant decline in sales of the company’s industrial respiratory devices. The sluggish performance of these areas of the company, however, only served to illustrate the efficacy of the company’s philosophy of decentralization and diversity: between 1980 and 1983 total revenue jumped to $27.5 million, an increase of more than 260 percent, as the company’s data communications and medical instruments divisions made substantial gains.

As Dynatech celebrated its twenty-fifth anniversary in 1984, its business mix continued to shift toward communications. A decline in the company’s medical diagnostics business, coupled with the acquisition of Controlonics Corporation, a leading manufacturer of radar detectors and other microwave-based products, and exceptional growth in data and video communications products, bumped communication product sales to $98 million—two-thirds of the company’s $147 million in total sales. The fastest-growing segment of the company was bolstered by the success of such products as the CTM-1000, an electronic matrix system used by network managers to reroute signals to numerous pieces of communications equipment electronically, without having to shut down operations or rewire the hardware manually.

By staying clear of billion-dollar markets dominated by industry giants and attacking the niche markets they neglected, Dynatech continued to separate itself from the growing field of electronics companies. Recording annual sales increases of between 25 and 50 percent during the mid-1980s, Dynatech outperformed the vast majority of the nation’s top electronics companies: during the same period, the companies listed in the Electronic Business 200 averaged only 4.5 percent sales growth.

Averaging between six and seven acquisitions a year during the 1980s—53 between 1977 and 1987—Dynatech took the lead in a number of smaller markets, capturing a number one or two share in the following: asynchronous packet assemblers/disassemblers (equipment that packages data signals for transmission); patch panels (network management equipment used to detect faults when a communications system goes down); and matrix switches (equipment used to tow switch actual circuits rather than switching packets of information).

The company’s success during the 1980s can be attributed not only to the diversity in its product line, but also by the decentralized management style developed by Rohsenow and Barger. The companies under the Dynatech umbrella were given the freedom to handle their own research and development, manufacturing, and sales, while being closely monitored by the president and management team at corporate headquarters. As long as profits met corporate standards, subsidiaries retained their autonomy, though according to Ronald O. Bub, president of Dynatech subsidiary Trigon Industries Inc., “if you don’t perform, they’ll divest your company!” Nevertheless, Bub praised Dynatech’s management style in dealing with struggling companies: “Instead of shooting me,” he explained, the management team offered solutions to help improve his company’s bottom line, leaving him with control over his business.

This collaborative approach has also been developed among the various subsidiaries. Dynatech espouses organizational learning, or what John Reno, who took over as president in the fall of 1992, has called “leveraging ideas.” The company brings people together from a variety of its businesses whose daily jobs are related to similar issues. Meeting three or four times a year for a few days, the representatives exchange views on marketing, health care, and various other subjects likely to apply to almost all of the Dynatech companies. Providing a forum for a wide variety of perspectives on common issues, Reno explained to Institutional Investor, has generated new ideas that have yielded quantifiable results. For example, by implementing an improved quality control system and building to orders, rather than carrying a large amount of inventory, the company has been able to lower its defective product ratio by as much as 25 percent and save millions of dollars along the way.

Nevertheless, a brief period of slowed growth during the early 1990s forced the company to rethink some of its fundamental operating principles. Although sales continued to increase at a steady rate, enabling the company to approach the half-billion dollar mark, profits were on the decline, and in 1993, for the first time in its history, the company lost money, recording a net loss of nearly $30 million. According to some market analysts—and some disappointed stockholders who attempted to force a sale of the firm—the company’s long-held strategy of diversification had gone too far: Dynatech had too many product lines spread across too many markets.

In an effort to satisfy the long-term interests of its stockholders, the company implemented a major restructuring program in April 1994 that was designed to strengthen its focus on markets supporting voice, data, and video communications. First, the company separated its businesses into two segments, each with its own marketing strategy: the businesses that supported voice, video, and data communications were grouped under the Information Support Products segment, while a much smaller group of electronics and software businesses were placed under the heading Diversified Instrumentation. Second, the company identified and made plans to sell 13 product lines and businesses representing approximately $140 million in annual revenues that did not fit into its long-term strategy. By July of that year, Dynatech sold five companies, including one of its largest subsidiaries, Whistler Corporation, a car alarm/radar detector manufacturer. Finally, the company consolidated a number of its operations in an attempt to streamline and reduce operating expenses.

Although the expenses that accompanied these actions brought about an initial downturn in profits, by the time the transition was near completion in February 1995, the positive effects of the restructuring were apparent. Total sales during the first three quarters of the fiscal year had increased by 12 percent over the previous year; more importantly, net income was up 77 percent. By tightening its focus on the information support products industry, the company was able to take advantage of the ever-increasing demand for communications products brought on by the rapid growth of the personal computer, fax, and modem markets. In addition, the deregulation of the communications industry, combined with the increased affordability of more and more powerful computers began to blur the line between traditional suppliers of communications and entertainment products, providing increased opportunities.

In an attempt to take full advantage of these growing markets, Dynatech has introduced a number of new technologies that promise to play a fundamental role in the generation, transmission, and presentation of information. For instance, in 1994 the company added an Emmy award-winning, nonlinear editing system, designed to greatly reduce film and video editing time and expense, to its video product line. In the field of information transmission, the company introduced a new Synchronous Optical Network (SONET), a series of standards for testing highspeed, fiber-optic-based communications, such as those used by telephone companies, banks, and airlines. In the field of information presentation, which includes video-related applications such as video conferencing, the company secured a partnership with computer giant Hewlett-Packard to develop and manufacture video boards for their workstation platforms, with the result that Dynatech products will now be compatible with the majority of the computer workstation market.

Perhaps the most exciting and revolutionary development for Dynatech in the 1990s and beyond can be found in its use of Asynchronous Transfer Mode (ATM) technology. Considered one of the most effective means of transmitting video, audio, and data because it can send video data to specific addresses instead of broadcasting everywhere on the network, this technology has the capability to perform a variety of interactive video functions and has been used to conduct interactive computer video tours of residential real estate. By investing heavily in such technologies and continuing to streamline its operations, Dynatech has placed itself in position to be a key player in the development of the information superhighway. As multimedia computers become more commonplace, Dynatech has promised to be a major supplier of the equipment necessary to ensure the smooth flow of information.

Principal Subsidiaries

Dynatech Laboratories Inc.; Utah Scientific Inc.; Dynatech Nevada Inc.; Trigon-Adcotech; Digital Technology Inc.; Qualimetrics Inc.; Dynatech Microwave Technology Inc.; Parallax Graphics Inc.; Dynatech Computer Systems Inc.; ComCoTec Inc.; U.S. Computer Systems Inc.; Innovative Electronics Inc.; Lighting Location and Protection Inc.; Threshold Corp.; H.K. Microwave Inc.; ALTA Group; L.E.A. Dynatech; UNEX Corp.; Dynatech Communications Inc.; Telecommunication Techniques Corp.