Electromagnetic Sciences Inc.

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Electromagnetic Sciences Inc.

P.O. Box 7700
660 Engineering Drive
Technology Park/Atlanta
Norcross, Georgia 30091-7700
U.S.A.
(404) 448-5770
Fax: (404) 263-9207

Public Company
Incorporated: 1968
Employees: 1,100
Sales: $160 million (1996)
Stock Exchanges: NASDAQ
SICs: 3679 Electronic Components; 3663 Radio & T.V. Communications Equipment; 3661 Telephone & Telegraph Apparatus

Electromagnetic Sciences Inc. designs, develops, and manufactures a large array of highly sophisticated communications and signal processing products, with a focus on wireless networks since the early 1980s. The company provides such items as antennas, microwave systems, subsystems, and a variety of other components that are used in the space and satellite communications industry, the cellular telecommunications industry, radar, surveillance, search and rescue systems for the U.S. Air Force and Coast Guard, and military countermeasure systems for the different branches of the U.S. Armed Services. The company’s design and production of wireless logistics systems provides real-time, wireless data and transactions processing, primarily for firms with extensive and complicated materials handling operations. All of the business activities of Electromagnetic Sciences are conducted through its subsidiaries, including EMS Technologies, Inc., CAL Corporation, a wholly owned Canadian-based firm purchased in 1993, and LXE Inc., a division of the company that originally manufactured wireless data communications systems for the burgeoning materials handling market, but was later a spin-off of Electromagnetic Sciences and subsequently formed into its own company with its own stock offering.

Early History

Electromagnetic Sciences Inc. was founded by Dr. John Pippen and a distinguished group of scientists, engineers, and laboratory technicians. Incorporated in 1968, it started its business operations the same year in Norcross, Georgia, soon to be known as Technology Park. The company was organized in response to the needs of the American military establishment at the height of the Cold War with Russia. At the end of the Eisenhower Administration, Gary Powers, a United States Air Force pilot flying top-secret reconnaissance missions at high altitudes over the Soviet Union in his U2 jet, was shot down by the Russians. The incident contributed to an even greater increase in tension between the two superpowers and led the Washington, D.C. press corps to question the effectiveness of the American military’s surveillance strategy and the efficacy of its electronic surveillance systems.

During the Kennedy and Johnson administrations, military surveillance was continued in more or less the same manner: high altitude spy planes were flown by experienced pilots who, when shot down, were disavowed by the United States government. It was the aerial reconnaissance photos gathered by these pilots during the Kennedy Administration that indicated Russia was shipping missiles with nuclear warheads and constructing launching pads in Cuba aimed at the United States that led to the Cuban Missile Crisis. At the time of the Vietnam War, the U.S. Air Force was still engaged in similar high altitude surveillance measures to determine the routes the Viet Cong used to infiltrate American and Vietnamese controlled regions in South Vietnam. Yet, throughout the 1960s, there was intense research on various other surveillance methods that would replace high altitude spy planes. This research centered on satellite surveillance from equipment located above the earth’s atmosphere.

Dr. Pippen and his associates recognized the need for a new firm to design, develop, and manufacture component parts for these satellite surveillance systems required by the U.S. military. When Electromagnetic Sciences opened its doors for business during the late 1960s, and throughout the entire decade of the 1970s, the company provided the U.S. Department of Defense with a growing product list that ranged from specialized systems for applications to surveillance satellites and micro-gravity facilities and satellite power conditioning equipment to surface and airborne applications such as radar and electronic countermeasures required by Navy warships. In fact, as the American public and its representatives in Congress recoiled from overseas military entanglements that reminded them of the Vietnam War, resulting in the reduction of annual military budgets and the lowering of morale and manpower in the U.S. Armed Services throughout the 1970s, the products Electromagnetic Sciences provided became even more important to the cost-effectiveness of United States military power. By the end of the decade, Electromagnetic Sciences had won almost $3 million in contracts from the U.S. Department of Defense and had become one of America’s most reliable component parts manufacturers for electronic countermeasure systems.

Growth and Expansion During the 1980s

Electromagnetic Sciences benefited greatly with the election of Ronald Reagan as president of the United States in 1980, as did the other companies in the defense industry. Reagan was determined to revitalize and re-equip the Armed Forces, rebuilding the Navy, Army, Air Force, and Marine Corp into the most technological advanced and powerful military in the world, with the ability to exert influence whenever and wherever it wanted. His first step was to increase significantly the military budget for each of the eight years he served as president and, second, to instill a sense of pride and morale not seen in the Armed Forces since the Vietnam War.

•As the defense industry grew, in large part due to the billions of dollars set aside for it in Reagan’s budgets, Electromagnetic Sciences developed into one of the primary contractors for larger defense firms such as ITT, Raytheon, and Allied Signal. Historically, the company had recorded an impressive 40 percent annual growth rate, primarily through its success in applying technological innovations to satellite communications. From the 1980s onward, however, Electromagnetic Sciences focused on the development of electronic countermeasure systems, including devices that detect and adversely affect the functioning of an enemy’s radar system and/or missiles.

In 1985, the company reported that 77 percent of its total sales volume was ultimately for U.S. government end use. Yet Electromagnetic Sciences’ big break came in the spring of 1986, when ITT/Avionics expanded a contract it had already awarded the company in late 1985. The new contract, which increased from $8.5 million to $15 million overnight, equaled nearly half of the company’s sales in 1985 and immediately catapulted Electromagnetic Sciences to the forefront of those firms working in the area of electronic countermeasures and satellite communications. The contract involved the electronic control of satellite beams and reconfiguration of antenna patterns within two important Department of Defense satellite programs, Milstar and Defense Satellite Communications System III (DSCS III). Milstar was a command, communications, control, and intelligence system used to direct United States Armed Forces during wartime. For DSCS III, the company manufactured beam-forming networks and other component parts. Together, these projects represented the largest contract Electromagnetic Sciences had worked on to date. Even though pressure to reduce the federal budget began to cut into Reagan’s budget for the military, nonetheless, they were the last projects for consideration under the federal deficit reduction measures since they were among the highest priorities of the Department of Defense.

It seemed as if Electromagnetic Sciences was assured of continuing success. But as the deficit reduction measures began to take millions and millions of dollars out of the military budgets during 1987 and 1988, the last two years of Reagan’s presidency, and fiscal responsibility became the catch-phrase of the day for politicians in Congress, the defense industry began to suffer. Management at Electromagnetic Sciences, however, was astute enough to see the difficulties ahead and develop the full potential of its LXE division. The company’s LXE division had been created in 1983 to take advantage of the burgeoning materials handling industry in the United States. LXE began its life by providing radio-linked communications systems for the inventory control of a given business and its automatic product identification. Used primarily in warehouses or factories where an employee uses a portable computer terminal to scan bar code data that is then immediately transmitted to a central computer, by the end of fiscal 1988 the company’s LXE division materials handling systems were employed by more than 400 companies and totaled approximately 20 percent of its revenues for the year.

Company Perspectives:

Fortunately, even though ours is an extremely technical business, it is not as hard to understand as it first might seem. Simply stated, we help provide wireless communications to a world on the move. Our edge in this new world of wireless is our unique range of technologies and our unmatched experience.

As defense industry contracts began to decline, management decided to capitalize on and extend the bar code technology already developed by its LXE division. LXE had developed its own special RF (radio frequency) bar code technology. Conventional bar code technology, like the one found in grocery stores where a clerk slides a customer’s can of tuna fish across a glowing slot embedded into the checkout stand and an electronic beep is heard, uses a device that is connected by wires to the store’s computer. LXE’s bar code technology, in contrast, was perfectly matched for large warehouses or factory settings where a bar code device with wires attached to a computer is hardly practical. RF bar code devices made by LXE transmitted their data over radio waves and made it possible for an employee to scan inventory items located anywhere in the warehouse and transmit it immediately back to the central computer that tracks them. By the end of 1989, LXE was selling its innovative bar code systems to customers like the Port of Singapore (which operated more than 500 LXE terminals), AT&T, and Ford Motor Company, and it accounted for approximately 35 percent of the company’s total sales. In fact, LXE had become so successful that management at Electromagnetic Sciences decided to spin off LXE to form the operating division into an independent subsidiary. Within a few years, LXE Inc. offered its stock for sale on the NASDAQ exchange.

The 1990s and Beyond

Although Electromagnetic Sciences had successfully diversified its product line so that by 1990 only 41 percent of its sales were accounted for by Defense Department contracts, the company did not cut its ties to the defense industry. This proved useful when the firm began to profit with the renewed interest in space exploration during the early 1990s and the growing interest in satellite communications. During this time, Electromagnetic Sciences won a contract from NASA to design and manufacture a radar system to conduct experiments in discovering how the earth’s atmosphere could be used to slow the re-entry of spacecraft returning from trips to the moon or Mars, for example. In addition, the company also won a contract from Hughes Aircraft Corporation to manufacture component parts for a new communications satellite, as well as a contract from AT&T to design and manufacture component parts for that company’s commercial satellites. Electromagnetic Sciences had also invested large amounts of money toward the research and development of new, highly innovative antennas and antenna-control networks that were ten times smaller than any previous design used in space and airborne equipment. This strategic outlay of capital enabled the company to take advantage of the growing commercial development and use of small, low-level satellites in space.

By 1993, Electromagnetic Sciences was one of the fastest growing companies in what had become known as the wireless communications industry. During that year, management decided to make a strategic acquisition, to better position itself within the marketplace. CAL Corporation, a firm based in Ottawa, Canada with more than $24 million in sales in 1992, specialized in designing and manufacturing communications and various other electronic systems for the American, European, and Canadian space programs. In business for nearly 20 years, the company was a leader in the development of mobile satellite communications equipment, primarily concentrating on the production of antennas and terminals for corporate jets and trucks. CAL Corporation’s products allowed for the continuous satellite-based communications required for the longrange operation of aircraft and delivery trucks. One of the reasons for the purchase was that CAL Corporation operated an extensive network of offices in the United States, Canada, Australia, and the United Kingdom. Management at Electromagnetic Sciences regarded the acquisition of CAL Corporation as one of the best opportunities to extend its own operations around the world.

At the same time, Electromagnetic Sciences announced that it would form a wholly owned subsidiary, EMS Technologies, Inc. This new subsidiary assumed the responsibility of conducting the company’s microwave and antenna businesses. With the acquisition of CAL Corporation and the earlier spin-off of LXE, the company’s reorganization strategy had been completed. Electromagnetic Sciences was functioning as a holding company, while its operating businesses were conducted through three separate and distinct subsidiaries, including EMS Technologies, Inc., CAL Corporation, and LXE Inc. By the end of 1994, with sales at an all-time high of $117 million, Electromagnetic Sciences reported that its wireless data communications systems accounted for 53.5 percent of sales for the year and its advanced communications and signal processing electronics systems accounted for 46.5 percent of sales for the year. The company’s sales to the United States government amounted to approximately 30 percent of its total sales volume.

The company reported sales of $128 million in 1995 and rising sales through 1996 and the first half of fiscal 1997. In 1995 and 1996, EMS Technologies and CAL Corporation had record orders and LXE Inc. continued to increase its sales in the materials handling and wireless logistics and communications field. Most impressively, the company’s exports to Europe alone grew from six percent to 24 percent between 1991 and 1996. This fact alone is reason enough to believe that management at Electromagnetic Sciences is astute enough to interpret the most promising opportunities and turn them into profits.