GenRad, Inc.

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GenRad, Inc.

300 Baker Avenue
Concord, Massachusetts 01742-2174
U.S.A.
(508) 287-7541
Fax: (508) 287-2002
Web site:http://www.genrad.com

Public Company
Incorporated: 1978
Employees: 1,239
Sales: $183.6 million (1996)
Stock Exchanges: New York
Ticker Symbol: GEN

SICs: 3829 Measuring & Controlling Devices, Not Elsewhere Classified; 7371 Computer Programming Services; 7372 Prepackaged Software; 7373 Computer Integrated System Design; 3825 Instruments for Measuring & Testing of Electricity & Electrical Signals

GenRad, Inc. is a worldwide leader in providing after-market service solutions—supplying manufacturers, OEMs, and their customers with hardware, software, and services to optimize manufacturing and after-market service productivity through increased yields and lower life cycle costs—for the inline testing of printed circuit boards (PCBs), primarily in the networking, computer, communications, transportation, and automotive industries.

In 1997, the company had sales offices in Fremont, Irvine, and San Jose, California; Altamonte Springs, Florida; Arlington Heights, Illinois; Frederick, Maryland; Concord and Westford, Massachusetts; Novi, Michigan; Portland, Oregon; and Piano, Texas in the United States, and in Cedex, France; Ismaning and Munich, Germany; Milan, Italy; Science Park, Singapore;Zurich, Switzerland; and Maidenhead, Manchester, and Windsor, United Kingdom.

Major customers include personal computer (PC) board fabricators Avex Electronics Inc., Jabil Circuit Inc., and Solectron; computer and telecommunications equipment manufacturers Acer, Alcatel, Cabletron Systems, Compaq, Dell, Digital Equipment Corp., IBM Corp., Lucent Technologies, Motorola, Nokia, SCI Systems, Seagate Technology Inc., and U.S. Robotics; and transportation manufacturers Aston-Martin, BMW AG Motorcycle Group, British Airways, Chrysler Corp., Claas, Ford Motor Co., Jaguar, and Saab AB of Sweden; as well as the U.S. Marine Corps, and an Asian military manufacturer. Major competitors include Hewlett-Packard Co., Siemens AG, and Teradyne.

The company has three major divisions: Advanced Diagnostic Solutions (ADS), Electronic Manufacturing Systems (EMS), and Integrated Customer Services (ICS). Complementing each other, the three divisions give the company unprecedented breadth of testing solutions to the electronics manufacturing markets.

The Manchester, England-based Advanced Diagnostic Solutions division focuses on providing comprehensive diagnostic solutions to transportation manufacturers, especially in the automotive industry. The ADS division brought in approximately 23 percent of total 1996 revenues for the company.

The Concord-Massachusetts-based Electronic Manufacturing Systems division, formerly known as Concord Products, which includes circuit testing, functional testing, and the Mitron product line, was responsible for approximately 73 percent of revenues for 1996. Circuit testing attempts to determine whether integrated circuit parts are physically connected to the PCB. Functional testing—comprised mainly of the company’s “GENEVA” (GenRad’s Extended VXI Architecture) product line, a family of integrated, open, standards-based test systems, designed to operate on the manufacturing line and featuring integrated scanning techniques with the capability for performing design, parametric, and compliance tests—verifies that the PCB does what it is supposed to do. The Mitron product line consists of software which integrates not only the board and circuit testing machines, but other testing devices in a manufacturing line.

The Integrated Customer Services division was created by the acquisition of several companies in 1996. The ICS division focuses on custom test programming and test fixture integration to manufacturers of electronic products. Every PCB manufactured and tested requires a program to be written and loaded into the tester to tell the machine how to test the board. Every time a new type of board is tested, a new program must be written. The programming industry that services this area has traditionally been fragmented by region. With the creation of this division in 1996, the company became the largest market share holder in this industry.

The Clapp-Eastham Company, 1906-15

GenRad, which may be the oldest company in the world with the word “radio” in it, traces its roots back to 1906, when Melville Eastham cofounded The Clapp, Eddy and Eastham Company. Located at 100 Boylston Street in Boston, it was started to manufacture x-ray machines. In 1907 Eddy left and the firm was renamed The Clapp-Eastham Company.

Eastham found that the high-voltage spark coils used to excite x-ray tubes were becoming popular with radio amateurs, called “ham radio operators” or “hams,” for their transmitters. The company began to manufacture heavy-current keys, tuning coils, spark gaps, crystal detectors, and many other components used by professional radio operators and hams. As the radio segment of the business grew and the x-ray segment diminished, Clapp, whose interests lay mostly in x-ray equipment, sold his portion of the business in 1910 to O. Kerro Luscomb. That same year, the company moved to a larger facility at Kendall Square in Cambridge, across the river from its old location. By now the company was a staple of the radio industry; its customers included such radio pioneers as E. H. Armstrong, K. A. Fessenden, John Hays Hammond, Jr., G. W. Pickard, G. W. Pierce, and John Stone.

Faced with an increase in commercial competition, and chafed by new restrictions beginning to hamper the company in the manufacture of communications equipment as the industry flourished, Eastham recognized an emerging need for instrumentation in the developing radio field. In 1915, he withdrew from active participation in Clapp-Eastham, leaving Luscomb as manager, and founded the General Radio Company, though Luscomb was interested in Eastham’s new company.

General Radio Company, 1915-World War I

Needing finance capital, the two agreed to contribute patents, ideas, and their individual skills for 25 percent interest apiece. Ralph C. Emery, Ralph C. Watrous, and Cyrus P. Brown, three individual investors, put up $9,000 for the other 50 percent. Eastham rented an office on the third floor of a small building (that was still standing in 1997) at the corner of Massachusetts Avenue and Windsor Street in Cambridge. Eastham brought machinist Knut Johnson from Clapp-Eastham, where he had been employed for the previous two years; Johnson remained with the company until he retired in 1945.

Eastham immediately began designing new instruments and landed a commission to build a nine-phase, synchronous, commutator-type rectifier for the American Telephone and Telegraph Company (AT&T). This rectifier played a part in the early history of the radio-telephone. In 1915, AT&T had successfully made the first transcontinental telephone call via land lines. AT&T, and business partner Bureau des Postes, Telegraphes et Telephones in France, was worried that World War I would interrupt communications between the two continents, and wanted to see if radio could be utilized to extend telephone communications across the Atlantic. The Bureau des Postes installed a receiver on the Eiffel Tower, AT&T erected a transmitter in Arlington, Virginia, using 500 15-watt vacuum tubes connected in parallel, and General Radio’s synchronous rectifier supplied the high voltage required. Though a historic occasion, the experiment was not quite successful, and it would be many years before a practical, reliable transatlantic telephone would arrive.

General Radio continued research and development and, in 1916, published its first instrument catalog. Some of the products listed included a Precision Variable Air Condenser ($25), a Decade Resistance Box ($19), a Precision Variable Inductance ($24), and an Absorption Wavemeter ($60). Besides AT&T, other early customers included The General Electric Company and The National Bureau of Standards.

The following year, when the U.S. entered World War I, General Radio got caught up in the national effort and found demand for its products increasing. In addition to meeting immediate orders for catalog instruments, the company began manufacturing large amounts of portable wavemeters and crystal sets for trench-warfare communications. The company expanded almost overnight from 24 employees to over 200.

At this time, another General Radio part played a small role in another historic radio event. Some of the first instruments shipped for use in the war were a number of precision air capacitors or “condensers,” one of which landed in an Army laboratory in France, where Lieutenant E. H. Armstrong was experimenting with a new circuit to improve the performance of radio receivers. Armstrong quickly appropriated and incorporated the capacitor, his new circuit was successful, and one of General Radio’s first products tuned the first super-heterodyne receiver. Today, the same super-heterodyne circuit is used in virtually every television, radar, and communication receiver worldwide.

Company Perspectives

GenRad, Inc. is a leading knowledge-based solutions provider to electronic manufacturing OEMs and their customers. The company provides integrated test and inspection systems that allow printed circuit board manufacturers to monitor production processes and facilitate diagnostic work with a higher degree of efficiency than ever before.

World War I brought Henry Southworth Shaw to the company. Shaw, a ham operator who had met Eastham when purchasing the company’s products, approached Eastham late in 1917 to ask what he could do to help. Eastham hired him on the spot as an instrument designer, but Shaw, the son of a textile-mill treasurer and a liberal arts graduate of Harvard, soon ended up as bookkeeper and office manager. Errol H. Locke joined the company in 1918 via Harvard and, in 1919, Harold B. Richmond arrived via Massachusetts Institute of Technology (MIT) and a wartime lieutenancy in the coast artillery. Locke, Richmond, Eastham, and Shaw would form the nucleus of the company and guide it for the next 30 years.

When the war ended in 1918 and military contracts were canceled, Eastham wanted to manufacture high-quality measuring instruments, but his partners Brown, Emery, and Watrous, wanted to mass-produce radio components. The dispute was resolved when Shaw bought the three out in 1919 for $32,000, which was the last outside financing the company ever needed through at least 1965. Eastham and Shaw now each held 50 percent interest and served as directors, with Lawrence Mayo, Shaw’s uncle, brought on to replace Emery and Watrous as a third director.

The company spun off a number of important people in the electronics manufacturing industries, including Homer E. Rawson, who joined the company in 1917, eventually becoming vice-president, and Superintendent Ashley C. Zwicker, a former Clapp-Eastham employee who was General Radio’s first foreman. Rawson left in 1919 to join Arthur J. Lush in cofounding Rawson Instrument Company, a manufacturer of sensitive direct-current meters, and Zwicker left in 1920 to found The Acme Apparatus Company, a manufacturer of transformers, rectifiers, and battery eliminators. Later renamed The Delta Manufacturing Company, Zwicker’s brainchild eventually became a part of The Raytheon Corporation.

Between World War I and World War II

In 1920, The Westinghouse Electric Company pioneered broadcasting, airing the results of the Harding-Cox Presidential election over the air on KDKA, Pittsburgh. The dramatic success of this first program stimulated the construction of broadcast stations around the country and soon about 30 were on the air. There were, however, almost no receivers except those built by radio hams, known as “ham shacks,” which quickly became popular neighborhood rendezvous. Practically overnight, the home-built receiver craze developed, as everyone decided that they could do it, too. General Radio, which had been supplying hams with high-quality components for years, now found itself swamped with tens of thousands of orders. The demand persisted for approximately three years, when complete sets became available at reasonable prices, and the do-it-yourself fad died as quickly as it was born.

The following year, the company contracted with the U.S. Navy to manufacture hydrophones, developed by Professor G. W. Pierce of Harvard to detect underwater sounds. The company added two engineers—assistants of Pierce’s at Harvard—H. W. Lamson and P. K. McElroy, to its staff of 135 for the project.

In 1924, General Radio launched into the measurement business in earnest, and began developing and commercializing its long line of instruments, so many of which were firsts in the field. Arthur E. Thiessen, formerly with Bell Telephone Laboratories and Johns Hopkins University, joined the company in 1928 as a development engineer, eventually moving on to marketing, and becoming vice-president of sales in 1944, and a director shortly thereafter.

By 1932, the company was shipping products all over the world, with about 18 percent of all shipments being exported. By 1937, with the lagging European radio industry catching up and the company’s reputation established, exports reached 39 percent of total sales, with products being shipped to the U.S.S.R., England, France, Holland, and Belgium.

As the electronics industry rapidly grew, General Radio published a famous advertisement in 1941 captioned, “We Don’t Want to Grow Too Large.” This may have hurt the company a little. As the threat of another war loomed in the late 1930s, television broadcasting had begun in Great Britain and was approaching commercial form in the United States. Ten years previously, the company pioneered the cathode-ray oscilloscope, with imported tubes from Germany. As satisfactory American tubes reached the market, and demand for oscilloscopes developed, lower-priced competition appeared. Believing that oscilloscopes could be better supplied by others, the company dropped out of the business. In the 1930s, new techniques underlying television and radar rekindled interest, and the company developed, in 1938, a wide-band oscilloscope. The instrument was ahead of its time and was never produced because it was deemed too expensive and complicated. In the 1960s, oscilloscopes far more sophisticated and expensive created a market many times larger than the total instrument market in the 1930s—but General Radio did not make them.

The company entered World War II with two products that played important parts in the war effort—the “Variac” continuously adjustable autotransformer, and the “Strobotac” short-flash light source. The Variac, patented in 1934, is used to efficiently control electrical power (It was another General Radio first which has created an industry that now supports four major competitors.) The Strobotac, created as a result of research by Dr. Harold E. Edgerton and Dr. Kenneth J. Germeshausen at MIT, was the progenitor of electronic-flash units used by photographers, and makes possible the observation, in slow motion, of cyclically recurring events.

Known for its good reputation and solid product line, the company was awash with orders when World War II’s industrial mobilization started. Everyone at General Radio threw themselves into the fervor of technological development. East-ham became an early member of MIT’s famous Radiation Laboratory, where he was responsible for the development of the Loran system of navigation; Richmond became Chief of “Division 5” of The National Defense Research Council, in charge of the development of guided missiles; W. Norris Tuttle pioneered operations research with the Eighth Air Force in Great Britain; their contributions won them, respectively, two Presidential Medals of Merit, and the Medal of Freedom. Other employees became involved in communications, radar, and radar countermeasures at the company and as members of the Radiation Laboratory and the Radio Research Laboratory at Harvard.

Although materials were in short supply, The War Production Board, which established the priority system allocating scarce materials, felt General Radio’s production was important to the war effort and materials flowed in quantities adequate to win the company five Army-Navy “E” awards for excellence in the production of war materials.

Workers were also scarce. The New England Confectionery Company, “Necco” for short, a neighbor completely put out of business by the wartime sugar shortage, came to the rescue. A deal with Necco for use of their workforce, in their factory, solved problems for both companies. General Radio had enough simple, repetitive assembly operations to perform to warrant training and using Necco’s girls, who made substantial and useful contributions. Since General Radio had traditionally been an all-male preserve in the production departments, it was hard for the men to accept help from women. When a small group of girls was trained to do inspection jobs in the factory, the acronym GRIEF (General Radio Inspection Emergency Force), was promptly adopted to designate them.

The problem of adequate space was also eased by the Necco arrangement, but permanent additions were needed. The neighboring building, which had been an automobile showroom and garage, became available, adding 39,000 square feet of office space to the company, making 125,000 square feet total. The company’s revenues jumped from $1.4 million in 1939 to $6.1 million in 1942, and back down to $2.6 million in 1945.

World War II to 1993

After World War II, with the explosion of scientific knowledge, General Radio, formerly a lone wolf struggling to create a market for quantitative measuring equipment, found itself suddenly with dozens of small new companies, short on capital but long on ideas and enthusiasm. From almost a monopoly position, the company moved to one of participation in a hotly competitive industry.

As electronics companies went public in the great stock market surge of the 1950s and 1960s, General Radio continued to quietly expand its ownership among its own employees. But the grand old men of the company were beginning to leave.

In 1950, Eastham, president and chief engineer since the start, retired. He was succeeded as chief engineer by Donald B. Sinclair, who had been with the company since 1934 as a part-time employee while getting his doctorate in science from MIT. Locke retired in 1955 and was replaced as president by Charles C. Carey, formerly vice-president of manufacturing. Richmond retired in 1960 and was replaced as chairman by Thiessen.

Around the same time, the Cambridge facilities were becoming cramped. In 1948, the company found an 83-acre tract in West Concord, with access by road and rail and, in 1952, General Radio’s first suburban building was operating, when the initial wing of a four-wing building was completed. In 1959, when the remaining three wings were built, the Cambridge building was sold, the agreement with Necco was terminated, and General Radio moved into the new building.

The company went public in 1978 and performed well through the 1980s as a tester of PCBs, but ran into trouble in the

1970s when it entered the chip side of the testing market. This move, combined with a lack of focus on the mainstay board-testing business, eventually brought about a financial crisis. In 1992, the company’s total revenues reached $144.2 million, but net loss was $7.7 million. The following year, though the company’s net sales were $158.7 million, a net loss of $43.8 million was incurred.

1993 to Date

James F. Lyons, formerly president and CEO of Harry Gray Associates, was hired as president and CEO in July 1993 and immediately began to turn the company around. Two divisions were sold, huge amounts of debt were written off, and Lyons redirected the company at its board-testing core.

The following year, the company created an internal research and development (R&D) team to create new software and hardware with in-process inspection capabilities and the company turned its first profit in several years, reaching total revenues of $147.9 million and net income of $4.5 million. In 1995, total revenue increased to $158.8 million, with a net income of $12.3 million.

In June 1996, the company acquired Mitron Inc., a manufacturing software company. The acquisition of the Portland, Oregon-based manufacturer of software products, built on the industry standard “CIMBridge” architecture to analyze and report on data gathered from all points on the manufacturing line, gave the company an immediate competitive position in the industry. Concurrently, the company acquired Milpitas, California-based Test Technology Associates, Inc. (TTA) in January and Hudson, Massachusetts-based Testware, Inc. in November, two test programming service companies. The acquisitions gave the company the largest foothold in the test programming industry. The price for the three companies was approximately $5 million and 1,176,000 shares of stock. Additionally, the company purchased the TRACS software product line from Field Oriented Engineering AG, which provided manufacturers of electronic products real-time data collection, analysis, reporting, and paperless repair for improved manufacturing processes and control.

Also in 1996, the R&D team introduced an inspection management tool suite called “InPro,” for use with standard Windows-NT operating platforms. Concurrently, the company unveiled a new inspection system called “The Viper Electrical System,” geared toward consumer markets where low-cost testing is key due to more-simplified PCBs. Revenues for 1996 reached $183.6 million, net income jumped to $27.3 million, and the company ranked in the top 25 corporations on the New York Stock Exchange in terms of price performance for the year.

In 1997, the R&D team released another breakthrough system called “Viper Vision,” with the ability to optically inspect PCBs at various points in the manufacturing line. That same year, the company landed its largest contract ever when it replaced Hewlett-Packard and beat out Siemens to become the supplier of automotive diagnostic systems for Ford’s estimated 20,000 Aston-Martin, Ford, Jaguar, Lincoln-Mercury, and Mazda car dealers worldwide. As part of the $200-$400 million deal, the company planned to build a new facility in Dearborn, Michigan, near Ford’s headquarters, and hire about 150 additional people, plus another 100 employees in Manchester, England. The company already held a similar contract with Saab.

In April 1997, the board of directors authorized a stock repurchase of up to two million shares and K-TEC Electronics selected the company as a partner for manufacturing optimization and information management solutions. In May, the company signed a distribution agreement with Interro Systems. In June, the corporate headquarters moved from Concord to Westford, Massachusetts, and the company announced an agreement, estimated at $10 million in revenues, with Cabletron—a leader in providing high-performance intranet and Internet solutions, including local area network (LAN) and wide area network (WAN) switches, remote access products, and network and systems management software—wherein the company would provide GENEVA Functional Test and Measurement Systems, including “ENCOMPASS” Test Data Management Software and services. December saw the company’s Mitron subsidiary selected by Jabil to provide advanced EMS services.

With the PCB manufacturing market estimated at approximately $600 million annually, with GenRad being the only company focusing entirely on vertical integration of testing functions, and with continuing strategic alliances, partnerships, and contracts, the company was in excellent position to grow.

Principal Subsidiaries

Advanced Diagnostic Solutions (U.K.); Electronic Manufacturing Systems; GenRad Benelux B.V. (Netherlands); GenRad Europe Limited (U.K.); GenRad GmbH (Germany); GenRad Holdings Limited (U.K.); GenRad Limited (U.K.); GenRad SA (France); GenRad Securities Corporation; Integrated Customer Services, Inc.; Mitron Corporation; Test Technology Associates.