Grundig AG

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Grundig AG

KurgartenstraBe 37
D-90762 Fürth
Germany
(49) (911) 703-0
Fax: (49) (911) 70 53 76
Web site: http://www.grundig.de

Private Company
Incorporated: 1945 as Radio Vertrieb Fürth
Employees: 6,114
Sales: DM 2,833 million (1997)
SICs: 3579 Office Machines, Not Elsewhere Classified; 3651 Household Audio & Video Equipment; 3661 Telephone & Telegraph Apparatus; 3663 Radio & Television Broadcasting & Communications Equipment; 3823 Industrial Instruments for Measurement, Display, & Control of Process Variables, & Related Products

Grundig AG is a German consumer electronics manufacturer with significant shares in the market for television sets, video recorders, satellite reception equipment, and digital audio and television reception equipment in major European countries. Almost half of the company’s DM 2.83 billion in sales in 1997 was generated from television sets; 12.6 percent of sales came from car audio equipment, ten percent from audio/hi-fi and video equipment, 7.5 percent from satellite reception equipment, 3.4 percent from professional electronics, and two percent from telecommunication equipment such as mobile phones. Only three percent of Grundig’s sales revenues came from non-European countries, whereas of the lion’s share—about 88 percent—half was generated in Germany and half in other countries of the European Union. Headquartered in Nuremberg, Germany, Grundig runs production facilities in Germany, Portugal, Great Britain, and Austria and development centers in Denmark, Great Britain, Austria, and the United States. Of Grundig’s share capital, 95 percent is held by a group of Bavarian investors.

Dynamic Beginnings After World War II

In 1945 Max Grundig, a 37-year-old German entrepreneur who had stored the equipment of his electrical workshop in a small Bavarian village, set up shop in Fürth near Nuremberg. He rented space for his new business, Radio Vertrieb Fürth, and began producing transformers for radio receivers. Soon after, Grundig ran out of space and—after long negotiations with the city government—moved to premises near the city limit on a long-term lease. While the first buildings were going up at the new location, Max Grundig hired the best engineers and business administrators he could find in Germany. With 45 employees, Grundig produced the do-it-yourself radio kit “Heinzelmann.” This single-circuit receiver was freely available in the otherwise highly rationed consumer goods market of postwar Germany and it became an instant success. Grundig heavily expanded his business to meet the huge demand for radio receivers. In 1948 Max Grundig founded Grundig Werke GmbH. The company soon employed 650 people and new production facilities and research labs were built.

In the 1950s the Grundig company’s growth was breathtaking. Grundig’s output of pioneering innovations included the world’s first miniature television cameras for the inspection of pipelines and boreholes, Europe’s first mass-produced VHF receivers, Germany’s first television camera for monitoring systems, auto radios, music cabinets with 3-D sound, portable radio sets, tape recorders, dictating machines, and measuring instruments. Grundig became Europe’s largest radio manufacturer in 1952, the world’s largest producer of tape recorders in 1955, and the world’s largest manufacturer of radiograms in 1956. Grundig entered the office equipment market in 1957 by acquiring a majority share in two important German companies: the Triumph-Werke in Nuremberg and the Adler-Werke in Frankfurt/Main. In the same year the world’s largest production facility for tape recorders was set up in Bayreuth in upper Franken. Within only a decade Grundig’s work force climbed to 12,000 in 1956, and it more than doubled again within only three years, reaching 26,000 in 1959. By that year seven million machines had left Grundig’s assembly lines.

More Innovations and Growth Outside Germany in the 1960s

Grundig entered the 1960s with 30,000 employees, 8,000 of them working in the main facilities at the company’s headquarters in Fürth. More Grundig innovations, such as TV sets with wireless remote controls, the smallest German pocket AM radio receiver weighing just 250 grams, and the first portable TV sets made in Germany were put on the market in 1960 and 1961. Later in the 1960s Grundig pioneered developments in the hi-fi consumer market and technologies for storing and transmitting images for professional applications. In the hi-fi field, a series of modular units was introduced that allowed consumers to design their own configuration. A fully transistorized hi-fi amplifier was introduced in 1963, followed by the first Grundig hi-fi receiver in 1967. In the consumer television market, Grundig introduced the first German high-definition TV set with 875 lines in 1962 and demonstrated for the first time the transmission of broad-band television waves via a twin-core telephone line. In 1968 Grundig designed the first video transmission for professional applications. The new technology, developed by Grundig engineers, enabled television images to be transmitted over a telephone line; within a minute they were then available as a photographic record. A year later Grundig publicized its so-called “leakage cable technology,” which allowed cordless picture transmission between fixed and moving parts of professional television systems.

Responding to the ever-growing demand for measuring instruments, Grundig entered the planning stage for a new electronics production facility in 1960. In addition, in response to the shortage of skilled personnel, Grundig’s facilities for professional education were enlarged one year later. In a first attempt to expand abroad, a tape recorder factory was set up in Northern Ireland in 1960. Five years later the second foreign facility was built in Braga, Portugal. In 1968 Grundig sold its office equipment subsidiaries Triumph and Adler to the American firm Litton and concentrated on strengthening its consumer electronics business. In 1969 a newly built production facility for TV sets was opened in Rovereto, Italy. Another Grundig factory was opened in Creutzwald, France, in 1971.

Expanding at Home in the 1970s

In the 1970s Grundig expanded its facilities in Nuremberg. First, a factory for the production of color TV sets and a production plant for plastics were opened in 1970. Then in 1973 the central customer service department as well as the Nuremberg sales office were opened in “Grundig-City” in the Lang-wasser district of Nuremberg. In 1978 a new video recorder factory started production. On April 1, 1972, the Grundig-Werke GmbH was transformed into a public company—the Grundig Aktiengesellschaft (Grundig AG).

In the following years Grundig received two large orders from corporate customers. As an official supplier for the Olympic Games in Munich in 1972, Grundig delivered 9,000 monochrome and color television sets for informational displays. In 1974 Grundig equipped 140 operating centers of the Deutsche Lufthansa with a television information system. In the consumer electronics market, new product introductions included the first cassette deck for hi-fi systems, “Super Color” television sets with fully transistorized chassis, the first German portable color television (which was among Grundig’s most successful products ever), the world’s first dictating cassette recorder with a built-in minute display, the first Grundig car radios with cassette players, and the first German color television projector.

Sales passed the DM 2 billion mark for the first time in the financial year of 1974-75, and in 1978-79 Grundig products generated sales of more than DM 2.9 billion. In 1979 “an equity link with the Dutch Philips group was established,” according to Grundig.

Changing Owners and Mastering Difficulties in the 1980s

By 1982 Max Grundig’s empire consisted of 23 manufacturing plants and employed about 31,500 people. One year later, it generated more than DM 3 billion in sales for the first time in its history. The company was struggling, however, with profitability. When the company’s founder retired from company management in 1984 and sold his firm to the Netherlands-based Philips Electronics N.V., Europe’s largest consumer electronics company, more than 170 million Grundig radios and television sets had been sold worldwide. Philips took over leadership of the Grundig E.M.V. Elektro-Mechanische Versuchsanstalt Max Grundig GmbH & Co. KG, Fürth, which had been the parent company of Grundig AG since 1972, and agreed to pay a dividend of about DM 45 million annually to the Max-Grundig-Stiftung, the founder’s family foundation, whether or not Grundig AG turned a profit.

Company Perspectives:

People are our primary concern. And making technological developments compatible with their desire for more and more comfort. That is what we always strive for. Those are the goals Grundig sets for itself with each new innovation. The result is forward-looking technology, together with timeless, elegant and, above all else, functional design. For it is not simply high tech. Technology must, in addition, always be as simple as possible to use. Better ideas and a perfect ergonomic arrangement of the functional elements make Grundig products comfortable to use. That has always been Grundig’s philosophy, and it runs through every product line. Stimulating aesthetic is also significant because it is the visible expression of this philosophy.

Led by Hermanus Koning, the new head of the executive board, Grundig managed to get out of the red within only two years. The price paid for this, however, was a cutback of the work force by almost 40 percent—down to about 19,200. On the other hand, Grundig intensified marketing efforts and had a good hand with some new product introductions. After investing DM 80 million into the reconstruction of a production facility for a new flow production line, the first video recorders went into production there in 1986. In the same year Grundig made some of its most successful market introductions: the world’s first mass-produced 100 Hz color TV set, a technology that solved the problem of large-area flickering in conventional TV screens, and two “Jumbo” TV sets with screens of 82 cm and 95 cm in diameter. Demand for those innovations were so high that orders were placed on waiting lists. A new marketing strategy was pursued when Grundig introduced a new hi-fi product line of extraordinary quality. As the name, “Fine Arts by Grundig,” suggests, the line was aimed at the professional hi-fi equipment market dominated by specialized firms. Another group of high-priced products was marketed under the “Design by F.A. Porsche” label, which was aimed to take advantage of the renowned auto maker’s reputation, including color TV sets and car radios with alphanumeric station display and automatic frequency selection. When Chief Executive Hermanus Koning retired in 1987, Grundig reported a net profit of DM 100 million for the first time after many years of losses, and sales reached DM 3 billion again.

After the new chief executive, Johan van Tilburg, took over, Grundig’s strategy was redirected to better compete in a Japanese-dominated electronic consumer goods market. A facility in Malaysia was purchased for the production of audio equipment. Beginning in 1988, Grundig supplied the two Japanese electronics giants Matsushita and Hitachi with video heads. In 1989 Grundig entered the market of environmental monitoring technology. At the end of the 1980s Grundig’s sales reached DM 3.43 billion, net profits amounted to DM 140 million, and about 18,800 people were on the group’s payroll. In December 1989 the company’s founder Max Grundig died at the age of 81.

Surviving Turmoil in the 1990s

In 1990 Grundig’s largest facility for the production of color TV sets and plastic cabinets in Nuremberg was modernized and interconnected. After the German reunification, Grundig started distributing its product range to the new East German market and enjoyed two extraordinary years of growth in sales. In the financial year 1989-90 sales rose by 10.7 percent, which was much higher than the industry average, and in the record year 1990-91 sales jumped again by 20 percent, to DM 4.55 billion. In the same year, Grundig reported a net profit of DM 190 million and employed 21,170 people. Aside from the run on Grundig products by East German consumers and cost reductions through rationalization, other factors—such as new system solutions in industrial and office electronics offered by Grundig’s newly formed “Systems Technology” division, Grundig’s introduction of a cordless telephone, a new hotel communication system, and in particular a new television set with the new 16:9 picture ratio—contributed to this success. When CEO Johan van Tilburg resigned of his own accord at the end of 1991, however, Grundig entered a decade of instability and restructuring in a stagnating consumer electronics market.

Due to worldwide overcapacities and increasing competition, a Spanish TV production company that belonged to the Grundig group, Fabricantes Europeos de Televisores, S.A., closed in 1992. In 1994 Grundig underwent a restructuring program. All Grundig divisions were transformed into legally independent companies that became subsidiaries of Grundig AG, which functioned as a management holding. The TV production facility in France was sold. At the same time, sales fell by nine percent because of decreasing prices for consumer electronics, an area that generated about 85 percent of Grundig’s total sales. Consequently, Grundig reported a loss of DM 348 million in the financial year 1993-94. Hopes to get out of the red in 1995—Grundig’s 50th anniversary year—were thwarted. Due to further declines in prices for consumer electronics in a stagnating market, together with the growing strength of the Deutsche Mark against the dollar and several other European currencies, Grundig reported a net loss of DM 598 million. About 50 percent of it was caused by extraordinary expenses for restructuring and by financial support to an Argentine licensee.

At a press conference in 1996 Grundig’s supervisory board announced that it and Philips had mutually agreed to end Philips’s domination of Grundig by the end of 1996. Thereafter, Grundig aimed to concentrate on its core competencies in consumer electronics. It sold or closed down facilities connected with other markets such as professional electronics. It closed down the production facility in Malaysia and cut down a quarter of its work force. Grundig’s sales in markets outside of Europe contributed about six percent to total sales in 1996. Through its own sales offices in Poland, Russia, and the Middle East, and through cooperation with other firms, sales rose by 30 percent in Central European, Middle Eastern, and Asian markets. On the other hand, the decision of two other German electronics giants—Siemens and Blaupunkt—to cease production of entertainment electronics cost Grundig DM 227 million in lost components sales to those companies.

Grundig announced losses of DM 631 million at the end of the financial year 1996. After spending about DM 1.5 million in the previous years—about $950 million at that time—to keep Grundig out of debt, Philips announced on January 8, 1997 that it would give up control over Grundig and restrict its responsibility for any further losses to its duties as a passive minority shareholder. Philips also withdrew DM 250 million from Grundig’s capital. In the middle of January the Grundig supervisory board replaced Grundig CEO Pieter van der Wai, who officially resigned on February 3. According to Reuters, van der Wai cited an overconcentration in the European and German markets and an overly broad product array as the two primary reasons for Grundig’s serious problems. When Grundig reported net losses of DM 631 million for 1996 in June 1997, Philips fought Grundig’s demand that it be compensated by Philips for the whole sum. In March, Grundig had announced a DM 553 million loss, which now also included restructuring costs resulting from Philips’s decision to end its participation in Grundig. On July 18, 1997, Philips announced that it would cut its share in Grundig from 31.6 percent to five percent, and it sold 26.6 percent to Botts & Company Ltd. in London. The British investment bank acquired another 16.4 percent, which the Hohenstaufen Vierundvierzigste Vermógensverwaltung GmbH in Cologne had purchased from the Grundig family through Philips. Philips also was planning to sell 52 percent of Grundig shares held by the Max-Grundig-Stiftung to the Botts & Company immediately, which would have made them the owner of 95 percent of Grundig’s shares. Philips could not reach an agreement with the Max-Grundig-Stiftung, however, which was obliged to sell its Grundig shares to Philips by 2004. The new speaker of Grundig’s executive board, Pieter de Jong, criticized Philips sharply since he and Bavaria’s minister for economy had already offered Philips a takeover by a Bavarian group of investors.

After Grundig’s former head of its supervisory board, Christian Schwarz-Schilling, resigned his position in mid-1997, the former chief executive of Krauss Maffei AG, Burkhard Woll-schláger, became the new chair of Grundig’s supervisory board on August 1. With the support of the Bavarian Minister of Economics, Otto Wiesheu, Wollschláger worked out an agreement that resolved the dispute with Philips. Among other things, Philips agreed to pay another DM 400 million to compensate Grundig’s 1996 losses. Pieter de Jong, speaker of Grundig’s executive board, resigned after the first session of the new Grundig supervisory board on September 24,1997. He was succeeded by Herbert Bruch, who formerly headed Grundig’s Personnel and Industrial Relations divisions. Four other top executives left the company in the same year. On December 18, the contract between Philips and the new owner group Bayer-ische Wagnisbeteiligung GmbH led by Bavarian Banks was officially signed in Fiirth. It included the cancellation of Philips leadership over Grundig AG.

At the end of 1997 Grundig reported a net loss of DM 118 million and sales of DM 2.8 million. In February 1999, Philips’s share in Grundig was down to 0.5 percent, and Grundig’s work force amounted to 5,700. It was planned that the remaining production facilities in Portugal, Great Britain, and Austria, as well as the two German factories in Bayreuth and Nuremberg, would continue operations, while Grundig headquarters would be moved to Nuremberg by spring 1999.

For the first time since 1972, the Grundig AG was independent again. In the 1998 annual meeting, Grundig shareholders decided to boost capital by DM 134 million and to concentrate on Grundig’s strengths: high quality products and technological leadership. In a press release the company announced a slightly positive result for the first half of 1998 and aimed to concentrate on its core business—consumer electronics—and promising niche markets such as office electronics and measuring instruments. In November 1998, Grundig launched a new advertising campaign that emphasized Grundig’s technological and innovative strength featuring four of the company’s star products: the brilliant 100 Hz TV sets, an Internet Box, an audio compact set with space-fidelity technology, and the first serial digital audio broadcast component for use in cars. While looking for new strategic partners, Grundig’s R&D efforts were directed in particular toward the market introduction of equipment for new digital services delivered by satellite, terrestrial, and cable. In February 1999, Grundig announced the founding of the new subsidiary, Grundig Digital Systems, headquartered in San Jose, California, and the takeover of R&D capacities for digital television broadcasting from TV/COM International, another California firm located in San Diego, where it was planning to work on new generations of set-top boxes and integrated digital modules for TV sets. In January 1999, Grundig had acquired a license from the American firm Macrovision Corp. for its pay-per-view copy protection technology to be included in its set-top decoders, which restricts unauthorized recording of pay-TV programs by consumers.

Principal Subsidiaries

Grundig Fernseh-Video Produkte und Systeme GmbH (Germany); Grundig Marketing und Vertrieb Europa GmbH (Germany); Grundig CAR Audio-Produkte GmbH (Germany); Grundig Austria Gesellschaft m.b.H. (Austria); Grundig Audio Internacional Lda. (Portugal); Grundig UK Ltd. (Great Britain); Grundig International Marketing & Sales GmbH (Germany); Grundig Gulf FZE (United Arab Emirates); Grundig Digital Systems.