Odetics Inc.

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Odetics Inc.

1515 South Manchester Avenue
Anaheim, California
U.S.A.
(714) 774-5000
Fax: (714) 774-9432

Public Company Incorporated: 1969
Employees: 600
Sales: $87.7 million
Stock Exchanges: NASDAQ
SICs: 3572 Computer Storage Devices; 3821 Laboratory
Apparatus& Furniture

Odetics Inc. designs, develops, manufacturers, and markets specialized information automation products and other high-tech machines. Product examples include magnetic tape cartridge and cassette handling subsystems for automated tape library systems and time-lapse VCRs used in commercial and industrial closed circuit television security and surveillance applications. The company relied heavily on sales to governments during the 1970s and 1980s before it began deemphasizing that market in the early 1990s. Odetics is distinguished by its unique corporate culture.

Odetics was started in 1969 by six engineers: Cran Gudmund-son, Jerry Muench, Gordon Schulz, Jim Welch, Jim Reisinger, and Joel Slutzky. The men were all working at Leach Corp. in California when Slutzky approached the others about jumping ship to form a new company. The aerospace industry was booming and Slutzky believed that they could find a niche there. Specifically, he recognized the need for a high-quality, long-life magnetic tape recorder to store and forward digital data in space. In fact, the 29-year-old Slutzky had approached his managers at Leach about stepping up the company’s efforts related to spaceborne tape recorders. “But they decided to expand into the more lucrative computer peripheral market,” Slutzky said in a February 1987 issue of Industry Week. “So I went to five key people in the company and asked them if they were interested in starting their own company to build spaceborne recorders. They said yes.”

Slutzky, who already had a wife, a son, and a daughter, quit his job and headed east to round up investment capital. To his surprise, he was quickly able to line up about $600,000 in financing for the new venture. His partners eventually left their posts, as well, and together they formed Odetics. They sublet a corner of a building in Anaheim, California, and got to work developing an improved version of the spaceborne tape recorder that they had worked on at Leach. Because they were competing with the likes of corporate giants RCA, Borg-Warner, and Emerson, the engineers had to prove themselves in the market. Impressively, Odetics managed to squeak out a profit in its first full year of operation.

Because he had initiated the venture, Slutzky was the natural choice to head Odetics. Aside from his entrepreneurial nature Slutzky was a techno-wiz and self-admitted workaholic. His superb math aptitude had emerged at Senn High School in Chicago, where his teachers advised him to major in engineering at college. He picked up a couple of degrees in math and science at the University of Illinois and taught metallurgy for a while after graduation. He eventually moved into the private sector and ended up in California at North American Aviation, which was subsequently purchased by defense-industry behemoth Rockwell International. At North American, Slutzky worked on missile guidance systems before moving to Leach. Slutzky served as manager of mechanical engineering at Leach, where he helped design spaceborne tape recorders.

During much of the 1970s the Odetics engineers were eating, sleeping, and breathing spaceborne tape recorders. Their products earned the company a good reputation in the aerospace industry, and Odetics managed to post profits throughout the decade. After establishing a presence in the tape recorder niche, the company decided it was time to branch out into a new area. After extensive research and development, Slutzky and fellow executives settled on time-lapse video recording. The talented Odetics engineering staff developed a breakthrough technology that adapted the half-inch VHS VCR to time-lapse recording. The innovation worked in space and on earth and could be used in applications ranging from convenience stores and automated teller machines (for security purposes) to space flight.

Odetics was again battling established corporate giants when it targeted time-lapse video recording technology. Despite competition from venerable Japanese competitors Panasonic and Sony, the superior engineering at Odetics allowed the firm to capture 50 percent of the U.S. market within a few years. Thus, Odetics sustained its profitability into the early 1980s. Having achieved success in two markets, management decided to diversify into other product groups. To that end, Odetics decided to go public and made its initial public offering in 1981. Enthusiastic investors dumped millions of dollars into the company, and Odetics funded a new initiative during the early and mid-1980s. The company also used the cash to secure dominance in its original two markets.

Slutzky decided to target the burgeoning and fascinating field of robotics following the 1981 stock offering. Odetics’s push into robotics was inspired by engineer and tinkerer Stephen Bartholet. Bartholet served as senior engineer at Odetics during the development of the company’s first robot—Odex 1. Odex 1 was the culmination of Bartholet’s lifelong fascination and garage tinkering with robotics. His enthusiasm eventually convinced Slutzky to devote millions of dollars in research and development toward the Odex project. The idea was to develop an “intelligent” robot that could be used to fight fires, clean up hazardous wastes and nuclear accidents, or do battle, among other tasks.

In 1984 Odetics unveiled its amazing Odex 1, a six-legged walking robot that weighed only 300 pounds. Its onboard computer could be operated remotely and the robot moved under its own power. To display the contraption’s agility, engineers commanded Odex to walk to a truck, get on the truck, and then actually move the truck. The device’s tremendous strength-to-weight ratio wowed observers and Odetics quickly snared orders from the army and navy, the Department of Agriculture, the National Aeronautics and Space Administration (NASA), and others. Odetics received the well-known Private Sector Award in 1984 for its work in robotics, and the original Odex 1 prototype was later put on display in the Smithsonian Institution.

During the next few years Odetics worked to hone its robotics technology and to develop other intelligent devices. Following a Stanford University marketing study, Odetics began gearing its robotics technology to serve a wide array of different markets. By 1986 Odetics had developed robot technology that could be used to fight fires in nuclear facilities and on ship decks and clean up nuclear, biological, and other dangerous wastes. The company expected those capabilities to generate particular interest for Superfund cleanups under the Department of Energy and Department of Defense. In addition to its robotics breakthroughs, Odetics’ list of credits by the mid-1980s included taking pictures of Chernobyl’s nuclear accident from space, making flight recordings on NASA’s space shuttle, developing a special laser scanner for the Department of Agriculture, and building docking and birthing devices utilized by NASA.

Odetics generated revenues of $31.5 million in 1985 and net income of nearly $500,000. Sales rose to $33.1 million in 1986, although heavy investments in new robotics research diminished the company’s earnings to a measly $33,000. Only by instigating a company wide salary deferral for the firm’s 440 employees was Odetics able to sustain its legacy of profitability in that year. Because of the relatively slow sales and profit growth, some investors became disenchanted—one group even filed a lawsuit claiming that the company had misled investors about the risks associated with its projects. Slutzky maintained that Odetics was operating with its eye on the future by developing technologies for markets that would not fully bloom until the 1990s. “We are not here for the quarterly profits,” he said in the Industry Week article.

Despite sporadic profit levels, no one could deny that the firm’s technological feats were impressive. There were many reasons for those successes, but Slutzky’s unique management style was likely the most important factor. Indeed, Slutzky had earned a reputation in U.S. industry as a maverick and nonconformist— and not because he was one of the few chief executives that sported a beard. The coffee tables in Slutzky’s office reception area wore wing tips, shirts, and ties, and Slutzky once had kept his six-foot pet alligator in the office. Every year, Slutzky rented a theater for his “associates”—he banished the term “employee”—so that they could stage their own play productions. He even sponsored a sock hop during a work day. Associates dressed in 1950s-style garb and period music flowed from the public-address system all day.

Odetics also held an annual company Olympics, which featured wheelbarrow races and wienie-eating contests. Slutzky once encouraged a consciousness-raising event in which associates were allowed to write anonymous notes to their bosses and peers and tell them exactly what they thought of them. Slutzky held that the unusual work environment was necessary to relieve the stress of long hours and to cultivate a creative, spontaneous work atmosphere. Reflecting the company’s singular philosophy were two flags hanging outside of company headquarters with the slogans; “An adventure in American Creativity” and “Long Live Liberty.” The Odetics workforce did embody the American dream, with workers that had immigrated to the United States from 21 different countries. The company’s employee-focused management philosophy earned it a place in the book 100 Best Companies to Work for in America and was evidenced by an extremely low employee turnover rate (just five percent in the late 1980s and early 1990s).

By 1987 Odetics was manufacturing spaceborne tape recorders, time-lapse video cameras for security systems, audio recorders for courtrooms, automated television broadcast carts, and the six-legged, superstrong robot. Most of its sales were to government departments. Spurred by orders from the thriving defense sector, sales rose steadily during the late 1980s. By the early 1990s Odetics was generating more than $60 million in annual revenue. Unfortunately for the company, however, growth in government expenditures began to slow. The Department of Defense, particularly, slashed its procurement budget, leaving many contractors looking for work. To overcome the slowdown, Odetics managers scrambled to reorient their product mix for the private sector.

Slutzky and fellow executives decided to use previously developed Odetics technology to target the data storage industry. It invested heavily to invent a magnetic tape cartridge and cassette handling subsystem that could be used in automated tape library systems. Those systems were used to store mass amounts of computer data. Odetics also began manufacturing large library cart machines used by broadcast and cable-TV station operations to store video and other information. The company also beefed up its efforts to market time-lapse VCRs and related products used in commercial and industrial closed circuit television security and surveillance applications. As a result of the new strategy, the percentage of revenues attributable to government purchases plummeted to less than 50 percent in the early 1990s, then to only about 25 percent going into the mid-1990s. President Bush visited Odetics during his 1992 campaign, praising the company as a model of peacetime technology conversion.

Despite the firm’s successful conversion to private-sector markets and its rising revenue base—the company was capturing revenues of $70 million by 1992—its stock price languished. Having reached a high of $12 in 1985, the stock price dropped and was mired around $8 by 1993. Part of the problem was that investors were still unsure of the company’s ability to generate long-term profit gains. The doubts were not without merit; Odetics sales dropped about one percent during 1993 (fiscal year ended March 31) to $69.3 million, a slim $141,000 of which was netted as income. Nevertheless, Slutzky remained optimistic and the company continued to operate much as it had for the past 24 years (as evidenced by a spur-of-the-moment contest to win a free lunch by shooting a hockey puck past Slutzky in the company cafeteria in 1993).

New product introductions and recovering markets helped push firm sales up 20 percent in 1994 to $84.1 million, about $1.8 million of which was netted as income. Partly because of research and development expenditures, the company was forced to register its first income deficit since its founding in 1969 during the 1995 fiscal year ended March 31. The income slide intensified during the last quarter of 1994 and the first quarter of 1995, which helped to push the organization’s stock price down to around $4 by mid-1995. Management remained optimistic however, and was banking on products that were in the works to sustain revenue growth and boost long-term profitability, particularly products related to data storage, communications, and multimedia. Its major product categories remained automated tape libraries, digital video processors, time-lapse video recorders, and digital data recorders. The company was employing about 600 workers going into the mid-1990s in Anaheim and at its El Paso, Texas, plant.