Scientific-Atlanta, Inc.

One Technology Parkway
Box 105600
Atlanta, Georgia 30348
U.S.A.
(404) 903-5000
Fax: (404) 903-4775

Public Company
Incorporated: 1951
Employees: 3,200
Sales: 493 million
Stock Exchange: New York

Scientific-Atlanta is a manufacturer of communications and testing equipment with operations in eight countries. The company produces materials for use in cable television operations and satellite technology as well as instruments for electronic measurement and testing. Long a leader in the construction of satellite earth stations, Scientific-Atlanta grew rapidly in the 1970s as a result of its involvement with the cable television industry, only to scale back and restructure its operations in the 1980s.

Scientific-Atlanta was founded on October 31, 1951, by six professors at the Georgia Institute of Technology. Hoping to market a device that recorded the patterns of antennae, the six pooled $600 to start the company. By 1956 the fledgling firm had completed development of its first product, built its first plant, and amassed 30 employees. During the 1960s Scientific-Atlanta earned a place in the space and defense industries as a manufacturer of electronic testing equipment for antennae. By the end of that decade the company had added instruments for testing telephones and acoustic devices with defense applications. As a military contractor, the company distinguished itself by manufacturing unique electronic instruments for the federal government. According to Business Week, Scientific-Atlanta was a company “fascinated with communications esoterica.” Nonetheless, with revenues of just $16 million a year, it was clear that the company had yet to reach its potential.

In 1971 Sidney Topol, an executive at the Raytheon Company with a background in physics and satellite technology, was named president of Scientific-Atlanta. A fervent believer in strategic planning, Topol set out to double the size of Scientific-Atlanta by implementing a long-term program. The first tenet of this plan was to reduce or sell off operations in which the company was losing money trying to beat much larger companies at their own game. Scientific-Atlanta’s tentative interest in microwave carriers, for example, fell into this category, so Topol phased it out.

Scientific-Atlanta instead applied its energy to opportunities in new fields with large growth potential and few barriers to entry. The company sought out products that were either low-cost and high volume or had a very high price tag. “You’ve either got to make 10,000 of something worth $100 to $200, or several of something worth $500,000 or $10 million,” Topol told the New York Times, The company planned to make the low-cost, high volume end of this equation profitable through aggressive research and development and a strong marketing effort. In its annual report, as reprinted in David C. Rickert’s Harvard Business School case study of Scientific-Atlanta, the company stated: “Scientific-Atlanta operates under a disciplined business plan that concentrates on design, manufacture, and sale of standard technical products for the communications and instrumentation markets.” More specifically, Topol recounted in Dun’s Review, as restated by Rickert, “I asked what products we needed for growing markets, not what markets we should go after because we had a product.”

The answer to that question was telecommunications products, primarily the satellite earth station, a large mobile dish used to receive signals transmitted from communications satellites orbiting the earth. In 1973 the company displayed a portable satellite earth station at a communications trade show in California. It planned to sell the portable stations to companies in the relatively new and rapidly growing cable television field so they could transmit their programming to a large number of stations in different areas. The stations, in turn, would send the programming to consumers’ homes over their cable networks. At the time, however, observers told Scientific-Atlanta executives that satellite transmission of cable television programming would take place only in the distant future.

These predictions proved incorrect and as the cable television industry boomed in the mid- to late 1970s, Scientific-Atlanta grew with it. The company’s profits ballooned by 40 percent a year from 1972 on as Scientific-Atlanta came to dominate the market it had largely pioneered. In 1976, as sales rose to more than $45 million, the company greatly expanded its manufacturing, laboratory, and office space at its headquarters. It sold two-thirds of the 3,000 satellite earth stations purchased by cable companies during the 1970s, enabling its clients—broadcasters like Home Box Office (HBO) and Showtime/The Movie Channel—to become pillars of the cable broadcasting industry. Scientific-Atlanta’s strength in satellite earth stations helped to enhance its overall sales of cable television equipment, and the company also began to market other components necessary to operate a cable television system.

In addition to its satellite products for the cable industry, Scientific-Atlanta manufactured testing and measuring devices for telecommunications, industrial, and laboratory use. The company added to its instrumentation operations when it acquired the San Diego-based Spectral Dynamics Corporation, a manufacturer of scientific devices, in 1978 for $17.4 million. Spectral Dynamics brought with it European sales subsidiaries in Germany, France, England, and the Netherlands. With these additions, Scientific-Atlanata boasted a sales network that covered 40 countries and was supported by a worldwide service network that adjusted and repaired its instruments. Both Scientific-Atlanta and Spectral Dynamics relied on continual research and development to bring new products to market, thereby enhancing market share and fostering company growth.

By the end of 1978 Scientific-Atlanta’s sales had reached $94.2 million, with earnings of $5 million. In addition to four plants in Atlanta, the company had opened facilities in Alabama, New Jersey, and Scotland. The following year the company added to its testing equipment holdings when it purchased Adar Associates, Inc., a company based in Burlington, Massachusetts, that manufactured automatic testing devices.

By the start of 1979 Scientific-Atlanta’s operations employed 2,700 people. That year the company also introduced Homesat, a subsidiary formed to market satellite equipment to homeowners who lived in areas too remote to recieve adquate television reception. The service’s first customer, a New Mexico ranch owner, paid $20,000 to set up his own satellite earth station. One year later the company’s overall revenues had increased five-fold in just eight years from $800,000 to $7 million.

In addition to its two main areas of operation—communications and instrumentation—Scientific-Atlanta also entered the field of home security and energy management during the 1970s. The company marketed wireless home alarm systems and provided equipment to utilities that enabled them to monitor home energy use.

By the dawn of the 1980s Scientific-Atlanta had become the world’s largest supplier of satellite earth stations. The company moved to increase its cable-related operations when it bought Systems Communications Cable, Inc., based in Phoenix, Arizona. Scientific-Atlanta paid $5.5 million for the firm, which manufactured coaxial cable for use in cable television systems.

Scientific-Atlanta’s dominance of the cable television equipment field began to waver in the early 1980s when the company developed quality control problems with its set-top converters, units placed on top of television sets to facilitate the broadcast of cable channels. These difficulties caused Scientific-Atlanta to post its first quarterly loss in 13 years at the end of June, 1982, when the company reported that it had accumulated a deficit of $2.3 million. Eventually, Scientific-Atlanta was forced to abandon the manufacture of set-top converters in its American plants and contract with a Japanese electronics firm, Matsushita, to have them made overseas. Currency fluctuations between the yen and the dollar made this a far more risky and expensive proposition for the company than had domestic manufacture of the sets. Scientific-Atlanta’s delay in marketing its set-top converter, which had been long-awaited in the industry, resulted in a sharp dip in the value of the company’s stock.

In 1983 Scientific-Atlanta’s fortunes took a decisive turn for the worse when the bottom dropped out of the cable industry. In its infancy, cable services had grown feverishly, but the business had now matured and slowed and in the early 1980s cable entered a period of consolidation. As companies went out of business or were swallowed up by others, the demand for cable satellite transmission equipment dropped dramatically.

In late 1984 Scientific-Atlanta was dealt another blow when it failed to win a contract from the HBO and Showtime cable operations to develop equipment to scramble their signals, which homeowners were pirating out of the sky with their own satellite dishes. With this decision, the company’s competitor, MA/Com, Inc., earned the right to market the technology that would set the standard for all future scrambling of cable satellite transmissions. Scientific-Atlanta found itself knocked out of the leading role in the industry it had largely invented.

Facing this roadblock head on, the company decided to investigate other markets. In June of 1985 Scientific-Atlanta announced that it would introduce a new line of products in the area of business communications. Using a newly developed satellite dish, the “very small aperture terminal” or VSAT, which dispatched and received encoded signals transmitted in a new, highly reliable “KU” broadcast band width, the company proposed to market private video networks to large corporations; with Scientific-Atlanta’s equipment, companies could transmit high-quality video images from their headquarters to branch offices or between field offices through satellite technology. Meetings, demonstrations, training sessions, and other types of programming and data could be more easily conveyed from one location to another. By offering video transmission—in addition to the ability to convey raw data such as figures and documents over fiber-optic telephone lines—Scientific-Atlanta hoped to make its system more useful and appealing to businesses than those of its competitors in the telecommunications industry.

In the early stages of the project Scientific-Atlanta signed up nearly a dozen companies for its service, including General Motors and J.C. Penney. Despite these successes, however, analysts remained skeptical that there would be sufficient demand for Scientific-Atlanta’s elaborate and expensive service to make the company’s investment in the project pay off. Moreover, the company’s lack of affiliation with any major satellite company to provide the other crucial link in its network caused worry.

By 1986 Scientific-Atlanta’s efforts at rejuvenation had in fact faltered. Operating profits dropped dramatically as the company “ran into very competitive markets,” chairman Topol told the Wall Street Journal. In an effort to stem Scientific-Atlanta’s decline, Topol brought in an outside consultant, William E. Johnson, to take over the helm and help the company restructure itself and return to profitability. Scientific-Atlanta “had grown so fast in technology and marketing that it grew short on logistics,” one board member informed the New York Times.

To Johnson, Scientific-Atlanta’s problems stemmed from years of rapid growth, during which the company had become involved in a large number of new technologies, none of which it managed well. In addition, bureaucratic red tape had mushroomed to hamper financial reporting systems and as a result Scientific-Atlanta had taken its eye off the bottom line; competition in the industry was getting fierce, and the company’s costs were spiraling. These conditions were caused in part by unsound personnel decisions.

With Johnson at its command post Scientific-Atlanta embarked on a process he called “retooling, refocusing, and restructuring,” according to the Wall Street Transcript. The company withdrew from a number of operational areas, selling seven out of 25 of its business ventures, including its home satellite business and coaxial cable subsidiary. Partly as a result of these changes the company posted a net loss in 1986 of $9.2 million.

Once rid of its less promising areas of operation, Scientific-Atlanta focused on more profitable concerns, such as its satellite communications networks. The company enhanced its holdings in this field when it bought Advanced Communications Engineering, which helped Scientific-Atlanta take second place in this growing field. Despite the earlier skepticism of industry analysts, the company discovered a strong demand for satellite communications networks among corporations and in developing nations, where land-based cable communications systems were prohibitively expensive. Meanwhile, Scientific-Atlanta’s traditional market for its satellite equipment—the cable television industry—began to show signs of life, particularly in Europe. To formulate other successful products Scientific-Atlanta began to pour renewed effort and money into research and development, revamping many of its product lines with all new technology to keep the company on the cutting edge of the industry. A particular area of growth was in commercial applications of high-definition television technology, which helped the company broaden its customer base. Not content to simply alter its product lines, Scientific-Atlanta also moved to significantly control its costs. The company pared its work force, firing 1,000 workers, and instituted a wage freeze. To reduce problems in its manufacturing operations, the company replaced its domestic assembly lines with cellular manufacturing teams. In an effort to control expenses at its overseas manufacturing outfits, Scientific-Atlanta worked out an agreement with its Japanese supplier to reduce the impact of currency fluctuations on its bottom line. Along with these changes, Scientific-Atlanta eliminated three-quarters of its senior-level management; this turnover allowed the company to revamp its corporate culture, reducing the number of financial reports necessary by two-thirds and incorporating engineers in the early stages of new-product design in an effort to control manufacturing costs. Productivity was increased and the time it took to manufacture many items shrunk markedly.

Despite these changes, however, Scientific-Atlanta’s instrument divisions, which manufactured equipment for testing and monitoring, remained insufficiently profitable. Nonetheless, by the beginning of the 1990s the company’s overall performance had improved dramatically as earnings increased 121 percent over the last half of the previous decade to reach $36 million in 1989 and rose again to hit $44.3 million one year later. In the 1990s Scientific-Atlanta continued its aggressive development of new technologies to improve its market share. In early 1991 the company introduced a satellite network for smaller businesses and began to market signal encoding devices to a number of companies. Still, a general economic recession, intensified by cuts in cable industry spending, resulted in a 20 percent drop in sales for the year. As a result, Scientific-Atlanta planned further restructuring in the form of staff cuts and consolidation of manufacturing operations; but the cost involved in these moves reduced the company’s earnings for 1991 to only $1.1 million. Despite this bad news Scientific-Atlanta’s directors remained hopeful that the company would prosper in years to come as it made efforts to reconfirm its record of technological innovation and aggressive marketing.

Principal Subsidiaries

Scientific-Atlanta (Australia); Scientific-Atlanta (Canada); Scientific-Atlanta (France); Scientific-Atlanta (Germany); Scientific-Atlanta (Italy); Scientific-Atlanta, (Japan); Scientific-Atlanta (United Kingdom).

Further Reading

Rickert, David C, “Scientific Atlanta,” Boston, Harvard Business School, 1979; Schuyten, Peter J., “Scientific Atlanta’s New Look,” New York Times, January 7, 1980; Rothfeder, Jeffrey, “Will Corporate Video Be the New Way to ‘Network’?,” Business Week, May 19, 1986; “Scientific-Atlanta Inc. Names W. E. Johnson Vice Chairman, Chief,” Wall Street Journal, February 2, 1987; Wall Street Transcript, February 12, 1990; Cook, James, “You’ve Got to Knock Off a Few Gas Stations First,” Forbes, March 5, 1990; Feder, Barnaby J., “Why Wall Street Likes Scientific-Atlanta’s Mr. Fixit,” New York Times, April 1, 1990.

—Elizabeth Rourke

Scientific-Atlanta, Inc.

5030 Sugarloaf Parkway
Lawrenceville, Georgia 30044
U.S.A.
Telephone: (770) 903-5000
Fax: (770) 236-6777
Web site: http://www.scientific-atlanta.com

Public Company
Incorporated: 1951
Employees: 12,000
Sales: $2.51 billion (2001)
Stock Exchanges: New York
Ticker Symbol: SFA
NAIC: 33422 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; 33429 Other Communications Equipment Manufacturing

Scientific-Atlanta, Inc. is a leading manufacturer of set-top cable boxes and other satellite transmission equipment. Long a leader in the construction of satellite earth stations, Scientific-Atlanta grew rapidly in the 1970s as a result of its involvement with the cable television industry, only to scale back and restructure its operations in the 1980s. In the 1990s, the company was one of the first to invest heavily in developing interactive digital cable technology.

Founded 1951

Scientific-Atlanta was founded on October 31, 1951, by six professors at the Georgia Institute of Technology. Hoping to market a device that recorded the patterns of antennae, the six pooled $600 to start the company. By 1956 the fledgling firm had completed development of its first product, built its first plant, and amassed 30 employees.

During the 1960s Scientific-Atlanta earned a place in the space and defense industries as a manufacturer of electronic testing equipment for antennae. By the end of that decade the company had added instruments for testing telephones and acoustic devices with defense applications. As a military contractor, the company distinguished itself by manufacturing unique electronic instruments for the federal government. According to Business Week, Scientific-Atlanta was a company “fascinated with communications esoterica.” Nonetheless, with revenues of just $16 million a year, it was clear that the company had yet to reach its potential.

In 1971 Sidney Topol, an executive at the Raytheon Company with a background in physics and satellite technology, was named president of Scientific-Atlanta. A fervent believer in strategic planning, Topol set out to double the size of Scientific-Atlanta by implementing a long-term program. The first tenet of this plan was to reduce or sell off operations in which the company was losing money trying to beat much larger companies at their own game. Scientific-Atlanta’s tentative interest in microwave carriers, for example, fell into this category, so Topol phased it out.

Scientific-Atlanta instead applied its energy to opportunities in new fields with large growth potential and few barriers to entry. The company sought out products that were either low-cost and high volume or had a very high price tag. “You’ve either got to make 10,000 of something worth $100 to $200, or several of something worth $500,000 or $10 million,” Topol told the New York Times.The company planned to make the low-cost, high volume end of this equation profitable through aggressive research and development and a strong marketing effort. In its annual report, as reprinted in David C. Rickert’s Harvard Business School case study of Scientific-Atlanta, the company stated: “Scientific-Atlanta operates under a disciplined business plan that concentrates on design, manufacture, and sale of standard technical products for the communications and instrumentation markets.” More specifically, Topol recounted in Dun’s Review, as restated by Rickert, “I asked what products we needed for growing markets, not what markets we should go after because we had a product.”

Growing with Cable in the 1970s

The answer to that question was telecommunications products, primarily the satellite earth station, a large mobile dish used to receive signals transmitted from communications satellites orbiting the earth. In 1973 the company displayed a portable satellite earth station at a communications trade show in California. It planned to sell the portable stations to companies in the relatively new and rapidly growing cable television field so they could transmit their programming to a large number of stations in different areas. The stations, in turn, would send the programming to consumers’ homes over their cable networks. At the time, however, observers told Scientific-Atlanta executives that satellite transmission of cable television programming would take place only in the distant future.

These predictions proved incorrect and as the cable television industry boomed in the mid- to late 1970s, Scientific-Atlanta grew with it. The company’s profits ballooned by 40 percent a year from 1972 on as Scientific-Atlanta came to dominate the market it had largely pioneered. In 1976, as sales rose to more than $45 million, the company greatly expanded its manufacturing, laboratory, and office space at its headquarters. It sold two-thirds of the 3,000 satellite earth stations purchased by cable companies during the 1970s, enabling its clients—broadcasters such as Home Box Office (HBO) and Showtime/The Movie Channel—to become pillars of the cable broadcasting industry. Scientific-Atlanta’s strength in satellite earth stations helped to enhance its overall sales of cable television equipment, and the company also began to market other components necessary to operate a cable television system.

In addition to its satellite products for the cable industry, Scientific-Atlanta manufactured testing and measuring devices for telecommunications, industrial, and laboratory use. The company added to its instrumentation operations when it acquired the San Diego-based Spectral Dynamics Corporation, a manufacturer of scientific devices, in 1978 for $17.4 million. Spectral Dynamics brought with it European sales subsidiaries in Germany, France, England, and the Netherlands. With these additions, Scientific-Atlanta boasted a sales network that covered 40 countries and was supported by a worldwide service network that adjusted and repaired its instruments. Both Scientific-Atlanta and Spectral Dynamics relied on continual research and development to bring new products to market, thereby enhancing market share and fostering company growth.

By the end of 1978 Scientific-Atlanta’s sales had reached $94.2 million, with earnings of $5 million. In addition to four plants in Atlanta, the company had opened facilities in Alabama, New Jersey, and Scotland. The following year the company added to its testing equipment holdings when it purchased Adar Associates, Inc., a company based in Burlington, Massachusetts, that manufactured automatic testing devices.

By the start of 1979 Scientific-Atlanta employed 2,700 people. That year the company also introduced Homesat, a subsidiary formed to market satellite equipment to homeowners who lived in areas too remote to receive adequate television reception. The service’s first customer, a New Mexico ranch owner, paid $20,000 to set up his own satellite earth station.

In addition to its two main areas of operation—communications and instrumentation—Scientific-Atlanta also entered the field of home security and energy management during the 1970s. The company marketed wireless home alarm systems and provided equipment to utilities that enabled them to monitor home energy use.

By the dawn of the 1980s Scientific-Atlanta had become the world’s largest supplier of satellite earth stations. The company moved to increase its cable-related operations when it bought Systems Communications Cable, Inc., based in Phoenix, Arizona. Scientific-Atlanta paid $5.5 million for the firm, which manufactured coaxial cable for use in cable television systems.

Bottoming Out in the 1980s

Scientific-Atlanta’s dominance of the cable television equipment field began to waver in the early 1980s when the company developed quality control problems with its set-top converters, units placed on top of television sets to facilitate the broadcast of cable channels. These difficulties caused Scientific-Atlanta to post its first quarterly loss in 13 years at the end of June 1982, when the company reported that it had accumulated a deficit of $2.3 million. Eventually, Scientific-Atlanta was forced to abandon the manufacture of set-top converters in its American plants and contract with a Japanese electronics firm, Matsushita, to have them made overseas. Currency fluctuations between the yen and the dollar made this a far more risky and expensive proposition for the company than had domestic manufacture of the sets. Scientific-Atlanta’s delay in marketing its set-top converter, which had been long-awaited in the industry, resulted in a sharp dip in the value of the company’s stock.

In 1983 Scientific-Atlanta’s fortunes took a decisive turn for the worse when the bottom dropped out of the cable industry. In its infancy, cable services had grown feverishly, but the business had now matured and slowed and in the early 1980s cable entered a period of consolidation. As companies went out of business or were swallowed up by others, the demand for cable satellite transmission equipment dropped dramatically.

In late 1984 Scientific-Atlanta was dealt another blow when it failed to win a contract from the HBO and Showtime cable operations to develop equipment to scramble their signals, which homeowners were pirating out of the sky with their own satellite dishes. With this decision, the company’s competitor, MA/Com, Inc., earned the right to market the technology that would set the standard for all future scrambling of cable satellite transmissions. Scientific-Atlanta found itself knocked out of the leading role in the industry it had largely invented.

Company Perspectives:

Scientific-Atlanta leads the way with new innovations and vision for the digital interactive age.

Facing this roadblock head on, the company decided to investigate other markets. In June 1985 Scientific-Atlanta announced that it would introduce a new line of products in the area of business communications. Using a newly developed satellite dish, the “very small aperture terminal” or VSAT, which dispatched and received encoded signals transmitted in a new, highly reliable “KU” broadcast band width, the company proposed to market private video networks to large corporations; with Scientific-Atlanta’s equipment, companies could transmit high-quality video images from their headquarters to branch offices or between field offices through satellite technology. Meetings, demonstrations, training sessions, and other types of programming and data could be more easily conveyed from one location to another. By offering video transmission—in addition to the ability to convey raw data such as figures and documents over fiber-optic telephone lines—Scientific-Atlanta hoped to make its system more useful and appealing to businesses than those of its competitors in the telecommunications industry.

In the early stages of the project, Scientific-Atlanta signed up nearly a dozen companies for its service, including General Motors and J.C. Penney. Despite these successes, however, analysts remained skeptical that there would be sufficient demand for Scientific-Atlanta’s elaborate and expensive service to make the company’s investment in the project pay off. Moreover, the company’s lack of affiliation with any major satellite company to provide the other crucial link in its network caused worry.

Retooling in 1986

By 1986 Scientific-Atlanta’s efforts at rejuvenation had in fact faltered. Operating profits dropped dramatically as the company “ran into very competitive markets,” Chairman Topol told the Wall Street Journal.In an effort to stem Scientific-Atlanta’s decline, Topol brought in an outside consultant, William E. Johnson, to take over the helm and help the company restructure itself and return to profitability. Scientific-Atlanta “had grown so fast in technology and marketing that it grew short on logistics,” one board member informed the New York Times.

To Johnson, Scientific-Atlanta’s problems stemmed from years of rapid growth, during which the company had become involved in a large number of new technologies, none of which it managed well. In addition, bureaucratic red tape had mushroomed to hamper financial reporting systems and as a result Scientific-Atlanta had taken its eye off the bottom line; competition in the industry was getting fierce, and the company’s costs were spiraling. These conditions were caused in part by unsound personnel decisions.

With Johnson at its command post Scientific-Atlanta embarked on a process he called “retooling, refocusing, and restructuring,” according to the Wall Street Transcript.The company withdrew from a number of operational areas, selling seven out of 25 of its business ventures, including its home satellite business and coaxial cable subsidiary. Partly as a result of these changes the company posted a net loss in 1986 of $9.2 million.

Once rid of its less promising areas of operation, Scientific-Atlanta focused on more profitable concerns, such as its satellite communications networks. The company enhanced its holdings in this field when it bought Advanced Communications Engineering, which helped Scientific-Atlanta take second place in this growing field. Despite the earlier skepticism of industry analysts, the company discovered a strong demand for satellite communications networks among corporations and in developing nations, where land-based cable communications systems were prohibitively expensive.

Meanwhile, Scientific-Atlanta’s traditional market for its satellite equipment—the cable television industry—began to show signs of life, particularly in Europe. To formulate other successful products Scientific-Atlanta began to pour renewed effort and money into research and development, revamping many of its product lines with all new technology to keep the company on the cutting edge of the industry. A particular area of growth was in commercial applications of high-definition television technology, which helped the company broaden its customer base.

Not content to simply alter its product lines, Scientific-Atlanta also moved to significantly control its costs. The company pared its workforce, firing 1,000 workers, and instituted a wage freeze. To reduce problems in its manufacturing operations, the company replaced its domestic assembly lines with cellular manufacturing teams. In an effort to control expenses at its overseas manufacturing outfits, Scientific-Atlanta worked out an agreement with its Japanese supplier to reduce the impact of currency fluctuations on its bottom line. Along with these changes, Scientific-Atlanta eliminated three-quarters of its senior-level management; this turnover allowed the company to revamp its corporate culture, reducing the number of financial reports necessary by two-thirds and incorporating engineers in the early stages of new-product design in an effort to control manufacturing costs. Productivity was increased and the time it took to manufacture many items shrank markedly.

Despite these changes, however, Scientific-Atlanta’s instrument divisions, which manufactured equipment for testing and monitoring, remained insufficiently profitable. Nonetheless, by the beginning of the 1990s the company’s overall performance had improved dramatically as earnings increased 121 percent over the last half of the previous decade to reach $36 million in 1989 and rose again to hit $44.3 million one year later.

Key Dates:

1951:

Scientific-Atlanta is founded.

1971:

New President Sidney Topol sets out to double company’s size.

1980:

Scientific-Atlanta is world’s largest supplier of satellite earth stations.

1986:

Scientific-Atlanta begins “retooling, refocusing” under new CEO William Johnson.

1993:

James McDonald becomes CEO, overseas large investment in interactive digital cable technology.

2000:

Scientific-Atlanta expands production several times as digital business booms.

2001:

Share price falls and layoffs are announced in the wake of falling orders.

In the 1990s Scientific-Atlanta continued its aggressive development of new technologies to improve its market share. In early 1991 the company introduced a satellite network for smaller businesses and began to market signal encoding devices to a number of companies. Still, a general economic recession, intensified by cuts in cable industry spending, resulted in a 20 percent drop in sales for the year. As a result, Scientific-Atlanta planned further restructuring in the form of staff cuts and consolidation of manufacturing operations; but the cost involved in these moves reduced the company’s earnings for 1991 to only $1.1 million. Despite this bad news Scientific-Atlanta’s directors remained hopeful that the company would prosper in years to come as it made efforts to reconfirm its record of technological innovation and aggressive marketing.

Betting on Digital in the 1990s

James F. McDonald, a 21-year IBM veteran originally from Kentucky, took over as chief executive in July 1993. McDonald had overseen layoffs and consolidations at Gould Inc., a $1 billion electronics firm, several years earlier. The Atlanta Constitution reported he faced an analogous situation at Scientific-Atlanta, which lacked a clear focus across its broad product line. The cable industry, which accounted for most of the company’s business, provided the company a focus. By 1997, the company would sell off several units, including its venerable microwave instrumentations unit. In January 2000, Scientific-Atlanta sold its satellite networking division to ViaSat Inc. for $75 million. McDonald also consolidated manufacturing and administrative functions across the company’s divisions.

Scientific-Atlanta signed development deals with numerous providers, hoping to win an early lead in the emerging interactive television business. However, the company’s main competitor, market leader General Instrument (GI), found quick profits producing cheap set-top boxes for analog cable systems and digital boxes. However, Scientific-Atlanta had hedged its bets: the company was also developing software and two-way fiber for use by cable companies. In 1994, the company invested in PowerTV, a Cupertino, California start-up that was developing software and graphics hardware for various makes of digital set-top boxes.

“If you’re there too early or too late with a new technology, you lose,” McDonald told the Atlanta Journal in late 1998. Had Scientific Atlanta invested too much, too soon in the digital technology? Revenues and profits had continued to edge upward. The company made a profit of $81 million on sales of $1.2 billion for the 1997-98 fiscal year, though the stock price seemed undervalued.

Investors regained confidence as sales of the new Explorer, a $350 digital set-top box, took off in late 1998. However, General Instrument already had a competitor, the DCT-5000, in development.

Scientific-Atlanta expanded throughout 1999 as demand for both its Explorer cable box and its stock grew. However, General Instrument’s lower priced devices were attracting more cable systems. These allowed for the extra channels available through digital cable, but not for full interactivity such as cable telephony and web surfing. These features, noted McDonald, provided cable networks an advantage over satellite broadcasters.

Explorers sales rose in 2000, and so did sales of satellite transmission products. The company signed several international deals, equipping cable providers in the United Kingdom, Germany, and Argentina with transmission equipment. Set-top boxes were going to Britain and Canada. The company also had a significant presence in Latin America and the Pacific Rim.

By mid-2001, Scientific-Atlanta had increased its workforce by a third, to 12,000 employees. In the works was a plan to bring NTN Communications’ popular interactive trivia service, typically found in bars, to home cable boxes.

Share price was cut in half in the summer of 2001 as orders dropped. Angry investors, incensed by McDonald and others selling off millions of dollars worth of shares, filed 16 different lawsuits alleging misleading statements in the company’s March third quarter reports.

Scientific-Atlanta began laying off workers at its Juarez, Mexico plant due to the slowdown in business. However, some still felt there was room for growth, as only 22 percent of U.S. cable customers were expected to have digital service by the end of 2001.

Principal Subsidiaries

PowerTV (80%).

Principal Competitors

Antec Corp.; ARRIS Group, Inc.; Motorola, Inc.; Pace Micro Technology PLC; Sony Corporation.

Further Reading

Barthold, Jim, “This Way Out: Jim McDonald, Scientific-Atlanta,” Telephony, Supercomm 2001 supplement, June 4, 2001, pp. 134-38.

Brannigan, Martha, “Scientific-Atlanta Loses Reception on Robust Growth,” Wall Street Journal, August 21, 2001, p. B10.

Brister, Kathy, “Preaching the Virtues of Full-Service TV,” Atlanta Constitution, June 28, 2000, p. E6.

_____, “Scientific-Atlanta Keeps Boom Going,” Atlanta Constitution, March 28, 2001, p. D6.

_____, “Trivia Game Channel Planned,” Atlanta Constitution, June 12, 2001, p. F1.

Clothier, Mark, “Scientific-Atlanta Full Steam Ahead,” Atlanta Constitution, February 23, 2000, p. D1.

Cook, James, “You’ve Got to Knock Off a Few Gas Stations First,” Forbes, March 5, 1990.

Dickson, Glen, “S-A Unloads Satellite Networking Business,” Broadcasting & Cable, January 24, 2000, p. 124.

Feder, Barnaby J., “Why Wall Street Likes Scientific-Atlanta’s Mr. Fixit,” New York Times, April 1, 1990.

Haddad, Charles, “Waiting for TV,” Atlanta Journal, December 30, 1998, p. D4.

Husted, Bill, “Scientific-Atlanta Sharpening Focus,” Atlanta Constitution, February 6, 1994, p. H1.

Jones, Andrea, “50 Years on the Cutting Edge,” Atlanta Journal, May 2, 2001, p. XJ1.

Luke, Robert, and Kathy Brister, “Chairman Riding Increases in Scientific-Atlanta Shares,” Atlanta Journal, May 20, 2001, p. Q6.

McNaughton, David, “Scientific-Atlanta CEO Reaps Rewards,” Atlanta Constitution, November 12, 1994, p. C3.

Moran, Brian, “Business Is a Team Sport for Scientific-Atlanta CEO,” Atlanta Business Chronicle, February 23, 2001, p. 58A.

Pomerantz, Dorothy, “A Cozy Duopoly,” Forbes, March 19, 2001, p. 78.

Rickert, David C., “Scientific Atlanta,” Boston: Harvard Business School, 1979.

Rothfeder, Jeffrey, “Will Corporate Video Be the New Way to ’Network’?,” Business Week, May 19, 1986.

Scanlon, Mavis, “Inside Trades at S-A Stoked Investor Ire,” Cable World, August 6, 2001, pp. 1, 40.

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—Elizabeth Rourke

—update: Frederick C. Ingram

Scientific-Atlanta, Inc.

founded: 1951

Contact Information:

headquarters: 5030 sugarloaf pkwy.
lawrenceville, ga 30044 phone: (770)903-5000 fax: (770)236-6777 url: http://www.scientificatlanta.com

OVERVIEW

Scientific-Atlanta is the second largest U.S. manufacturer of the set-top boxes used with cable television and cable-based online services, such as high-speed Internet access. A member of the Standard & Poor's 500, Scientific-Atlanta also manufactures cable modems and broadcasting transmission and distribution equipment. Customers include cable operators, broadcasters, and telephone operators. The firm's three largest clients—Adelphia; AOL Time Warner (owner of Time Warner Cable) and Charter Communications-account for nearly 60 percent of sales.

COMPANY FINANCES

Scientific-America's sales reached $1.2 billion in 1999, grew to $1.7 billion in 2000, and surpassed the $2 billion mark the following year. In 2001, sales jumped another 46.5 percent, reaching $2.51 billion. Net income also skyrocketed between 1999 and 2001, growing more than threefold from $102.3 million to $333.7 million. The firm's earnings per share grew from 64 cents to $1.99 over the same time period. Weakening economic conditions began to undercut sales during the first half of fiscal 2002. As a result, the firm's stock price, which had neared record highs early in 2001, began to tumble. In March of 2002, stock hovered at roughly $22 per share.

In the late 1990s and early 2000s, Scientific-Atlanta began to gain ground on arch rival Motorola. In the first half of 2001, Scientific-Atlanta had secured a 37 percent share of the digital set-top box market. Although this still lagged behind the 58 percent share held by Motorola, it was higher than the 30 percent market share Scientific-Atlanta held in the late 1990s.

ANALYSTS' OPINIONS

Analysts started to downgrade Scientific-Atlanta stock in mid-2001. Digital set-top box growth had slowed as the North American economy worsened, and Scientific-Atlanta's shipments began to decline. According to an October 2001 article in Broadcasting & Cable, Scientific-Atlanta's stock, "a hot pick on Wall Street just nine months ago, has been battered this summer, largely by a serious slowdown in the growth of digital TV sales by cable operators." The firm began to trim operating costs in October of 2001, which prompted some analysts to look more favorably upon its outlook. However, when digital set-top box shipments remained low, analysts again downgraded the stock, and prices continued to fall.

Some believed that the firm would be well positioned for growth once the economy improved. Scientific-Atlanta's newest set-top box was considered better equipped to handle interactive services, a potential growth market for cable operators and equipment makers, than those of its rivals. According to Wachovia Securities Analyst George Hunt, as quoted in Broadcasting & Cable, Scientific-Atlanta is "the best technology company in the cable television space."

HISTORY

Six Georgia Institute of Technology professors created Scientific-Atlanta on October 31, 1951, with plans to sell an instrument that recorded antennae patterns. The young firm began to manufacture electronic testing equipment for the space and defense industries in the 1960s. By the early 1970s, products included telephone testing devices, as well as various electronic implements designed specifically for federal government use. Sales totaled $16 million a year.

Sidney Topol left Raytheon Co. to become president of Scientific-Atlanta in 1971. He focused the firm on telecommunications products, and in 1973, Scientific-Atlanta unveiled a portable satellite station at a large communications convention, and shortly thereafter, Scientific-Atlanta began to market its portable satellite stations to the fledgling cable television industry. The satellite allowed cable television operators to transmit their programming to a large number of stations in different locations. Growth in the cable industry intensified in the mid- to late 1970s, and sales at Scientific-Atlanta began to soar, reaching $45 million. The firm held a 66 percent share of the cable television satellite stations market during the 1970s. The firm also began to make and market other cable television system devices, as well as products not related to the cable industry, such as testing and measuring devices for telecommunications and industrial industries. In 1978, Scientific-Atlanta paid $17.4 million for Spectral Dynamics Corp., a maker of laboratory implements with operations throughout Europe. The following year, the firm bought automatic testing devices maker Adar Associates Inc.

By 1980, Scientific-Atlanta was the largest cable satellite stations supplier in the world. Early in the decade, the firm paid $5.5 million for coaxial cable manufacturer Systems Communications Cable, Inc. Quality control issues with set-top boxes (units placed on top of television sets to receive cable channel broadcasts) began to plague the firm; in 1982, these problems resulted in Scientific-Atlanta's first quarterly loss in 13 years. Scientific-Atlanta eventually stopped making set-top boxes in its U.S. plants; instead, the firm hired Matsushita, an electronics company based in Japan, to handle the manufacturing. Early in the 1980s, growth in the U.S. cable television industry began to slow, and demand for cable-related equipment weakened. In 1984, leading cable broadcasters Home Box Office (HBO) and Showtime chose MA/Com, Inc. over Scientific-Atlanta to develop signal scrambling equipment that would prevent homeowners without cable subscriptions from gaining access to cable transmission via satellite dishes. Attempts to diversify into other markets failed, prompting Topol, by then chairman, to hire an outside consultant, William E. Johnson, to restructure operations.

Johnson decided that Scientific-Atlanta had grown too rapidly. He sold off several assets and narrowed the firm's focus to a few promising markets, such as satellite communications networks. To boost its foothold in this fledgling industry, Scientific-Atlanta acquired Advanced Communications Engineering. At the same time, cable television began to catch on in Europe, which helped bolster the firm's sales. In an effort to keep pace with rivals, Scientific-Atlanta began to allocate more resources for research and development. The firm cut costs by laying off 1,000 workers, and eliminating pay increases. Scientific-Atlanta also eliminated 75 percent of its senior-level management, hoping to revitalize its corporate culture and streamline operations. Productivity increased, and earnings in 1989 reached $36 million.

In the l990s, Scientific-Atlanta continued to focus on staying abreast of cutting edge technologies in an effort to grow its market share. Despite new product releases in 1991, sales fell 20 percent, due to reduced spending throughout the cable industry and a weak North American economy. Earnings tumbled to $l.l million. Demand for set-top boxes began to grow as the economy improved, and Scientific-Atlanta and General Instrument (later part of Motorola) emerged as the two leaders of the set-top box industry, which was worth $3 billion by 1999.

Digital technology began to replace analog technology in the cable industry in the mid-1990s. As a result, firms like General Instrument and Scientific-Atlanta began to develop digital set-top boxes. General Instrument introduced the first commercially viable digital settop box in 1996. Three years later, Scientific-Atlanta unveiled the Explorer 2000, a box that was considered technologically superior to rival products. In 2001, America Online Inc. and Scientific-Atlanta began working together on making AOL TV compatible with Explorer 2000 boxes.

STRATEGY

When Sidney Topol, a proponent of strategic planning, joined Scientific-Atlanta in the early 1970s, he put in place a long-term plan designed to increase the firm's profitability. First, he decided to divest all money-losing operations, particularly those outside of Scientific-Atlanta's area of expertise. He focused the firm on new markets he believed offered substantial growth potential and the opportunity to manufacture low-cost, high-volume products. To increase the firm's competitiveness, he expanded research and development and marketing budgets. Rather than targeting certain markets based on products Scientific-Atlanta had already developed, Topol decided to concentrate on pinpointing growth markets and then developing products for those markets. Believing that the cable television industry was poised for substantial growth, Topol steered Scientific-Atlanta's development of the satellites that eventually became the backbone of the cable industry. By 1980, due to Topol's successful implementation of his strategy, Scientific-Atlanta had become the largest cable satellite stations supplier in the world.

FAST FACTS: About Scientific-Atlanta, Inc.

Ownership: Scientific-Atlanta is a public company traded on the New York Stock Exchange.

Ticker Symbol: SFA

Officers: James F. McDonald, Chmn., Pres., and CEO; Conrad J. Wredberg Jr., SPV and COO; Wallace G. Haislip, SVP, CFO, and Treas.

Employees: 8,000

Principal Subsidiary Companies: Scientific-Atlanta operates offices in 70 countries across the globe.

Chief Competitors: Scientific-Atlantic's chief rival in the set-top box industry is Motorola Inc. Other competitors include Pioneer Electronic Corp., Samsung Co. Ltd., and Sony Corp.

In the 1990s, Scientific-Atlanta again used the strategy of developing a product to target a specific growth market: interactive cable services. In the cable industry, digital technology was first embraced for its ability to offer a clearer picture, crisper sound, and a greater number of channels. Eventually, firms began to examine ways to use digital technology to offer interactive services such as high-speed Internet connections and video-on-demand. Believing that these interactive services would emerge as a huge growth market, Scientific-Atlanta began developing technology toward that end as early as 1993. This strategy resulted in the release of the Explorer 2000, the first set-top box able capable of handle high-speed Internet access, email, electronic commerce, video-on-demand, and other interactive services. If interactive services in the early 2000s become the high growth market some analysts anticipate, Scientific-Atlanta will have a product ready to serve that market.

INFLUENCES

When William E. Johnson took over in the mid-1980s, he determined that Scientific-Atlanta had grown too rapidly and become involved in too many new technologies. Too many layers of management had burdened operations and added unnecessary costs. At the same time, competition had intensified, undercutting sales. These problems prompted Johnson to embark up a full-scale restructuring that included the sale of seven business units and the elimination of 75 percent of senior management positions.

PRODUCTS

While set-top boxes account for the majority of Scientific-Atlanta's revenues, the firm also sells broadband access products, such as digital head end equipment, cable modems, trunk stations, amplifiers, and digital compression devices. Via its SciCare unit, Scientific-Atlanta offers network installation and related services.

CHRONOLOGY: Key Dates for Scientific-Atlanta Inc.

1951:

Scientific-Atlanta is founded

1971:

Sidney Topol takes over as president

1973:

Scientific-Atlanta unveils its portable satellite station

1980:

Scientific-Atlanta is the world's largest supplier of portable satellite stations for the cable industry

1999:

Scientific-Atlanta releases the Explorer 2000 digital set-top box

SCIENTIFIC-ATLANTA'S FIRST DIGITAL SET-TOP BOX

In the early-1990s, Scientific-Atlanta began working to develop a digital set-top box. The resulting product, completed in the mid-1990s, cost roughly $3,000 to make. Although the box made use of cutting edge technology, it proved far too expensive to release to the general public and was considered ahead of its time.

CORPORATE CITIZENSHIP

Scientific-Atlanta makes donations every year to organizations like nature conservancies and botanical gardens, zoos and humane societies, and chambers of commerce.

SOURCES OF INFORMATION

Bibliography

grotticelli, michael. "battle of the set-top boxes." broadcasting & cable, 11 june 2001.

haley, kathy. "gaining ground." broadcasting & cable, 29 october 2001.

"scientific-atlanta." international directory of company histories. detroit: gale research, 1992.

scientific-atlanta inc. home page, 2002. available at http://www.scientificatlanta.com.

upbin, bruce. "my box can beat your box." forbes, 8 february 1999.

For an annual report:

on the internet at: http://www.scientificatlanta.com/investors/ar_2001.pdf

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. scientific-atlanta, inc.'s primary sic code is:

3663 radio & tv broadcasting & communications equipment also investigate companies by their north american industrial classification system codes, also known as naics codes. scientific-atlanta, inc.'s primary naics code is:

334220 radio and television broadcasting and wireless communications equipment manufacturing