Telxon Corporation

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Telxon Corporation

3330 West Market Street
Akron, Ohio 44333-3352
U.S.A.
(216) 867-3700
Fax: (216) 873-2058

Public Company
Incorporated: 1967 as Electronic Laboratories, Inc.
Employees: 1,425
Sales: $238.41 million
Stock Exchanges: NMS
SICs: 3571 Electronic Computers; 3577 Computer Peripheral Equipment, Nee; 7372 Prepackaged Software; 7378 Computer Maintenance and Repair

Telxon Corporation is a world leader in the design, manufacture, integration, and marketing of portable and wireless tele-transaction computers and systems. The Akron-based company designs, develops, manufactures, markets, integrates, and services several types of portable microprocessors, associated software, and peripheral devices for on-site data collection processing and communications. Its systems can be found in a wide variety of business environments, including retail, wholesale, manufacturing, utility, service, transportation, and government. The company dominates the industry’s supermarket niche; 24 of the top 25 grocery chains in America utilize Telxon portable tele-transaction computers and systems. Telxon maintains subsidiaries and branches in Canada, the United Kingdom, Germany, France, Belgium, Italy, Australia, Japan and Singapore, and distributors in other parts of Europe, Asia, Africa, South America and the Middle East. By 1993, over 7,000 companies in 47 countries utilized Telxon products.

First incorporated in Texas in 1967 as Electronic Laboratories, Inc., the company went through several restructurings and was renamed Telxon Corporation in 1974. Telxon began to design order entry and inventory systems for retailers and wholesalers in the grocery, drug, and hardware industries in the early 1970s. Demand for these systems increased after 1973, when the universal product code (or UPC barcode) identification system was adopted as a standard in the grocery industry. Telxon’s computer products also met a growing need for timely, accurate information, which helped reduce costs, improve productivity, and enhance service. These devices transmitted data through direct-connect (dedicated) telephone lines, thereby eliminating redundant and often erroneous data entry.

Unable to pay $500,000 in commissions owed to an independent sales company, Telxon was taken over by the creditor in 1978. Robert F. Meyerson became chief executive officer, a post he held until 1985. With the help of President Raymond Meyo, Meyerson helped Telxon recover from the brink of bankruptcy, and took the company public in 1983. Telxon flourished under its new leadership, which emphasized smaller, faster, programmable computers and custom application software for the retail market. During its first year of incorporation, the company introduced TCAL (Telxon Common Application Language), a proprietary computer language that featured specialized capabilities designed expressly for the portable computing environment.

The company soon captured the top rank in the estimated $400 million portable tele-transaction computer (PTC) industry, surpassing industry leader MSI Data by building better hardware and developing specialized software for such mass retailers as Revco, Winn-Dixie, and Lucky Stores. Telxon’s revenues increased from $33 million to $160 million during its first five years as a public entity, and its stock (adjusted for splits) more than quadrupled, from $6 to $25, returning $4,000 on a $1,000 initial investment.

Meyerson was succeeded as president and chief executive officer in 1985 by the 41-year-old Meyo. A career salesman, Meyo sensed growing competition in the retail sector—Telxon’s biggest market—in 1987, and set out to diversify the company into new markets. He quartered Telxon’s sales force to focus on new areas, including manufacturing, warehousing, and government. Meyo concurrently expanded Telxon’s custom software program and attempted to build a field service staff to support it. He planned to develop most of the software for each market internally, as the company had done with products intended for its retail customers. But without sophisticated, industry-tailored software generating programs, Telxon’s endeavors to customize each client’s software package soon overwhelmed the company’s programmers. Selling into three vastly different new markets swamped the company’s program writers, while cost overruns and delivery delays were largely disregarded as Meyo turned his attention to the acquisition of rival MSI in fall 1988. By the end of the year, Telxon had lost MSI to another top PTC producer, Symbol Technologies. Moreover, during this time, Telxon was compelled to settle patent-infringement and unfair competition lawsuits brought by Symbol with $7 million in prepaid royalties and the purchase of $40 million of Symbol’s scanning hardware over five years.

Although Telxon’s sales continued to grow, its manufacturing costs increased 45 percent between 1988 and 1989 as the company reconfigured its assembly lines to accommodate individual markets’ requirements for keyboards, screens, scanning wands, and other options. Sales climbed 28.9 percent from year to year, while net income only rose 9.7 percent.

Acknowledging that his expansion scheme wasn’t working, Meyo initiated a reorganization in June 1989. He cut costs by trimming the company’s work force by eight percent, or 110 people. The staff reductions extended all the way to the top; from September to December 1989, all four of the company’s vice-presidents and its chief financial officer either resigned, were reassigned, or were fired. The old, decentralized management structure was replaced with a more manageable team of four executives, and Meyo brought in a management consulting firm to assess Telxon’s administration.

However, the independent evaluators traced some of Telxon’s problems to Meyo, who, they contended, had relied too heavily on sales gains and ignored areas in which the company was struggling. Repetitive personal computer products and unnecessary options were eliminated after evaluators found that Telxon could satisfy over 90 percent of its customers’ needs with ten percent of the options it had been offering. The company’s four separate sales forces were reunited, and sales commissions were awarded in relation to profits instead of sheer dollar volume. Still, Telxon ended fiscal year 1990 with a loss of $14.44 million and no order backlog.

Meyo responded by delegating more responsibilities, and he capped off his reorganization with a risky, unique, and admittedly impulsive, pledge: if Telxon’s performance did not improve within a year of the fall 1989 annual meeting, he would step down. This bold move prompted criticism in the media. Jeffrey Sonnenfeld, director of the Center for Leadership and Career Change at Emory University, commented that “When things are bad and a CEO makes himself the target, he achieves heroic stature which encourages others to take risks.” On the other hand, Warren Bennis, a leadership and motivation consultant from the University of Southern California told The Wall Street Journal that Meyo’s pledge was “ridiculous.” Nevertheless, Meyo’s gamble paid off in the short term: during fiscal years 1991 and 1992, Telxon posted profits of about $17 million, as new product introductions and joint ventures buoyed the struggling company.

In the early 1990s, wireless communication emerged as one of the fastest-growing segments of the portable microcomputer industry. Telxon introduced its DATASPAN 2000 wireless radio network during its 1991 fiscal year. The integrated system included PTCs, base station communication controllers, and other coordinating equipment that could instantly transfer data, thereby enhancing mobility and flexibility. In 1992, one of America’s largest mass merchandisers, Wal-Mart Stores, Inc., adopted Telxon’s DATASPAN 2000 network for merchandising and customer service areas in the chain of over 1,800 stores, implementing the largest installed base of spread spectrum, wireless data communication systems in North America. Contracts with Wal-Mart accounted for over ten percent of Telxon’s annual revenues by 1993.

In 1992, Telxon paid $ 10 million in cash and stock to acquire 95 percent of Telesystems SLW Inc., of which the company already owned the remaining five percent. This Canadian developer and supplier of wireless data communications products and local access networks (LANs) was the first company in the industry to receive the approval of both the U. S. Federal Communications Commission and Canada’s Department of Communication for its spread spectrum radios. That year, Telxon also purchased Retail Management Systems Corp., of Des Moines, Iowa, a supplier of store-level software programs.

When, in October 1992, Telxon announced that it would likely report a loss for the fiscal year ending in March 1993, Wall Street reacted swiftly. Within two days of the October 8 news release, Telxon lost about $101.8 million, or 34.8 percent, of its market value, as its stock dropped $3.625 to $13.375. Meyo resigned that month, Robert Meyerson returned to the posts he had previously held, and chief operating and financial officer Dan R. Wipff added the responsibilities of the presidency to his duties. The following spring, Telxon recorded a loss of over $12 million on continually rising sales of $238.41 million in its annual report for the 1993 fiscal year.

In December 1992, four class action suits were filed in the U.S. District Court, Northern District of Ohio, by stockholders who purchased Telxon common stock between May 20, 1992 and January 19, 1993. The suit accused Meyo, Wipff, and Telxon as a whole, of fraud on the stock market and negligent misrepresentation of the company’s financial performance and prospects. A Motion to Dismiss filed on behalf of the defendants was denied in June 1993.

Telxon undertook what it referred to as a preemptive reorganization late in 1992, creating strategic business groups (SBGs), each addressing key vertical markets and their particular requirements. The Retail Technology Group, Inc., Telxon’s first SBG, was organized as a wholly owned subsidiary in January 1993 to focus on Telxon’s primary market segment. Business from supermarkets, mass merchandisers, drug stores, and specialty chains represented about 50 percent of the company’s 1993 revenues. Applications of the company’s products in this SBG included receiving, price management, returns, transfers, and computer-assisted ordering.

One of Telxon’s newest product lines for the retail market was its trademarked POS-XPRESS series. Unveiled early in 1992, these clipboard-sized, self-contained, full-function point-of-sale (POS) registers incorporated barcode scanning, magnetic stripe reading, electronic signature capture, and on-the-spot receipt printing. Along with competitor Symbol Technologies, Telxon’s introduction of the hand-held registers at the National Retail Federation’s annual expo captured the interest of attendees and the press. Although the devices could only accommodate debit or credit card transactions, not cash, they promised to help alleviate long lines during busy shopping seasons and facilitate remodeling without rewiring traditional cash registers.

The March 1993 acquisition of the Itronix Corporation, based in Spokane, Washington, was central to Telxon’s second SBG. Itronix was a leading manufacturer of rugged portable microcomputers primarily for the mobile work force and field service automation markets. Itronix products were environmentally sealed to protect delicate computer components against the effects of water, shock, temperature extremes, dust, and rough handling. This SBG would concentrate on serving mobile work force and field service markets, including telephone company field service personnel.

Telxon formed an Industrial Systems Group SBG to cater to manufacturing, warehousing, and distribution markets during 1993. This SBG adapted already existing components to fit the specific functions of a warehouse, such as receiving, inventory put away, replenishment, picking, shipping, and cycle counting of inventory. Telxon’s warehouse automation systems consisted of handheld or vehicle-mounted PTCs that communicated in real time via wireless data communications to various warehouse software packages running on a host computer. The company’s Realtime Distribution Manager system of hardware, software and technical support was expected to become a key product of this SBG. Among The Industrial Systems Group’s customers were Nike, Inc., Ocean Spray Cranberries, Inc., and The Trane Company.

One of the company’s newest product groups, pen-based portable tele-transaction devices, was developed with Teletrans-action Corp., which Telxon acquired in February 1993. Telxon hoped to utilize the new line, dubbed PTC-1100, to penetrate existing retail and other emerging mobile work force markets, including transportation, manufacturing, health care, insurance, and financial services. Shipments of the PTC-1100 series were expected to begin in early 1994.

The company’s 1993 annual report to the Securities and Exchange Commission put forth a plan for future growth: “First, the company plans to continue to penetrate its traditional retail and wholesale markets by offering more comprehensive integrated system solutions to new and established customers. Second, Telxon plans to sell new PTCs and new wireless integrated systems to new markets as their needs are identified through market research.” Telxon identified logistics, transportation, health care, insurance, and financial services as target markets throughout the 1990s.

Principal Subsidiaries:

Telxon Australia PTY, LTD.; N.V. Telxon Belgium S.A. (Belgium); Telxon France S.A.; Telxon Italia S.R.L.; Telxon MDE GmbH (Germany); Telxon Limited (United Kingdom); Telxon Japan; Telxon Canada Corp., Inc.; MicroOffice Systems Technology, Inc.; Telxon Europe B.V.; Telxon Data Systems AG; Itronix Corporation; Telxon Foreign Sales Corp.; New England Data Systems, Inc.; PTC Airco, Inc.; The Retail Technology Group, Inc.; Teletransaction Corp.; Telesystems SLW Inc. (Canada).