Perceptronics Seeks Partner to Rival Big Competitors
On Thursday, one man single-handedly foiled a Soviet attack on Ft. Knox by sneaking up behind a Russian T-72 tank and blowing it up with a howitzer artillery shell. The tank had been sent to clean the United States out of its gold nuggets.
Sounds like a job for Rambo.
But it wasn’t. Gershon Weltman, Sylvester Stallone’s polar opposite, was the commander. Weltman, 52, gave orders to the privates sitting in his tank that started with “Please” and included “Uh-oh” and “Whoops!” when the skirmish wasn’t going in his favor.
Weltman’s business, just like his cinema counterpart’s, is to ensure that make-believe battles seem genuine. The Ft. Knox battle, faked on small television screens, was a good example of just what Weltman’s Woodland Hills company can do.
Perceptronics designs and manufactures defense simulators--essentially fake tanks, helicopters and aircraft, at a cost of about $250,000 each. The simulators are a mesh of computer equipment, television screens and fiberglass that make their users--usually U.S. troops--feel like they are inside the real thing.
“Generals have played on these things for hours, chasing each other around the terrain,” said Weltman, Perceptronics’ president.
There are 70 Perceptronics tank simulators at Ft. Knox and another eight tank simulators at an Army base in West Germany.
The research and development arm of the Department of Defense signed a $74-million, three-year contract with Perceptronics in 1986 to create the simulators, formally known as SIMNET. For the year that ended March 31, Perceptronics earned $1.56 million, or 44 cents a share, on revenue of $57 million. Just five years ago, Perceptronics had less than $5 million in sales.
Although Perceptronics is making money improving America’s military readiness, it’s also fighting some very real battles of its own, including increased competition and a threatened takeover.
Defense simulation has recently been in great demand as the Department of Defense looks for ways to cut its budget.
“The type of engagement we’re able to imitate would be very expensive in the real world,” said Weltman. Single tank rounds cost anywhere between $250 and $1,250, and one hour of flying time in a military aircraft costs $6,000.
$1 Billion in Sales?
Simulation isn’t nearly that expensive. The possible savings for the Pentagon has some defense analysts predicting that defense simulation could grow to more than $1 billion in sales by 1990.
Several big defense concerns, aware of the trend, have recently swallowed some of Perceptronics’ competitors. For instance, Hughes Aircraft in April paid $283 million for Rediffusion Simulation, a maker of flight simulators with $260 million in sales, based in Arlington, Tex. And CAE Industries of Canada this month bought Link, a Binghamton, N.Y.-based maker of flight simulators and other training simulators. CAE paid $550 million; Link’s revenue in 1987 was the same amount.
Perceptronics is worried about the mergers because it fears that companies such as Hughes might gain the upper hand in bidding on new contracts because of their contacts and experience. “We don’t have as much muscle as we would like in competing for the really big programs,” Weltman said.
Perceptronics has obtained most of its contracts on its own, but has failed to develop the strategic relationships with large defense contractors that it may now need as the competition heats up. For instance, only 5% of Perceptronics’ sales last year were on contracts that it had with other defense concerns. Many small defense companies get most of their revenue from subcontracts.
“There is a chance they could be squeezed out of the market,” said Lior Bregman, an analyst with Hambrecht & Quist in San Francisco. “They need to act fast.”
Corporate Suitor Sought
The company has publicly said it is trying to find its own corporate suitor. Weltman acknowledges holding talks with Ford Aerospace, but declines to comment further. “They have essentially put themselves on the block,” said Robert Hanisee, a defense analyst with Seidler Amdec Securities in Los Angeles.
Meanwhile, a dissident shareholder, New York investment banker Richard Nager, has threatened to take over Perceptronics unless Weltman and the rest of Perceptronics’ management does something to bolster the company’s weak stock, which closed Monday at $4.
If Perceptronics were sold on the open market, at current prices it would bring only 25% of the $57 million it earned in revenue in fiscal 1988. Both the Hughes-Rediffusion and CAE-Link mergers took place at prices equal to the approximate annual revenue of each of the smaller firms.
“The stock is undervalued and unrecognized,” complained Nager, who controls just over 5% of the company. He said he is buying more stock in the firm and refused to comment further.
Perceptronics is already manufacturing tank simulators, but is still in the development stage with its simulators for helicopters and aircraft. These simulators are the size of a tank and make just as much noise. The seats inside vibrate, and there is the constant hum of a turbine that drives real tanks. On television screens inside, troops look out onto the terrain and their enemy, just as they would in the real world. Even the gunfire is imitated--the television screens flash brightly, and the simulator rocks back and forth when it is hit.
Through phone lines and satellites, the Perceptronics simulators can someday be linked, allowing recruits in different areas to train with one another--sometimes fighting on opposing sides.
“When you talk of a battalion exercise, you’re talking tanks, armored vehicles, helicopters, airplanes, infantry and artillery strikes--a very complex battlefield, all of which is simulated in the SIMNET system,” Weltman said.
Perceptronics’ complicated product line is really just a new twist on an old idea. “When I was a boy during World War II, we played war games,” Weltman said. “But we simulated them with wooden guns and paper planes from the back of cereal boxes.”
PERCEPTRONICS AT A GLANCE Perceptronics in Woodland Hills makes simulators used by troops who operate tanks, armored vehicles and helicopters. The 18-year old company has 311 employees and 3.6 million shares of common stock outstanding.
