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Unappreciated Zenith Waging the Good Fight

The last American maker of television sets will probably fight on. Zenith Electronics Chairman Jerry K. Pearlman says he is talking to other companies about cost-sharing ventures that could help Zenith keep its television and VCR business going.

But it’s a two-front war, at the very least. For not only must Zenith fight in the appliance stores against competition from all over the world--with prices of color TVs from developing countries getting down below $150--but it must fight in the stock market, where there are repeated calls for Zenith to get its stock price up.

Those calls come mainly from institutional investors and their analysts, asking Pearlman to sell the TV business and concentrate on Zenith’s highly successful computers. (The company’s $2.3 billion in sales is split almost evenly between its TV and computer businesses.) On Tuesday, a major shareholder called Brookhurst Partners went further, threatening to ask Zenith shareholders to throw out Pearlman and put the company up for sale in whole or in parts.

Not Listening

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As if that’s not enough, Zenith also is suing the U.S. government for not imposing penalties on import dumping. The irony of Zenith’s predicament is that its troubles have intensified since the dollar’s fall in 1985--which was presumed to favor domestic TV makers. Pricing has become more competitive, Pearlman explains, because Japanese TV makers like Sharp have moved production to Singapore and Malaysia--which come under less restrictive rules for exporting to the United States.

But the government isn’t listening, as it hasn’t listened to two decades of complaints from Zenith and other TV manufacturers. “The government doesn’t care about this industry,” says analyst Laura Lederman, of the Duff & Phelps research firm in Chicago.

As a result, apart from Zenith, there is no U.S.-owned television industry today--although the Federal Communications Commission and the Commerce Department are beginning to worry that the electronics industry could suffer if U.S. companies completely miss the next step in video technology--high-definition television in the 1990s.

Some Sets Made in Mexico

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A product’s nationality is no simple matter, of course. A lot of TV sets are made in the United States by non-U.S. companies. Sony, a Japanese company, makes sets in San Diego, and RCA, which is now owned by the Thomson company of France, makes sets in Bloomington, Ind. On the other hand, Zenith makes some sets in Mexico, and all of the companies it is talking to about cost-sharing are non-U.S. owned. (Pearlman won’t divulge names, but it could be Thomson or Philips of Holland, or Sony.)

Does it matter therefore if Zenith stays in the TV game? Yes, it matters for several reasons. High-definition television will use millions of memory chips and microprocessors; a U.S. presence in the industry is far more likely to provide support for the U.S. electronics industry. And U.S. business is much more likely to benefit from the unforeseen commercial spinoffs that occur when technology changes if there is active U.S. participation in the new industry.

But it matters for shareholders, too. The investors who are calling for Zenith to sell TV and concentrate on computers are shortsighted. They are calling on one of the few companies in the world with capabilities in both television and computers to throw away an advantage just when future links between TV and computers are becoming clear. Sets with computer-enhanced pictures will be out this fall. And the real payoffs will come in the next decade when TV and the home computer team up to transform all communications. The shareholders’ lack of patience and vision is frightening.

The antics of Brookhurst Partners are one thing: The partners are a pair of professional speculators who bought 1.6 million shares of Zenith six months ago, now hold the stock at a paper loss of perhaps $3 million and are trying to foment action to boost the stock price. But the impatience of institutional investors is dismaying; to wit, an analyst for Kemper Financial Services--holder for clients of 1.2 million shares--chattering about “pressuring” Zenith management to do something.

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Zenith happens to be a company that has done a lot. It has developed a new and superior screen for television; it has a system for high-definition TV that doesn’t make existing sets obsolete. Ten years ago, it wasn’t in computers; now it leads in the small computers called laptops. It has invested year after year to build its business--and, in fact, has done all the things the textbooks say a company should to be competitive.

And that’s not easy these days in the United States with a capital market that doesn’t always serve the interests of U.S. industry--or those of the American people--and a government that sometimes seems too ignorant to understand the world around it or too indolent to care.


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