Pentagon Hopes Failed Firm Will Help U.S. Compete in Race For HDTVs
Scott H. Holmberg, working alone in a glistening two-story building in a neatly groomed industrial park, is immersed in reminders of a failed past. Millions of dollars worth of precision manufacturing equipment sits idle. Snow-white employee smocks hang untouched. A “Help Wanted” sign lies in a corner.
Yet it is in the midst of this misfortune that the Defense Department has spotted hope for America’s future. In its determination to jump-start a U.S. consumer electronics industry, the Pentagon has looked cross-country to help rescue Holmberg’s Alphasil Inc., a once-hopeful company now just a blink away from death.
If everything goes according to plan, Alphasil could be a beneficiary of the Pentagon’s plan to foster technologies for high-definition television, which would bring crisp movie-quality pictures into the living room.
On Tuesday, the department’s Defense Advanced Research Projects Agency (DARPA) said it will award a contract to a fledgling New York City firm working closely with Alphasil to build a portable, shoe-box-sized projection television.
In essence, the system would give homeowners the ability to enjoy big-screen TV similar to the way that they now watch home movies or slides.
As Projectavision Inc. attempts to upgrade its lightweight television to HDTV quality, Alphasil’s contribution would be a so-called “active matrix” display, a flat panel of glass that would electronically create the television image.
But having the active-matrix technology in hand, as Alphasil appears to, is a far cry from being able to profitably manufacture the display products.
Alphasil tried for seven years before it ultimately ran out of funds and closed down. Today, Holmberg, 45, a co-founder and chief engineer, visits the deserted facility only a couple of times a week.
“It’s not much use in hanging around there,” the slow-speaking Minnesota native said.
Alphasil’s problem is a familiar one--not just in television-related technology, but in all of the U.S. electronics industry.
It is no secret that America excels at nurturing scientists and amassing technologies, yet has repeatedly proven unsuccessful at finding the resources to bankroll factories and hone manufacturing efficiencies. In the meantime, foreign competitors swoop into the void.
Alphasil, during its days as a struggling start-up in search of corporate partners, believes it was a victim of that short-term mentality, which if it doesn’t change could cripple the HDTV effort.
“We’re a perfect example of the problem,” said William Chandler, a San Francisco venture capitalist who nursed Alphasil from the beginning. “We’re not the solution.”
Alphasil and dozens of other U.S. firms are hoping that the Pentagon’s HDTV effort will be at least the beginning of a solution. The five companies named by DARPA this week will be the first to receive funding under a $30 million, three-year program to advance HDTV technologies.
But whether measured in dollars, time or technology, the task is immense. And while Alphasil already has weathered more blunders, barriers and bad luck than other firms may, it is an illustration of the scope of the challenge.
In every area of business, little Alphasil seemed to run into big roadblocks. The technology for making flat-panel displays turned out to be tough to master.
In fact, several U.S. firms have been stymied in their attempts to replace the bulky cathode ray tube in televisions and computers with thin screens that can show crisp images and be made at a reasonable cost.
DARPA director Craig Fields calls display technology “unambiguously the biggest challenge” in building HDTV.
Financial problems have dogged Alphasil from the beginning. The Silicon Valley firm spent beyond its means, according to Chandler, piling up debts until it now owes roughly $5 million to Honeywell Inc., a partial owner of Alphasil, and several hundred thousand dollars to suppliers and laid-off workers. Co-founder and president Richard Flasck quit last April when his back pay built up to more than $50,000.
Perhaps most frustrating, Alphasil battled the prospect of Japanese competition. As Chandler tells it, customers and potential investors were repeatedly scared away from making commitments to Alphasil by the consistent promise from Japanese firms that they were on the verge of perfecting active-matrix displays.
Over time, Japanese firms have indeed emerged as the active-matrix leaders, but at considerable cost.
“The guys who have solved these problems have poured hundreds of millions of dollars into it,” said David Mentley, director of display industry research at Stanford Resources, a San Jose market research firm. “It’s just very typical of American industry. They think these displays are going to come out of nowhere. Nobody is willing to put the money up for it.”
Alphasil, for its part, started on a shoestring. Holmberg and Flasck got their initial $450,000 in capital from Chandler and later swapped a 20% stake in the firm for a $7 million financial package from Sperry Corp.
Honeywell, which acquired the Alphasil interest after Sperry merged with Burroughs, advanced even more money to the company.
Manufacturing challenges ate up time and money. Equipping Alphasil with even a small production line cost $6 million, yet to date fewer than 1,000 active-matrix displays have rolled out of the facility.
Making an active-matrix display is a precise process that involves delicately placing electronic circuitry on glass. In the process, hundreds of horizontal and vertical lines are formed, creating a grid. Near each intersection lies a transistor, an electronic element that acts as a switch.
Eventually, another pane of glass is placed over the first, and the gap--measuring less than the width of a hair--is filled with a liquid that is sensitive to electric fields. By sending different voltages to each point--as many as 60 times a second for television--the optical characteristics of the liquid are altered. When light shines through the display, which acts as a shutter, an image is formed.
Any defect could force the whole panel to be discarded. For an HDTV display, so many transistors would be needed that the connecting lines themselves, added together, would stretch three football fields.
While Alphasil claims it had solved many of these quality challenges, sales clearly didn’t materialize as planned. Flasck says his small staff was unfamiliar with selling to the military market.
And when orders from aerospace companies did come in, Alphasil couldn’t deliver on all of them. Flasck blames a lack of money, and he was unable to raise more. Last fall, he closed Alphasil’s line, leaving customers hanging.
Now, the Pentagon’s interest in developing flat-panel display technologies has given Alphasil new hope. Acting like a dating service, the agency last December matched Projectavision, itself a start-up company, with Alphasil.
Projectavision had a prototype of its portable TV, but it didn’t have a U.S. source for the critical active matrix display. If Alphasil can keep improving the quality of its resolution, then its display could act like a valve inside a Projectavision HDTV, letting light pass through only in certain places to create the image.
At DARPA’s request, Projectavision has been trying for months to mine its own investors, as well as large corporations, for funds to bolster Alphasil. Projectavision Chief Executive Marvin Maslow figures he needs $7 million or so to get Alphasil on its feet again. If it ever is to ramp up to large-scale production, though, some $40 million may be needed.
For now, no financing sources seem certain. And that uncertainty has Projectavision continuing to eye other potential sources of the technology, just in case.
