Carlsbad Is Site of Novel Joint Venture

Hughes Aircraft Co. on Thursday announced the formation of a novel joint venture with a major Japanese electronics firm that will use defense technology to develop a new generation of video products for consumers.

The new Carlsbad, Calif.-based venture will be 40%-owned by Victor Co. of Japan, best known as the maker of JVC electronics products and holder of the patent on the hugely successful VHS videocassette recorder. The joint agreement--the first between a major U.S. defense firm and a consumer electronics company--could become a model for some Southern California defense contractors that are suffering from a decline in military spending.

Defense cutbacks have become more pronounced since the end of the Cold War, and Southern California firms have suffered thousands of job losses and are projected to lose thousands more. Many analysts say these firms will need to diversify into non-military markets in order to survive.

In San Diego, for example, Hughes has agreed to acquire General Dynamics’ San Diego-based missiles operations, jeopardizing the jobs of 4,500 local employees. Some civic leaders believe that Hughes eventually will consolidate its missile operations at a huge but underutilized plant in Tucson.

The deal announced on Thursday will strengthen Los Angeles-based Hughes’ local presence. Hughes has 1,100 employees in its Carlsbad-based Industrial Products Division and 400 at Hughes Network Communications’ plant in San Diego’s Sorrento Valley.

At least half, possibly more, of the new company’s employees will be transferred from Hughes’ Carlsbad-based Industrial Products Division, and the new company will share space at Hughes’ existing Carlsbad campus. The number of new local jobs that the unit will create is uncertain.

Unlike General Dynamics, which is focusing strictly on military contracts, Hughes and a number of other U.S. defense firms are exploring links with commercial companies. But the Hughes-JVC venture is the first with near-term potential for tapping into a mass consumer market, analysts said.

Under the agreement, Hughes JVC Technologies will develop high-tech video projectors that could compete with big-screen television monitors now used in commercial airliners and sports bars. Over the last two decades, El Segundo-based Hughes has developed the projector technology for the Department of Defense.

Hughes has announced plans to increase its non-defense business to 50% of sales from its current 30% level by the end of the decade. Hughes already makes satellites and digital cellular telephones for commercial use.

“Hughes doesn’t have the strength or the talent to enter the consumer electronics market,” said Jack Faiman, vice president at the new Hughes JVC Technologies company. JVC is the “ideal partner” because of its manufacturing, development and distribution capabilities, Faiman said.

JVC will invest $25 million initially in the joint venture and send engineers to Carlsbad to help in developing the new products. The venture, which will employ 200 people in Carlsbad, may later be expanded to develop and market consumer products from some of Hughes’ broad base of aerospace and communications technologies, the companies said.

For now, the joint venture will design and manufacture liquid crystal light valve projectors, using a technology developed for by Hughes at a cost of $100 million, the companies said. Hughes currently uses the technology in a $500,000 projection systems used by the military to display wall-sized images such as maps for war games and air traffic control.

Although the basic technology is not new, recent improvements opened the way for consumer applications by enabling the technology to project moving images and to be produced at a far lower cost.

The key component in the new Hughes projector is a liquid crystal device, half the size of a pack of cigarettes, that can take an image from a miniature television built into the system and amplify it for projection onto large screens without losing the sharp definition and brightness of the original television picture. Current projection systems tend to break the images into thousands of tiny dots resulting in a fuzzier and dimmer picture when the image is projected onto a large screen.

The joint venture’s consumer products would be manufactured by JVC, beginning in about 1994, and would compete with home projection television sets now manufactured by companies like Mitsubishi Electric. Hughes said the venture’s products could be adapted to High Definition Television sets because of their high resolution and brightness.

However, some analysts are skeptical of the new products chances of success in the consumer market. “By the time the product is available it could be eclipsed by other technologies like large (wall-hanging) liquid crystal displays,” says Jeffrey Zavattero, consumer electronics analyst at Jardine Fleming Securities.

This fall, the new joint venture will begin marketing a version of the projector for business use that is cheaper than the military system, but still too costly to penetrate the general consumer market.

The new company plans to develop a projection system that can be sold in the $2,000 to $7,000 range, a price range that the industry believes will draw significant consumer interest.

JVC, which has been suffering from stagnant sales, would benefit from the opportunity to manufacture what it regards as a important new product. “JVC is desperate for new business lines,” said analyst Zavattero.

Takuro Bojo, president of JVC, estimates that the joint venture could sell up to $150 million worth of projection equipment within three years.

Other Hughes subsidiaries are attempting to find commercial applications for defense product lines.

“We probably have a greater breadth of technology than most companies in the world,” said Robert J. Dankanyin, senior vice president for diversification at Hughes. “As we become more market-driven, we will exploit more of them.”

One Hughes operation that builds training simulators for fighter aircraft is now manufacturing simulators for commercial airlines. The operation also is developing technology that might one day be used to make amusement park rides more realistic.

A Hughes division that manufactures military radar systems is installing a massive air-traffic control system for the Canadian government.

At the same time that Hughes is expanding its commercial business, it also is attempting to strengthen its remaining military operations.

Times staff writer Greg Johnson in San Diego contributed to this report.