Hughes Joins Japanese Firm in Novel Project

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 to survive.

A number of 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 Defense Department.

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 be expanded later 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 by Hughes for the Defense Department at a cost of $100 million, the companies said. Hughes now applies the technology in a $500,000 projection system 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 projection of moving images and lowering production costs.

The key component in the new Hughes projector is a liquid crystal device, half the size of a cigarette pack, 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 about 1994, and would compete with home projection television sets now manufactured by companies such as 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 for $2,000 to $7,000--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 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.

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