Rockwell May Be Pointing Way for Defense Firms in a New Era
Even thinking about shifting the U.S. economy from defense work to other endeavors begins with the realization that “this change is so massive, nothing being discussed is large enough to deal with it,” says Donald Beall, chairman of Rockwell International.
“I hear a lot of ideas about putting people to work on transportation and the environment, on infrastructure and new forms of energy. And these things should be pursued--in my view with government incentives for private industry. But the overall issue is so big, there has to be downsizing.”
The challenge is formidable. A future must be found for many of the 1 million Americans employed directly by defense firms, plus millions more who work in companies supplying the industry--and that’s not to mention 3 million people employed directly and indirectly by the Armed Forces.
Also, spending on national defense has provided a base for U.S. industrial technology for half a century. Now another lodestar must be found.
The issue has special meaning for California, as Democratic presidential candidate Bill Clinton acknowledged in remarks at The Times last week. “California was the place of unbridled opportunity for so long,” thanks to a national economic strategy based on defense and space, said Clinton. They gave the state a “high-wage, high-growth economy.” But now, he added, California is hurting because there is no clear national strategy for replacing defense as an economic engine.
So great an issue needs a focus, and that might well be Rockwell, the firm with headquarters both in Southern California and Pittsburgh that has always combined commercial business and defense contracting.
The Rockwell story is neither discouraging nor especially reassuring. It says that foresight is a key to survival in business, but there are no silver bullets--solving problems takes time.
In the last decade, defense ballooned to more than half of Rockwell’s $12 billion in annual revenue--as it built the B-1 bomber--and now has fallen back to 25%. Employee totals swelled to 123,000 in 1986, and shrank to 87,000 today.
“We’ve made our conversion from defense,” says Beall, 53, a metallurgical engineer with an MBA who has worked 24 years for Rockwell and run it since 1988.
The company has made some smart moves. Reckoning even in the mid-’80s that defense budgets were headed for decline, Rockwell invested in its automotive business--transmission systems, axles for heavy trucks--and bought a maker of factory automation equipment. It has won new business overseas and enjoyed some success in adapting military technology to commercial products.
One new product can translate signals from space satellites to pinpoint locations for truckers and boaters. Another product uses advanced semiconductors, developed at Rockwell’s facility in Newport Beach, to make a world-class modem for fax machines. The modems have given Rockwell a major success in Japan, Beall says.
Big Brother helps a lot. Government funds contribute 70% of the $1.7 billion that Rockwell spends annually on research. But Beall doesn’t fear budget cuts in defense electronics and know-how--as distinct from fighter plane and missile programs that are being cut.
For one thing, foreign defense markets are opening up. “We’ve won a job on Australia’s new submarine program,” he says. Defense-related work overseas has become a billion-dollar business, from almost nothing five years ago.
Beall believes that even as defense budgets shrink overall, Congress will make exceptions for critical technologies such as “advanced computer software, propulsion systems, electronic surveillance technologies”--and defenses against the kind of missiles that small but outlaw countries might fool with.
He could be right. Last year, Iraq demonstrated that the Cold War’s end doesn’t mean universal peace; this year Yugoslavia is driving the message home.
Still, defense firms have to think about earning their keep in civilian life. And that won’t be easy. Rockwell spent $1.6 billion in 1985 to buy Allen Bradley, a Milwaukee-based producer of industrial computers, machine controllers and other automation equipment.
It’s a fine company, solidly profitable and expanding overseas. But with recession and a downturn in factory investment, customers haven’t come running. “The market hasn’t grown as fast as we anticipated,” Beall says.
That’s one reason Rockwell’s earnings are down this year, and its stock price--now around $25.50--hasn’t hit a new high in five years.
Still, the company has kept debt to a minimum, so Beall can look at this recession as a base for future growth rather than a threat of imminent disaster.
In a way, that could be a metaphor for the whole economy these days--changing, not quite certain of its future course.
But we’ve been through this before, says Beall during in an interview in his Seal Beach office. “I was here in the early ‘70s, when things looked bleak, with the downturn in defense.” The economy turned around then, and will again, he’s saying.
“It’s hard to predict where something new will occur,” Beall says. “But you get around, you see what young people are doing. For example at UC (Irvine) you see all the medical electronics things going on and the many health- and environment-related companies springing up.
“And you look at the increasing numbers of kids studying those subjects in engineering schools,” says Beall, who graduated from San Jose State in 1960--another year when the economy was in transition.
Could such life sciences as medicine, biology and the environment assume the job-giving, research-prompting role defense has filled for 50 years? Maybe they could. “I think a lot of people will find opportunities in smaller businesses in these new areas,” Beall says. “But there is going to be a lengthy period of adjustment.”
Change, which is never easy, takes time; massive change takes more time.
