Commercial Combat : Maker of Military Printers Plots Strategy for the Civilian Arena

Much has changed at Datametrics Corp. since the ailing defense contractor began plotting its entry into civilian markets. Even the office layout has been shifted. Now managers working on new commercial projects are in a separate building from their defense counterparts.

For three decades, Datametrics made its name making $60,000 printers that could churn out flawless color prints of battle maps on tanks and battleships. Now, the Chatsworth company’s future depends on a $30,000 machine that can print 20 color pages a minute and handle huge jobs for commercial print shops. If it catches on, it could rescue the small company from its dependence on shrinking U.S. defense budgets.

Like many Southern California defense companies attempting to convert to civilian industry, the task is not easy, especially for those as tiny as Datametrics, which posted a $1.5-million profit on $24 million in revenue last year.

Datametrics, which still depends on defense contracts for 90% of its sales, has taken five years to get to the point of breaking into the commercial marketplace. And its future is still far from assured. Defense conversion “is very, very hard” said Jack Van Buren, Datametrics’ chief financial officer.

As Datametrics enters the color printer business it will face plenty of competition. Datametrics “may have superb technology. But is it one the market wants to buy?” asked Rohit Shukla, executive director of the Regional Technology Alliance in Los Angeles. “That has not been well answered. A number of extremely wonderful products never make it.”

The market for speedy, high-quality color printers remains small: Unit sales range from 4,000 to 10,000 annually. But the public’s appetite for color computer printouts is growing, and the potential market is vast, said Rob Auster, vice president of electronic printers at the consulting firm BIS Strategic Decisions. Datametrics hopes to forge a partnership with a major printer manufacturer. IBM, Kodak, Xerox and Polaroid have been mentioned as possible candidates.

One observer who is enthusiastic about Datametrics’ new printer is Seth Feinstein, a senior analyst for Crowell, Weedon & Co. in Los Angeles. The printers’ sales “will totally dwarf the defense side of the business, if they are successful,” he said.

But most financial analysts don’t even follow Datametrics, and the stock, which has lagged for years, closed Monday at $3.56 per share.

For years Datametrics’ staple was federal government contracts, including building printers for Raytheon Co. that were used to support its Patriot missile system, and printers and workstations for the Air Force. The company still has about half the market for printers used in the U.S. armed forces.

In 1988, when new Chief Executive Officer Sid Wing arrived, “there were 100 people in here,” he said, gesturing toward the company’s manufacturing floor, where workers now number only dozens. “I thought, ‘This is really a dynamic company.’ But it was just printers cycling around” being repaired.

Wing found that despite all the activity on the manufacturing floor, the company wasn’t finishing its work on time, and Datametrics was recording revenues as if all its production were on schedule. Reality caught up at the end of fiscal 1989, when Datametrics was forced to post a $2-million loss.

That year, Wing began what he calls “reconstructive surgery” on Datametrics. In 1989, more than 200 employees lost their jobs--a 60% reduction in staff. The employees who remained signed statements outlining their responsibilities, and managers would be called into strategy sessions lasting days.

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Wing, 63, said his first priority was to instill discipline into the firm’s accounting and operations. “Discipline” is a word used often by Wing, a runner who works out at 5:30 a.m. “A mistake people make in conversion is thinking a new commercial business will provide them with the necessary revenues to pull them out and save the day,” he said. “But your first step is taking care of your base business.”

Datametrics posted a $213,000 loss for the six months ending May 1 on revenues of $12.4 million, in part because Wing is boosting its research and development spending. The company holds about $4.5 million in cash, thanks to a stock offering of 2 million shares in March.

Last year, Datametrics also acquired Rugged Digital Systems Inc., which specializes in adapting commercial computer equipment for military uses. This year Rugged Digital is expected to account for 45% of Datametrics’ sales. Bolstering Datametrics’ defense business was a way of buying time, Wing said, and allowed it to spend about $5 million in four years to develop commercial products.

That research has produced a new commercial printer called Laura, named for the daughter of its lead inventor, Gary L. Mallaley, now Datametrics’ director of commercial imaging products. The company believes the speed of its printer represents a breakthrough in color printers at the high end of the market.

Color printers of similar design put pigment on paper one color at a time, overlapping the colors in a series of separate passes, a slow process that usually prints about two pages per minute. But Laura deposits all the color onto a page in a single pass, an innovation that speeds printing to about 20 pages per minute.

Although high-tech printers made by established rivals Xeikon and Indigo Ltd. can print 30 pages per minute, they cost upward of $200,000. Laura is expected to sell for around $30,000.

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Datametrics aims to sell to print shops that produce brochures, sales presentations and instructional manuals. In 1991 it got a $600,000 development contract with Halliburton Co., which uses the printers to plot seismic data. Datametrics also signed a tentative deal with New York-based Azon Corp., which wants the printers to make vanity license plates and street signs.

For many defense firms, good technology isn’t enough, said Eric Rosenfeld, defense transition specialist at Joint Venture: Silicon Valley Network, an organization formed to aid conversion. “You are either . . . part of the defense ghetto or you are part of the entrepreneurial set. . . . Very few defense firms turn their swords into plowshares.”

Datametrics’ situation illustrates the difficulty many defense firms face. The company’s prowess in technology is considerable. Its most innovative products include heavy, black, typewriter-sized printers designed to withstand a nuclear blast. But changing the company’s accounting and production methods and revising its corporate culture have brought on the headaches of the last five years.

For example, printers and workstations built for the military are designed for inspections and fine-tuning after shipment. But most commercial buyers expect strict quality-control measures to be complete before buying. Also, defense firms usually have no mass marketing, production or distribution networks. And there are differences in accounting, since many government contracts pay a percentage of the costs as they are incurred.

Then there is the problem of the past. “It’s that, that mind-set,” said Van Buren, the chief financial officer, his voice betraying frustration. “It is very hard to overcome.”

Today, so great a gap exists between Datametrics’ defense and commercial sides that the two have been segregated in different buildings and are now separated by a few yards of asphalt parking lot. “You don’t want to carry over the habits of one industry into the other,” Wing said.

The defense side of the complex has the dreary, institutional feel of a military bureaucracy. But the commercial offices have a festive look. There, strips of colorful computer printouts flutter from the walls, tacked up by engineers as they tested commercial uses for Laura. It says something about the new mood at Datametrics that no one bothers to take them down.

But just shifting offices is not enough to disguise the company’s defense bent. Datametrics managers complain that the maze of drab, narrow hallways in both buildings makes the plant look like the Cold War job shop it has always been.

So this summer, Datametrics will vacate the two ‘60s-era buildings in Chatsworth and move to newer, more commercial-looking quarters in Warner Center. The move, said Van Buren, “will give our people a new outlook on life. At least that’s what we are hoping.”