Engineering a Change : Industry: Rockwell’s new focus on commercial products takes off in record profit. Newport Beach semiconductor unit plays a big part.
Underscoring its successful shift of emphasis from defense contracts to commercial products, Rockwell International Corp. said Wednesday that profits and sales surged to record levels in fiscal 1995.
One of the stars has been Rockwell’s Semiconductor Systems division in Newport Beach, which posted a 31% increase in sales to $760 million and is expected to top $1 billion in sales in fiscal 1996.
Rockwell recently announced a $400-million expansion of the Newport Beach facility. It is the largest capital investment for an industrial project in the county in recent years and will create about 1,300 new high-technology research and manufacturing jobs over the next five years.
“This has been a terrific year and [Semiconductor Systems] is one of the units driving our performance,” Rockwell Chairman Donald R. Beall said Wednesday.
Rockwell’s net profit for the year ended Sept. 30 rose 17% to $742 million. Sales increased 17% to $13 billion in 1995. In the fourth quarter, Rockwell’s earnings rose 14.6% to $189 million as sales climbed 23% to $3.5 billion.
Buoyed by the year’s performance, company directors Wednesday boosted the quarterly dividend on Rockwell common stock by 7.4% to 29 cents a share, making this the 20th consecutive year of higher dividends.
In the past decade, the company has engineered what industry analysts say is a remarkable turnabout, shifting its emphasis from government and defense work to commercial businesses like semiconductors, printing presses and factory automation systems.
Government and defense work, which accounted for 66% of Rockwell’s revenue in 1986, brought in only about 25% of the revenue in fiscal 1995, Beall said. Defense contracts alone now represent about 16% of Rockwell’s sales, down from 55% in 1986, he said.
*
Rockwell’s commercial and international sales climbed 30% during the past fiscal year and now account for 72% of total sales, compared with just 39% a decade ago, Beall said. Foreign sales alone accounted for $4.34 billion, or 33.4%, of total revenue in fiscal 1995--the highest level in the company’s history, he said.
Rockwell does not report individual divisions’ contributions to corporate profit, but Dwight Decker, president of the Semiconductor Systems unit, said the high-margin business contributed significantly to Rockwell’s overall earnings increase.
Sales for the division, which specializes in the chip systems for high-speed modems, facsimile devices and wireless communications products, have grown at 25% a year for the past five years, making it the company’s fastest-growing business unit, Decker said. It controls almost 75% of the worldwide market for fax and modem chips.
Decker said he expects to add 1,000 new engineering positions at the unit’s Newport Beach headquarters over the next five years to keep up with the blistering growth pace. He said he also plans to add about 350 manufacturing jobs at the Newport Beach facility in the next 18 months.
The success of the semiconductor business didn’t follow a well-laid plan, Decker said. The unit’s original name was Rockwell Telecommunications and its principal business was manufacturing communication equipment for government and civilian customers.
Chips were a small sideline until the late 1980s, when the demand for semiconductors for miniaturized, digital telecommunications products--especially for personal computer modems and faxes--exploded.
The telecommunications segment of the semiconductor industry is expected to more than triple by the end of the decade, when worldwide sales will hit $350 billion, according to Dataquest Inc., a San Jose high-tech industry research company.
*
Decker’s unit began peeling off its other businesses to concentrate on the design and manufacture of semiconductor systems--groups of chips that work together to perform a number of related functions. One Rockwell chip set--less than an inch square and an eighth of an inch thick--serves as the operating core of a personal computer’s high-speed modem, fax, and external speaker phone with simultaneous data and voice transmission capabilities.
Today, Rockwell Semiconductor Systems has no government contracts, and its commercial business has made it the second-largest telecommunications chip maker in the world, trailing only Motorola Inc., according to Dataquest.
The shift away from government work also shows in the performance of the company’s individual operating units. Seven of the nine reported increased profits for fiscal 1995, Beall said, with only the defense electronics and space systems units posting earnings declines. Beall attributed the drops to planned cost-cutting and efforts to further diminish the company’s exposure to volatile government defense contracting.
In addition to Semiconductor Systems, which has 2,000 workers in its Newport Beach plant at 4311 Jamboree Road, Rockwell has two other major facilities in Orange County: its corporate headquarters, research center and aviation division in Seal Beach, with 2,000 workers; and the Autonetics and Missile Systems unit in Anaheim, with 3,000 employees.
Worldwide, Rockwell employs 82,000 people, including 17,000 in Southern California.
Although the Anaheim-based Autonetics unit is part of defense electronics, Beall said he believes that operation “is on a growth path. They’ve done a terrific job of bringing on new business in transportation systems.”
The unit is still heavily involved in defense contracting--few governments have managed yet to privatize their arsenals of guided missiles, and 90% of Autonetics’ revenue comes from guidance and navigation systems for various military applications.
Defense work in Anaheim and at Autonetics’ other facilities in Georgia and Texas actually has grown recently, but the game plan for the next five years is to increase commercial and non-defense government work so that the mix changes to 80% defense and 20% non-defense, said spokeswoman Christine Rodriguez.
Applying their specialization in electronic guidance systems, Autonetics employees now are designing and building intelligent transportation management systems for clients that include the Orange County Transportation Authority, Federal Highway Administration, Michigan Department of Transportation and various other city and state agencies.
Rockwell’s performance for the past year generally met with analysts’ expectations for the company, so Wednesday’s financial report did not cause much excitement on Wall Street.
The company’s common stock rose 12.5 cents Wednesday, closing at $44.625 a share in moderate trading on the New York Stock Exchange.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Rocketing Sales
Rockwell’s Semiconductor Systems division, based in Newport Beach, is its fastest-growing business, with 215% growth in annual sales since 1990. By 1996, sales are expected to reach the billion-dollar mark. Annual sales, in millions:
1990: $241
1991: $297
1992: $333
1993: $423
1994: $581
1995: $760
1996*: $1,000
* Projection
Changing Composition
Rockwell attributes record 1995 earnings to a change in emphasis. The Defense Department now accounts for only about one-sixth of total sales, compared with about half in 1986:
1986
Commercial / international**: 39%
U.S. Dept. of Defense: 51%
NASA: 10%
1990
Commercial / international**: 57%
U.S. Dept. of Defense: 26%
NASA: 12%
Commercial / international**: 72%
U.S. Dept. of Defense: 16%
NASA: 12%
*P Non-U.S. government accounts
Source: Rockwell International; Researched by JANICE L. JONES / Los Angeles Times
Rockwell International
For the fiscal year ended Sept. 30, Rockwell International reported net income of $742 million, a 17% increase from the previous year. Figures in millions of dollars, except per-share data:
*--*
4th qtr 4th qtr 12 months 12 months 1994 1995 1994 1995 Revenue $2,888 $3,545 $11,123 $12,981 Net income 165 189 634 742 Per share 0.74 0.87 2.82 3.36
*--*
Source: Rockwell International; Researched by JANICE L. JONES / Los Angeles Times
