New Battle Plan Yields Profits

By JOHN O’DELL

Feb. 5, 1996 12 AM PT

TIMES STAFF WRITER

COSTA MESA —

They make armored seats for helicopter gunships in one section of the three-building complex at Ceradyne Inc. Oil well valves and high-strength industrial cutting tools are produced nearby, along with tiny, intricate translucent brackets for orthodontic braces.

Subsidiaries in Georgia and Kentucky turn out tempering rollers for sheet-glass mills, high-tech nose cones for radar-guided missiles and high-temperature cathodes for color televisions. If that seems a confusing mishmash of products for a single company, welcome to the post-Cold War world of manufacturing.

Industrial parks in Southern California are crammed with companies that once fattened on defense dollars and now struggle to convert to civilian work. The transition efforts have resulted in a lot of failures--Orange County has lost more than 50,000 manufacturing jobs in the past decade, state figures show.

But Ceradyne is “a good example of a business successfully making a big transition,” said industry analyst William Gibson of Cruttenden Roth.

Less than a decade ago, 90% of Ceradyne’s sales were to the government. The company’s mainstays were aircraft armor and top-secret components for nuclear weapons. Today, it gets 65% of its revenue from commercial or “civilian” products, such as brackets for orthodontic braces.

And the company’s once-decaying financial condition is turning around.

Ceradyne’s sales plunged more than a third from 1987 through 1993 and losses in the period topped $19 million as defense contracts virtually dried up.

But the 19-year-old company has regained almost all of the lost ground. Last year, it turned its first profit in five years, and this year the company expects to post record sales of nearly $30 million this year, which would be a 25% gain in just one year.

“We took a terrific shellacking in the downturn of the defense industry,” said Joel P. Moskowitz, Ceradyne co-founder, chairman and chief executive.

The defense cuts triggered massive cost-cutting and late-night brainstorming sessions. Ceradyne jettisoned most of the middle layer of management. A Massachusetts-based subsidiary was sold to raise cash.

The company’s belt-tightening became so ingrained, Moskowitz said, “that I have to argue with people to get them to spend money on new equipment now.”

But those brainstorming sessions produced a push to develop and market civilian products that revived the company. Ceradyne’s heat- and wear-resistant ceramics enable it to make and market a variety of products that outperform the traditional steel and plastic components.

“The orthodontia brackets are a good example of where we are going,” said Moskowitz.

Most of what Ceradyne makes are things the general public never sees. But the brackets, one of the company’s potentially monster products, are showing up in mouths all over the country.

A chance conversation with a representative of 3M Corp.’s dental products division at a ceramics trade show in 1987 led to a business deal that today has established Ceradyne as the manufacturer of unique see-through ceramic brackets for dental braces.

“He looked at our ceramics and said it was a shame they couldn’t use something that tough for their brackets,” recalled Moskowitz. “Teeth come in so many shades that the cost of producing ceramics that could be matched to anyone had been too much. But we had just developed a translucent ceramic for a defense product, and we went to them with that.”

The stain-proof brackets are cemented to a patient’s teeth--up to 20 for a full set of braces--to hold the steel wire in place.

Sales quadrupled to $1.6 million last year from $400,000 in 1994 and could bring in $3.2 million this year, says Jeffrey Van Sinderen, an analyst with Dabney/Resnick Inc., the Beverly Hills investment bank that underwrote a $6-million secondary public offering for Ceradyne in October.

Moskowitz, a ceramics engineer-turned-executive, is smiling a lot these days.

He says he expects Ceradyne’s soon-to-be-released 1995 financial results to be the best in nearly 15 years. Analysts have predicted a net profit of $1.8 million to $2 million for the year.

The burgeoning commercial business also means Ceradyne, which had slashed its total payroll from 430 to 230 workers during the lean years, is pumping up its work force once again.

The company recently added 20 people at its Costa Mesa plant, mostly to handle the demand for its dental product.

That plant now employs 140, and if analysts’ projections are even close, Ceradyne could soon need to beef up its production and research staffs at its electronics and industrial and aerospace facilities in the South as well. Those two plants now have a total of 110 workers.

Alliances with Ford Motor Co. and 3M helped Ceradyne get through its lean years as well as fuel the revitalization.

The company’s link with Ford was forged in 1986. Ceradyne acquired the auto maker’s technical ceramic technology and related patents, and received a $10-million cash infusion. In return, Ford received a 16% stake in the company.

That technology has enabled Ceradyne to begin producing a hefty line of extremely durable ceramic industrial tools for metal cutting, glass-forming, paper-making and oil production. Ceradyne also is working with Ford to develop ceramic auto engine components, such as valves, that are lighter and will last longer than steel components.

Another product, the company’s ceramic cathodes for color televisions, could be a big hit in the market, said Gibson, whose brokerage actively markets Ceradyne stock. Originally developed for defense-related microwave devices, they can help improve large-screen TV quality, which could be critical to the emerging high-definition TV industry.

At the same time, Ceradyne’s remaining link with the defense business seems solid.

Ceradyne has been making aircraft armor since the beginning, and sells armored seats and wall and floor panels to governments throughout Europe as well as in the U.S. Indeed, helicopters on patrol in Bosnia today are usually protected with Ceradyne armor.

The company also has received its first order for crew vests, reinforced with a bullet-resistant woven plastic, that are guaranteed to stop a .50-caliber machine gun bullet. The U.S. Defense Logistics agency placed the $3.5-million order, with options to purchase up to $6.1 million more through 1998.

“We didn’t abandon defense work altogether,” Moskowitz said. “But when I tell people that we’re 35% defense, I also tell them we kept the good 35%.”

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Ceradyne’s Transition

In 1985, Ceradyne’s sales were nearly all defense-oriented. But the firm’s diversification efforts have created new products ranging from industrial cutting tools to orthodontic brackets. Last year, defense accounted for only one-quarter of its estimated $23.1 million in sales. A look at Ceradyne:

* Ceradyne Inc. at a Glance

Headquarters: Costa Mesa

Chairman/CEO: Joel Moskowitz

Business: Develops and manufactures ceramic products for electronics, medical, defense, aerospace and industrial applications

Manufacturing sites: Costa Mesa; Lexington, Ky.; Scottdale, Ga.

Employees: 250

Divisions: Ceradyne Inc., Semicon Associates, Thermo Materials

Exchange: Nasdaq

52-week high: $7.63 (Oct. 17, 1995)

* Changing the Mix

Ceradyne’s sales markets 1985 and 1995:

1985