Diversify and conquer Westinghouse targets peacetime market

July 19, 1992|By Ted Shelsby | Ted Shelsby,Staff Writer

The pilot of a commercial jet suddenly aborts a landing when radar detects dangerous wind shear conditions that could slam the jet to the ground.

A commuter zips past a tollgate while a sensor reads a sticker on her car's bumper and deducts the toll from a pre-paid account.

A police officer feeds the photo of a missing child into a patrol car scanner that almost instantly distributes a print to all other units in the region.

These are just a few of the commercial products that engineers at the Westinghouse Electronic Systems Group in Linthicum have begun working on in recent months, as the longtime military contractor combats a shrinking Pentagon budget.

Maryland's largest manufacturer hopes such products will stabilize its financial footing and protect jobs, as well as be the base of its extensive area supplier network.

Diversification hits snags

But not everything has gone as planned. The local group lost a few million dollars, for example, as part of a failed deal to help build the Worldbridge Center Asian theme park in Baltimore County.

And one of the first results of diversification has been a sizable bite out of the group's profits. Last year, operating profits fell from $329 million to $193 million -- a 41 percent drop caused partly by the investment needed to develop a commercial base.

When parent Westinghouse Electric Corp. released second quarter results last week, it reported a further, "moderate" decline in operating results for the Electronic Systems Group.

Why? The group still has more products in development, rather than the more profitable production stage, spokesman Ronald E. Hart said.

The group began its diversification effort in earnest in 1989. That was the year it established its Commercial Systems Divisions and selected Edward N. Silcott, one of the Electronic Systems Group's rising stars, to head the operation.

Mr. Silcott's assignment -- and it's a tough one -- is to have at least 50 percent of the group's annual revenues come from non-Department of Defense customers by 1995.

His success -- or failure -- will help determine the fate of a $3.2 billion operation that has been wracked by layoffs in recent years. And it will have a major impact on Westinghouse, which got about one-fourth of its revenue from Electronic Systems last year.

Industry record inauspicious

While Mr. Silcott paints an optimistic picture for the new commercial unit, he has his skeptics. "In our opinion, that [50 percent] level will be achieved by future deterioration in [Department of Defense] business as opposed to meaningful pick-up in other business," John E. Hilton, a stock analyst with Argus Research Corp., said in a research report earlier this year.

Turning guns into plowshares is not as easy as some people might think, says Murray Weidenbaum, chief economic adviser to President Ronald Reagan during the early 1980s and currently director of the Center for the Study of American Business at Washington University in St. Louis.

Mr. Weidenbaum, who has studied the defense industry's diversification, notes that history has shown that the moves produced more losers than winners.

Grumman Corp., for example, tried to build and market a minivan years before Chrysler popularized the vehicle. The project, launched in 1983, flopped because Grumman lacked the necessary marketing and distribution skills.

Norman R. Augustine, chairman of Bethesda-based Martin Marietta Corp., also has warned of the pitfalls of diversification. When asked by former Soviets how to convert a tank-producing facility into a refrigerator factory, he advised them to tear down the tank plant and build a new refrigerator plant.

Diversification could be easier for the local Westinghouse division, Mr. Weidenbaum said, because it is a subcontractor rather than a manufacturer of planes, ships, rockets or tanks. Subcontractors generally are not as specialized as prime

contractors and have a lot of capacity, like commercial &r companies.

He warned, however, that Westinghouse still has an uphill battle. "There is no shortage of commercial-oriented companies competing in the high-tech markets," he said, adding, "They [defense contractors] all say they want to be 50-50, but very few make it."

Mr. Silcott concedes that the industry's track record "has not been that great." But there is not a hint of doubt in his voice when he talks about his own moves, which are designed to generate $2.5 billion in sales by 1995.

Will he make it? "If we don't we're going to come darn close," says the 51-year-old executive, who grew up in Catonsville and has spent his entire career with Westinghouse. He joined the local division in 1960 while attending night classes at the University of Baltimore, from which he received degrees in industrial engineering and law.

According to Mr. Silcott, the commercial division already accounts for a third of Electronic Systems' sales and about a fourth of its more than 12,000 jobs.

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