Robert Deutsch's advice pays off

Yet Wall Street seems unaware of booming Columbia consultant


May 09, 1999|By William Patalon III | William Patalon III,SUN STAFF

Help others and you'll help yourself is more than just a slogan at RWD Technologies Inc.

It's the business model and the mantra.

RWD develops technologies and training programs that help employees of its big-name customers do their jobs better -- which, in turn, helps performance and profitability.

But employees and managers say that simple statement doesn't capture the energy and innovation that are fueling RWD's growth.

The Columbia company has racked up average annual sales gains of 40 percent over the past five years. And it wants to add several hundred more employees this year to the 1,050 who work there now.

Recently, RWD was ranked 55th on Forbes magazine's list of the nation's "200 Best Small Companies."

Ford Motor Co. and DaimlerChrysler AG are its customers. Partners include SAP AG, the German software powerhouse; PricewaterhouseCoopers, the accounting and consulting firm, and Siebel Systems Inc., which makes software used by corporate sales forces and customer-service centers. "They have a very good management team and clearly defined markets," said William Loomis, a Legg Mason Wood Walker Inc. analyst who follows the company. "They have strong financial controls and a strong discipline to [boost] the bottom line. I'm very comfortable with the management team they have in place."

Although RWD may be one of Maryland's most-promising emerging companies, Wall Street has yet to reward it with a high stock price.

Analysts' grievances appear minor: a temporary rough patch for one of its divisions; concerns that potential customers are diverting money from needed new office and factory technology to solve Y2K problems; and ignorance about how much Internet technology RWD packs into its products.

Plus, the company has a short track record with Wall Street, having been public only since June 1997.

`Buy' ratings

Nonetheless, the four analysts who follow the company give its stock some form of "buy" rating.

RWD executives are aware of the concerns, downplay none and are making sure that each gets addressed, said Ronald E. Holtz, the company's vice president and chief financial officer who works closest with investors.

But neither are they losing sight of the company's mission: Helping employees be more efficient, thereby boosting a client's bottom line.

About a third of the firm's business comes from the auto firms, but the client list also includes Boston Edison, Microsoft Corp., Northrop Grumman Corp., Disney & Co., Deere & Co. and Whirlpool Corp.

The RWD formula seems to be working: Sales have grown from $29 million in 1994 to $114.7 million last year. Net income has increased from $2.38 million to $13.1 million during the same period.

With emerging growth companies such as RWD, analysts obviously like to see profits. But growing sales may be even more important. The reason: Wall Street understands that new companies reinvest a lot of their income in pursuit of profits down the road.

RWD is making the most of these reinvestments: Its return on capital -- a measure of how effectively a company uses its money -- is an exceptional 20 percent.

Founder Robert W. Deutsch, a 75-year-old dynamo of ideas, has built two successful companies around what would seem to be a common-sense rule: If you want the best solution possible to a business problem, talk to the workers closest to the action.

Deutsch started RWD in 1988 after getting ousted from General Physics Corp., the Columbia nuclear and environmental engineering firm that he founded and ran for 22 years.

Another firm took a majority stake in General Physics and opted for change at the top.

Deutsch was 64 and not ready to retire. But he had grown tired of all the regulations facing the commercial nuclear power industry and didn't want to do any more government work.

Formed RWD

The private sector appeared fertile ground for high-technology solutions, so he sold his General Physics stock and formed RWD -- bringing some top managers from General Physics with him.

"It was the best thing that ever happened to me," Deutsch said.

The son of a New York City grocer whose family moved around a lot, Deutsch did well in math and science as a youth and wanted to study them in college. But tuition was a problem.

After graduating from high school in 1941, he enrolled in Queens College before enlisting in the Army. A short stint at the Massachusetts Institute of Technology as part of his Army training persuaded him that physics was his calling, though because of his credits he returned to MIT after the war to major in electrical engineering.

He went on to earn a doctorate in physics at the University at California at Berkeley, where he worked with such Nobel Laureates as Emilio G. Segre and Luis W. Alvarez.

Today, atop the bookcase behind his desk, are five framed photographs of Nobel physicists, including Segre and Alvarez, as well as E.O. Lawrence, Enrico Fermi and Albert Einstein.

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