8 Centennial Drive
Peabody, Massachusetts 01960
Fax: (978) 977-6811
Web site: http://www.analogic.com
Incorporated: 1964 as Gordon Engineering
Sales: $256.7 million (1997)
Stock Exchanges: NASDAQ
SICs: 3823 Process Control Instruments; 3825 Instruments to Measure Electricity; 3829 Measuring and Controlling Devices, Not Elsewhere Classified; 3845 Electromedical Equipment
Analogic Corporation is a leading custom designer, manufacturer, and seller of sophisticated precision instruments for data acquisition conversion and signal processing. At the heart of Analogic’s technology is the conversion of biomedical and industrial signals into computer-readable language. The company’s products have a wide market among OEMs (Original Equipment Manufacturers) in the medical, scientific, industrial, and telecommunications fields. The company’s chief products include medical equipment for magnetic resonance imaging (MRI) tests, ultrasounds, and patient monitoring. It also designs and manufactures digital image processing and computer telephony products.
During the early 1990s Analogic expanded its focus from producing instruments for the medical and industrial segments exclusively, to also developing and manufacturing complex systems for a private customer base. Thus, even though Analogic’s products are found in many hospitals and laboratories, they are often designed confidentially for specific customers and so do not bear Analogic’s name. The shift in focus proved successful, but as a result the Analogic name is not well known to the general public, despite the company’s growing presence within the public medical equipment and electronics fields.
In the early 1950s, Bernard M. Gordon was a young engineer helping to develop UNIVAC, the world’s first commercial digital computer. From there Gordon went on to develop air traffic control and radar systems, and at the age of 26, he invented a system for converting analog signals to digital signals, a technology that became the core of many future products in the medical, industrial, and telecommunications fields.
By 1964, Gordon had founded his own development company, Gordon Engineering, whose products included the first solid-state X-ray generator. Five years later, Gordon Engineering was ready to branch out into the actual manufacture of innovative products, and Analogic Corporation was founded. Gordon’s work at Analogic eventually led to almost 200 patented products and numerous awards, including the U.S. National Medal of Technology (1986) and the Benjamin Franklin Award for Innovation in Engineering and Technology (1992). Gordon still played an ongoing leadership role within the company in the late 1990s; as of 1997 he served as chairman of the board and chief executive officer at Analogic.
The 1970s–80s: Developing Medical Subsystems
In the 1970s and 1980s Analogic was a key company in the development of many tools for medical diagnosis, patient care, and industrial controls and measurement. The cornerstone of its products was founder Gordon’s invention, the high-speed, analog/digital converter. Many of Analogic’s products were subsystems manufactured under contract to OEMs, often large companies who did not want it generally known that they had farmed out product development to a small newcomer in the field. As a result, much of Analogic’s early work went into final products that bore another company’s name.
Even under this cloak of confidentiality, Analogic quickly gained a reputation in the electronics and medical equipment industries, as a leading developer and supplier of high quality signal processing components and subsystems. In 1975 an Analogic research team, led by founder Gordon, invented the first instant imaging Computed Tomography (CT, or popularly known as CAT-Scan) scanning equipment, for an OEM customer. Analogic built on this invention in the following two decades, to become a major supplier of medical imaging machines.
Analogic also began to develop Magnetic Resonance Imaging (MRI) products in these early years; via this sideline the company gradually grew into the leading such supplier internationally, supplying almost half of the world’s systems by 1997. Development and manufacturing of patient monitoring instruments, produced in early years for an OEM customer, eventually were discontinued until the mid-1990s when Analogic would decide to re-enter this field.
Change of Direction in the Early 1990s
By the early 1990s, Analogic had built a solid business by designing subsystems and system components for its customers, many of which were larger and more established companies. However, its management wisely perceived that there was much greater potential for growth if the company branched out into the design and manufacture of complete systems, particularly state-of-the-art medical imaging systems. In its 1992 annual report, Analogic announced its changing approach, in which the company became a provider of complete systems as well as complex subsystems.
The development and bringing to market of a relatively inexpensive and mobile Computed Tomography (CT) medical scanning system was the first major product step undertaken with this new approach. Conventional systems had high power requirements and were extremely expensive. Analogic decided to attempt making a smaller, more rugged unit that could be marketed outside of major hospitals. Development and marketing of this unit became a major task through the 1990s.
Along with its change in focus, Analogic also made several acquisitions and created new subsidiaries. A subsidiary, Cam-tronics Ltd., was formed in 1992 by three Analogic employees to design and manufacture digital video medical imaging systems and networks. As of 1996, Analogic had acquired 68 percent of Camtronic’s stock and retained an option to purchase further amounts. Camtronics, located in Wisconsin, had independently developed the Archium digital cardiac network, which allowed viewing of cardiac X-rays at multiple locations simultaneously.
In 1992 Analogic also acquired all of the stock of SKY Computers, Inc. From its origins in providing off-the-shelf commercial products, SKY’s operations were expanded into the design of systems for the detection of explosives and development of other systems for large OEM customers. This subsidiary became a leading provider of embedded multicomputers and parallel processing hardware and software. Its products had numerous applications, including medical imaging, radar, and sonar.
The 1990s also found Analogic more involved in international operations. As of January 1,1993, Analogic acquired a 57 percent interest in a new company, B&K Medical A/S (later renamed B&K Ultrasound Systems A/S), a Danish corporation that concentrated on the design and manufacture of ultrasound imaging devices used in sonographic techniques and urology. In 1996, Analogic purchased the remainder of B&K’s stock. Also during the mid-1990s, Analogic entered into a joint venture with Kejian Corporation in the People’s Republic of China, in which each corporation owned half of Analogic Scientific, Inc. However, this joint venture had not proven profitable as of 1997. In 1996 and 1997 revenues from Analogic’s international operations accounted for about ten percent of the company’s total revenues.
To accompany its change of direction to complete system design, Analogic spent large amounts of money on research and development. For instance, in 1995 the company’s research and development costs increased almost $4 million over 1994, with these funds earmarked for design and development costs as well as additional investment in research staff and equipment.
In fiscal 1992 (before Analogic’s management consciously shifted to development of complete systems for the medical and industrial technology markets, and greatly increased its research and development spending), Analogic’s total revenues stood at $149.2 million. Over the next five fiscal years, revenues jumped steadily ($177.8 million in 1993; $193.7 million in 1994; $208.8 million in 1995; $230.5 million in 1996; and $256.7 million in 1997). During that time, net income more than doubled, from $9.9 million in 1992 to $20.1 million in 1997.
Since its inception, the Company’s mission has evolved from the design and manufacture of high precision measurement, data acquisition and signal processing components to the conception, design, and manufacture of proprietary complete, complex medical and industrial imaging and measurement systems and subsystems. Central to our success is our resourceful engineering team of more than 400 engineers and scientists, including design engineers, physicists, mathematicians, materials scientists, and support personnel who further the state of the art as they innovatively apply advanced and proven technology to solve our customers’ problems.
While a large amount of the increased revenues came from increased sales of medical technology products, sales of signal processing products also grew. Analogic also took in $11.6 million in revenues as of 1997 from a hotel adjoining its headquarters, purchased in the early 1990s. Expenses associated with operating this hotel generally consumed only about half of the revenues it took in. At the same time, Analogic maintained a low level of corporate long-term debt, falling from $16.5 million in 1992 to only $8.6 million in 1997.
During the late 1990s, some of Analogic’s customers, who previously had requested confidentiality in their dealings, realized that Analogic’s reputation in the field was growing and became more open about publicizing the fact that their products had been developed by Analogic. By 1997, Analogic could list among its largest customers Philips Electronics (17.1 percent of sales); General Electric (8.4 percent) and Siemens AG (7.8 percent). Its ten largest customers in 1997 accounted for about 57 percent of its product, service, engineering, and licensing revenue.
One of the few questionable Analogic management moves during the late 1990s concerned its investment in a Canadian corporation, Park Meditech, Inc. Park Meditech developed and manufactured nuclear medicine imaging equipment, as well as computer systems and software to operate this equipment. In 1994, Analogic had received Park Meditech stock in exchange for cancelling a debt owed by another company. The following year, Analogic loaned Park Meditech $1.5 million; then, in February 1996, it purchased another 1.7 million shares, bringing its total holdings to 5.7 million shares, 14 percent of Park Meditech’s total shares. In December 1996 and February 1997, Analogic loaned Park Meditech an additional $515,000. Unfortunately, pumping in these resources did not prevent one of Park Meditech’s subsidiaries, Park Medical Systems, from filing for bankruptcy in July 1997. At the end of 1997, Analogic was forced to write off $1.7 million of its investment as a loss.
Because of its rapid growth and overall performance in the late 1990s, Analogic was ranked as number 43 in the Boston Globe list of 1997’s top 100 Massachusetts publicly held companies. It had not even appeared on the list in the previous year, but its 23 percent jump in revenues between 1995 and 1996 definitely caught the eye of local business analysts. Analogic’s stock value also rose about 75 percent in value during 1996. As Research magazine noted in early 1997, several fund managers regarded the company’s future as bright, adding, “in fact, many regard the company’s shares as undervalued at recent price levels, offering an attractive opportunity for investors seeking long-term growth.” Research further pointed out the vast market potential for Analogic’s mobile and less costly diagnostic and medical equipment in both developed and developing nations.
Analogic’s management was acutely aware of the need to add to its existing group of top level managers even as its success grew steadily. Beginning in the mid-1990s, the company began to recruit a new generation of technical and manufacturing managers to assure a smooth transition. As president and CEO Bruce R. Rusch and chairman/founder Bernard M. Gordon noted in the 1997 annual report, “We are well aware of the fact that several of the senior managers of the Company, including its founder, are, to put it politely, getting on in years.” At the time, founder Gordon was 70 and had spent 28 years at the company’s highest levels.
Promising New Products for the 1990s
During the late 1990s Analogic put great effort into marketing its lightweight, low-power Computed Tomography (CT) diagnostic imaging system. This product promised to become popular in hospital intensive care units. Rather than having to move critically ill patients to a testing unit, the mobile CT instead could be brought to the patient’s bedside. Because the mobile CT also could operate from almost any electrical outlet, Analogic opened new markets for itself in the developing countries in Africa, Asia, and South America, where even small hospitals and clinics in outlying areas could utilize this technology.
Another promising product being developed in the late 1990s was the Explosive Assessment Computed Tomography (EXACT) system. EXACT was an explosives detection system for scanning baggage being checked at airports. This system employed a CT scanner which, through the use of high and low-energy X-rays, took several hundred images of each piece of baggage passing through the scanner on a conveyor belt. The images then were fed into a data system that would compare the images to profiles of known explosives and sound an alarm if a match was found. This elaborate process could be completed within five seconds. As of late 1997, the EXACT system had been delivered to Analogic’s anonymous customer and was scheduled to be submitted to the Federal Aviation Administration for testing.
One of the key products of Analogic’s Danish subsidiary B&K was the Leopard 2001 ultrasound scanning system. By the late 1990s this product had become a key tool for physicians who were treating prostate cancer. Instead of performing traditional radical surgery in which the prostate gland was removed, physicians using the Leopard 2001 could implant tiny radioactive seeds in the tumor and hopefully destroy it. This procedure, which did not require an incision, was less expensive and involved less risk and pain for the patient.
Other products under development in the late 1990s included digital imaging technology for use in hospital and radiology laboratories, and advanced Magnetic Resonance Imaging (MRI) systems and fetal monitoring instruments. Like the mobile CT, the fetal monitoring equipment was designed to be tough, durable, and portable, for use in small hospitals and outpatient clinics. Analogic had developed and produced patient monitoring equipment for an OEM customer in the 1970s and 1980s, but this activity had been dormant for several years. In the late 1990s, Analogic decided to produce a new breed of portable fetal monitors independently, and soon a new OEM with operations in the United States and Europe entered into an agreement with Analogic, under which the OEM would market the monitoring equipment.
According to Research magazine, technology under development at Analogic would be key in making internet-based “telemedicine” (connecting physicians and patients in distant areas through an online network) possible. Scanned images and patient information could be archived and accessed as needed via the internet.
As articulated in its 1997 annual report, Analogic planned to continue designing and producing complete systems, in cooperation with its major OEM customers, affiliates, and strategic partners: “We are confident that by continuing to pursue this course, Analogic will remain The World Resource for Precision Signal Technology.”
Analogic Foreign Sales Corporation (U.S. Virgin Islands); Analogic Limited (U.K.); B&K Ultrasound Systems A/S (Denmark); Camtronics Ltd. (68%); Camtronics Foreign Sales Corporation (U.S. Virgin Islands); SKY Computers; SKY Limited (U.K.).
Computed Tomography Engineering Group; Computer Design and Applications Division; Data Conversion Products Division; Medical Imaging Division; Measurement & Control Division.
“Corporate Profile: Analogic Corporation,” Research: Ideas for Today’s Investors, March 1997.
Crum, Rex, “Massachusetts High-Techs Report Strong Sales, Profits,” Boston Business Journal, October 27, 1997.
“The Globe 100,” Boston Globe, May 20, 1997.