Fluke Corporation

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Fluke Corporation

P.O. Box 9090
Everett, Washington 98206-9090
U.S.A.
(206) 347-6100
Fax: (206) 356-5116

Public Company
Incorporated: 1953 as John Fluke Manufacturing
Company, Inc.
Employees: 2500
Sales: $382.1 million (1994)
Stock Exchanges: New York
SICs: 3670 Electronic Components & Accessories; 3679 Electronic Components, Not Elsewhere Classified; 3820 Measuring & Controlling Devices; 3823 Industrial Instruments for Measurement, Display & Control of Process Variables & Related Products; 3825 Instruments for Measuring & Testing of Electricity & Electronic Signals

Fluke Corporation is a leading designer, developer, manufacturer, and seller of commercial electronic test and measurement instruments for scientific, service, educational, industrial, and government applications. Its products include oscilloscopes, voltmeters, ammeters, LANmeters, and other devices. With operations in the United States and the Netherlands, Fluke sells its products in more than 100 different countries.

Fluke Corporation was founded in 1948 by John Fluke to manufacture electronics testing equipment like power meters and Ohmmeters. Even in the late 1940s the electronics testing and measuring industry was relatively young, as measurement standards and truly reliable tube-type and electromechanical instruments had been introduced around the turn of the century. A highly accurate Ohmmeter (used to measure electrical resistance in a circuit), for example, was among the first of the new generation of testing equipment developed in the early 1900s. It was followed by more accurate power meters (for measuring voltage), ammeters (used to measure current), and other apparatus.

But the industry was entering an entirely new era when Fluke started his company, because Bell Laboratories had just introduced the transistor in 1947. The transistor was very important to the electronics field because it made it possible for scientists to develop testing and measuring devices that were accurate to within one-millionth of a unit of measurement, or less. Throughout the 1950s and 1960s, therefore, demand growth for testing and measuring equipment tracked the surge in the production of solid-state electronics products and equipment. The testing and measuring devices were used to help in the design, manufacture, testing, and servicing of electrical and electronic products. Fluke, with its technological expertise, benefited from market growth and was able to parlay engineering excellence into steady sales and profit growth.

John Fluke incorporated his company in the State of Washington on October 7, 1953 as the John Fluke Manufacturing Company, Inc. That move reflected healthy demand for Fluke’s power meters and other measuring devices during the 1950s and 1960s. During those years, Fluke prospered by designing and manufacturing contraptions that were used by research and development lab scientists at high-technology companies like Hewlett-Packard, which was an important customer for Fluke. In fact, while studying at the Massachusetts Institute of Technology, John Fluke had been roommates with Hewlett-Packard cofounder David Packard. Fluke’s equipment earned his company a solid reputation with buyers like Hewlett-Packard as a producer of cutting-edge technology. Some of those early inventions and devices would decorate the lobby of the $300-million-plus Fluke Corp. in the mid-1990s.

Fluke continued to profit from healthy markets and its technological expertise going into the 1970s. Market growth slowed beginning in the early 1970s, but Fluke was able to sustain profitability by introducing new products and maintaining its dominance of a few key product categories. By the end of the decade the total market for testing and measuring equipment had grown to $6 billion. Fluke’s share of that figure was a healthy $150 million annually by the end of the 1970s. And industry sales continued to increase in the 1980s (between 1975 and 1985, industry sales rose at an average of nearly 20 percent annually). While Fluke benefited from general industry trends, however, it also was forced to confront major internal and external changes.

The external changes started in the late 1970s and intensified during the 1980s. That’s when the complexion of Fluke’s customer base began to change. Buyers of Fluke’s equipment in the 1980s were less likely to be design engineers in labs, but were more likely to be one of the new breed of service technicians out in the field, working on fax machines, computerized cars, and computers. At the same time, Fluke and its U.S. competitors were facing a new threat from foreign companies vying for a share of a global market that the U.S. had traditionally dominated along with a few European manufacturers. Furthermore, as more electronics products were developed and manufactured overseas, Fluke would have to broaden its distribution and marketing channels to remain competitive.

The evolution of the testing and measuring device industry underscored the need for changes in the Fluke organization. Fluke managed to increase sales steadily during the early 1980s, to more than $200 million annually by the mid-1980s. And it continued to dominate key niches, even leading industry giants like Hewlett-Packard and Tektronix. In fact, Fluke Manufacturing was known as one of the three top players in the testing and measuring device industry. But the company had achieved that growth mostly by tweaking its existing line of about 150 products. Thus, by the mid-1980s Fluke’s offerings had becoming staid and risked obsolescence in the rapidly changing technological environment of the 1980s.

John Fluke, still at the helm going into the 1980s, had started making changes in his company in the early 1980s. Importantly, he stepped aside and let other managers assume more responsibility. In 1982 he named George Winn president of Fluke. Winn had started with Fluke in 1968 and worked his way through the ranks. Then in 1983, just one year before his death, Fluke made his son, John Fluke Jr., chief executive. Under new management, Fluke began to whip its operations into shape, improve its products, and generally get its financial house in order.

When he assumed the presidency, Winn had also promised to concentrate on the introduction of new, breakthrough products. Fluke did introduce a few key products, such as its low-cost, pocket-sized multimeter. But it was falling behind changes in the marketplace, as evidenced by its sagging stock price in the mid-1980s. Importantly, Fluke had been slow to move into the market for computer-aided circuit design and modeling equipment, which was rapidly supplanting the use of traditional test equipment for the design of circuits. Augmenting the company’s problems was an ugly downturn in its large defense-related business. Although Fluke remained profitable, its sales stagnated around $225 million annually during the mid- and late 1980s.

Fluke posted sales of about $240 million in 1990, and a net income of about $12 million. Despite the surplus, though, many analysts questioned the long-term viability of the company given its slowness to respond to new needs in the marketplace. Fluke had been successful at, for example, thwarting foreign competitors in its home market, and at penetrating new markets overseas. But some critics blamed the junior Fluke for failing to keep the company on the cutting edge of technology. They argued that he was too involved in outside interests, including the family’s investment firm, Fluke Capital and Management Services Co. With sales stagnant and earnings sporadic, Fluke Jr. finally decided to step down in 1991. He and his brother David remained directors of the company, though, and the Fluke family still owned 28 percent of the enterprise.

Fluke’s board hired former Hewlett-Packard veteran Bill Parzybok Jr. to turn the company around. Winn remained president, retaining control of day-to-day operations while Parzybok focused on long-term gains. Parzybok brought a mix of technical and marketing savvy to Fluke. He had shown his technical bent early in life, when, growing up in Kansas City, he spent his free time building radio kits and other electronic mechanisms. He started college at Colorado Rocky Mountain School and went on to major in electrical engineering at Colorado State University (CSU). At Colorado State, Parzybok was the goalie and captain for the varsity soccer team, the president of his fraternity, and president of the engineering society. After also tagging a business-related masters degree to his resume at CSU, Parzybok was recruited by Hewlett-Packard, where he spent 16 years involved in the test and measurement instrumentation business.

By 1984 Parzybok had worked his way up at Hewlett-Packard to vice-president, in charge of a staff of about 10,000 workers. Throughout the late 1980s he managed various groups in the company both in the United States and abroad. When Fluke approached him about the possibility of taking the helm early in 1991, he initially rejected the offer. “Then I started thinking about it,” Parzybok recalled in the April 8, 1991 Seattle Times, noting “It was a smaller company, smaller environment. Hewlett-Packard was a $12 billion-a-year company. Frankly, in that kind of company, you wonder whether you can make a significant difference.”

Parzybok spent his first several months at Fluke working with existing managers in an effort to build some sort of consensus about Fluke’s future. What he found was a sort of rudderless ship, occupied by people that wanted to go somewhere but didn’t know where they were going or how to get there. One of Parzybok’s first moves was to issue a concise mission statement to all of the company’s employees: “Fluke’s mission is to be the leader in compact, professional electronic test tools.” That statement reflected Parzybok’s intent to refocus Fluke’s operations on the development and manufacture of a new breed of testing and measuring devices that, compared to traditional equipment, were smaller, less expensive, more technologically advanced, and offered higher profit margins.

In addition to emphasizing products like Fluke’s successful handheld meters (particularly a handheld oscilloscope dubbed the ScopeMeter), Parzybok went to work reorganizing and streamlining the company. For example, he jettisoned Fluke’s touch-control screen product line, controller line, and printing and metal fabrication business because they didn’t complement the company’s new mission. He also laid off 150 workers and released several of Fluke’s existing products in markets in which they had never been sold. In 1993, moreover, Parzybok shortened the company’s name to Fluke Corp. The net effect of the effort, initially, was a reduction in both sales and profits. But the company was better positioned to compete in the long term.

Among Parzybok’s most prolific moves was the 1993 purchase of the testing and measuring device division of N.V. Philips, the Netherlands-based electronics giant. Fluke had entered a partnership with Philips in 1987. The alliance gave Fluke new products to sell in its U.S. market, and also allowed it to begin selling its own gear through Philips distribution channels in Europe. The partnership was also responsible for the development of the ScopeMeter, which became a big seller for Fluke. Fluke finally decided to end the partnership by paying $41.8 million to simply buy the Philips division, which added about 900 employees to its payroll and roughly $125 million in annual revenues.

Fluke’s restructuring and new product focus seemed to be paying off by the mid-1990s. Largely as a result of the Philips acquisition, revenues climbed to about $362.5 million (year ended April 29, 1994), about $8.8 million of which was net income. That figure climbed to about $389.8 million in 1995 as net income rose to a healthier $14.9 million. Meanwhile, management continued to engineer the overhaul of the once-moribund Fluke. To that end, the company was intensifying its effort to develop new high-tech testing and measuring devices for growth markets like computer networks, automobile computer systems, and office machines and equipment.