Racal-Datacom Inc.

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Racal-Datacom Inc.

1601 North Harrison Parkway
Sunrise, Florida 33323
(305) 846-1601
Fax: (305) 846-3935

Wholly Owned Subsidiary of Racal Electronics PLC
Sales: $583 million
Employees: 2,500
SICs: 3661 Telephone and Telegraph Apparatus; 7372
Prepackaged Software

Racal-Datacom Inc. is a leader in the ever-growing international market of data communications products and services. Concentrating primarily on offering solutions for local area networks (LANs) and wide area networks (WANs), the company provides a diverse array of network items, including Excalibur access devices, INTERNEXT intelligent hubs, Prem Net metropolitan fiber distribution systems, routers, multiplexers, and ALM high-speed modems. Racal-Datacom is also one of the world leaders in local area network design and integration.

Founded in 1955 by Monroe A. Miller and based in Miami, Florida, the company originally manufactured electronics products under the name Milgo Electronic Corporation. Miller soon established close ties with the U.S. government and began making electronics items for the National Aeronautics and Space Administration (NASA). With the construction of Cape Canaveral in Florida, the company won many of the early contracts for manufacturing electronic equipment used in Americas early, unmanned space flights.

As competition for government contracts, particularly in the field of space exploration, grew more intense, in 1966 Milgo decided to enter the burgeoning commercial communications market. The companys first contract included the design and construction of a modem (computer-telephone interconnecting device) that was capable of transmitting data over an ordinary telephone line at 2,400 bits per second in a bandwidth of 3,000 cycles per second. At the time, building a modem that could send data at such speed was regarded as highly unlikely. Yet the Milgo engineers surpassed the design specifications stipulated in the contract, and constructed a modem that transmitted data at 2,400 bits per second at 800 cycles per second, a significantly narrower band of transmission. To put this achievement in perspective, commercial modems used in 1994 will soon meet an international standard to move data at a rate of 28,800 bits per second, or ten times faster.

Milgos success in building this modem was revolutionary because it was considered next to impossible but also because other kinds of communications such as voice and teletype messages could now be sent over the same telephone line. Thus customers were able to communicate their data twice as fast over a telephone line which could also be used for other communications. The modems Milgo had designed and built, models 4400/24 and 4400/48 were initially sold to Western Union and soon became the standard modems in the industry. Milgo found itself in the enviable position of being the only company capable of manufacturing 2,400 bps (bits per second) modems that could operate on unconditioned switched telephone lines.

In 1969, Milgo began its relationship with Racal Electronics Ltd., a British-based manufacturer of radio communications products. With revenues over $140 million, Racal had already established an extensive network of manufacturing facilities in developing countries around the world. Racal approached Milgo and convinced Miller to create Racal-Milgo Ltd., a joint-venture company which would build and market Milgos data communications products through Racals international network. The joint venture proved so successful that it accounted for a large percentage of Milgos revenues and profits within a few years. The arrangement with Milgo also made a significant contribution to Racals revenues.

Less than a decade later, with Milgos help Racal had developed into one of fastest growing and most profitable European companies in the communications industry. Building upon its manufacturing and marketing network in developing countries, Racal reported revenues of over $400 million. Racals revenues were increasing at a compounded rate of 33 percent per year for the last five years, while profits were increasing at a rate of 37 percent per year and its exports at the impressive rate of 40 percent per year during the same period. The company offered developing nations and their military forces simplified versions of radio equipment previously designed and built for the Ministry of Defense in Britain. Racal dominated the emerging-nations market, and its exports were more than the total combined amount of all the other British radio manufacturers. The companys highly sophisticated international marketing organization, its product maintenance and service strategy, and its huge customer base enabled it to provide radio and communications equipment to over 130 governments worldwide.

Pleased with Milgos contribution to Racals success, management at Racal decided to acquire Milgo in 1977. At the same time, Digital Data Systems Company, a computer-terminal manufacturer located in Hauppage, New York, and only half Milgos size, also decided to purchase Milgo. As a result, a bidding contest between Racal and Digital Data soon broke out. The head of Digital Data, Leeam Weathers-Lowin, purchased more than 200,000 shares of Milgo stock in 1967 to help the company through a severe financial crisis. Although almost all of these holdings were later sold, Weathers-Lowin never lost interest in Milgo and now wanted to parley his previous association with the company into a long-standing relationship. However, Milgos founder and chairman, Monroe Miller, was more sympathetic to the Racal buyout and immediately indicated that a large group of managers at Milgo would tender all their shares to the British firm. In 1977, after a prolonged war with Digital Data, Racal purchased Milgo for $60 million. The company was then renamed Racal-Milgo.

By 1979, Racal-Milgo reported $100 million in sales for its parent company and was regarded as one of the industry leaders in modem supplies and equipment. Yet in spite of the fact that Racal-Milgo had recently introduced a highly innovative data-encryption device and a new product line of intelligent communications terminals, the parent company began to reduce its subsidiarys expenditures for research and development. Angry at what they perceived as British managements insensitivity to Racal-Milgos potential for growth, almost all of Racal-Milgos management team either was fired for communicating their grievance or soon resigned. Racal subsequently tightened its control of its subsidiary by absorbing it into a new Data Communications Group headquartered in England. The engineer who had been in charge of developing Milgos first modem back in 1966, Edward Bleckner, Jr., was chosen as head of the new Racal-Milgo and reported to management in England.

Racal-Milgo began to experience declining profits during the early 1980s. In an attempt to restore its profitability to previous levels, Racal management decided to realign Racal-Milgo and divided the company into six divisions, including Office Networks, Network Components, Communications Network, Racal-Milgo Government Systems, Inc., and separate Sales and Service divisions. While the Office Networks division manufactured and marketed products such as protocol converters to large businesses, Racal-Milgo Government Systems, Inc. supplied products to the federal government, most notably to the U.S. Department of Defense. The Network Components division built modems, statistical multiplexers, data encryption devices and various sorts of data accessory items, and the Communications Network division focused on developing and marketing highly sophisticated advanced management and control systems and other software products. The companys Sales and Service divisions were completely revamped in order to provide a more efficient domestic and international distribution network.

In 1984, Racal established Racal-Vodaphone and entered the brand new cellular radio market in Britain. The firms primary competition was from British Telecom, the national leader in the telecommunications industry. In order to gain a foothold in the cellular radio market, Racal began to develop specialized data communications systems for cellular radio under a program sponsored by the British government. As Racals expansion in England and other countries continued, the company grew increasing dependent on its subsidiaries, especially American-based Racal-Milgo, for additional revenues. Fortunately, Racal-Milgo was having one of its most profitable years ever; the companys computer aided engineering unit added $30 million alone to parent Racals revenues in 1984. In addition, Racal-Milgo began manufacturing various products and software for the growing local area network (LAN) market in the United States. Aimed at office automation for businesses and defense applications, Racal-Milgos entry into the local area network market was an immediate success.

During the late 1980s, Racal-Milgo concentrated on developing products and software for the implementation, management, and support of networks from relatively simple desktop computers to highly sophisticated and complex local area networks and wide area networks. The company also began to provide services such as network design and integration, and worldwide support and maintenance, for the needs of both national and multinational firms in the finance, retail, banking and health care industries.

Racal-Milgo was riding high at the start of the 1990s. The companys government systems division and its products for the local area network market were reaping high profits. The firm acquired Network Communications Associates, Inc. for approximately $28 million, and began offering a network solutions package through a joint marketing arrangement with MCI Communications Corporation. Yet parent Racal-Electronics was confronted with a vexing problem in regard to its mobile telephone business in England. The market had grown so rapidly that Racals cellular telephone subsidiary had such an extremely high stock price and market valuation that it began to compete against its own parent company and consequently skewed the market value of other businesses in Racal. Racal management in England therefore decided to spin off the companys cellular telephone business in 1991. During the same time, to lessen redundant operations and services, parent company Racal Electronics consolidated its 15 separate data communications businesses under the title of the Racal-Datacom Group.

The Racal-Datacom Group included five core businesses, including Defense Radar and Avionics, Radio Communications, Special Businesses, Marine and Energy, and Datacom, the companys single largest operating division. Miami-based Racal-Milgo, now known as Racal-Datacom, continued to improve its standing as a leading worldwide supplier of data communications products and services by concentrating on local area networks, data security, and its traditional product of high speed modems. In 1992, Racal-Datacom joined BellSouth Corporation, a telecommunications holding company located in Atlanta, Georgia, to provide end-to-end network systems for BellSouths customers. As a result of this agreement, Bell-Souths private line and switched data services were linked with Racal-Datacoms Tl multiplexers and various other products. Total revenues for the Racal-Datacom Group at the end of fiscal 1994 were $553 million.

Racal-Datacom has been at the forefront in the development of data communications products, systems, and services from 1955 onward. During the 1950s, space communications technology inched forward at the same rate as teletype, approximately one word per second. By the start of the 1990s, however, the communications systems within Americas space shuttles Columbia and Enterprise were capable of conveying data at a rate of 7.5 million words per second. With the increasing sophistication of its products, Miami-based Racal-Datacom intends to take advantage of the growing trend toward a national information network that will link every business, school, library, hospital, and government office in the United States.

Further Reading

Antelman, Leonard, Racal Splits Milgo Subsidiary to Six Divisions, Electronic News, July 11, 1983, p. 11.

The Hot Bidding War to Capture Milgo, Business Week, February 7, 1977, pp. 33-34.

Johnston, Marsha W., Racal Electronics PLC, Datamation, July 1, 1991, p. 74.

Kaye, Jon, Racal Electronics PLC, Datamation, July 1, 1992, p. 79.

Racal Electronics PLC, Datamation, June 1, 1985, p. 127.

Racals Raid on the U.S. Market, Business Week, July 16, 1979.

Wehle, Jonathan, Racal Electronics: Eat or Be Eaten, Financial World, January 19, 1993, pp. 16-17.

Thomas Derdak

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