Raytheon Company

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Raytheon Company

141 Spring Street
Lexington, Massachusetts 02173-7899
U.S.A.
(617) 862-6600
Fax: (617) 860-2172

Public Company
Incorporated: 1922 as American Appliance Company
Employees: 60,000
Sales: $9.2 billion
Stock Exchanges: New York Boston Cincinnati NASDAQ
Philadelphia Pacific

SICS: 3812 Search and Navigation Equipment; 3761 Guided
Missiles and Space Vehicles; 3670 Electronic Components
and Accessories; 3720 Aircraft & Parts; 1629 Heavy
Construction, Nee; 3530 Construction and Related
Machinery; 8711 Engineering Services; 3663 Radio and
Television Broadcasting and Communication Equipment;
3674 Semiconductors & Other Devices; 3721 Aircraft;
3632 Household Refrigerators & Farm Freezers

Raytheon is one of the largest and most diversified companies in the United States, with domestic facilities in 28 states and the District of Columbia. Overseas facilities and representative offices are located in 26 countries, principally in Europe, the Middle East, and the Pacific Rim. International sales comprised 18.4 percent of revenues in 1993. Raytheon had four primary business interests in the early 1990s: electronics, aircraft products, energy and environmental services, and major appliances. The company ranked as America’s fifth-largest defense contractor: approximately half of its business is conducted with the United States government. Raytheon was also the country’s fifth-largest appliance manufacturer, with such consumer items as Amana microwave ovens, Speed Queen washers and dryers, and Caloric cooking ranges. The company’s aircraft segment, anchored by Beech Aircraft Corporation, boasted the broadest line in general aviation.

Raytheon was founded in 1922 when a civil engineer named Laurence Marshall was introduced to an inventor and Harvard physicist named Charles G. Smith by Dr. Vannevar Bush. Marshall proposed a business partnership with Smith and Bush after hearing that Smith had developed a new method for noiseless home refrigeration using compressed gases and no moving parts. Marshall raised $25,000 in venture capital from investors and a former World War I comrade and incorporated the partnership in Cambridge, Massachusetts (near Bush’s employer, the Massachusetts Institute of Technology) as the American Appliance Company.

Marshall and Smith never developed their refrigeration technologies for the market, but instead shifted their attention to vacuum tubes and other electronic devices. In 1924 Marshall made a three-month tour of the United States to study the pattern of growth in the electronics market. Noting rapidly growing consumer demand for radios, Marshall negotiated the purchase of patents for the S-tube, a gas-filled rectifier that converted alternating current (AC) used in households to the direct current (DC) used in radio sets (Ironically, the technology had been developed by Smith and Bush some years earlier while they worked for the American Research and Development Corporation). Up to that time, radios ran on an auto storage battery called the A battery and a high voltage B battery which were costly, cumbersome, messy, and relatively expensive to replace.

In 1925, shortly before S-tube production began, a firm in Indiana laid claim to the American Appliance company name. The partners decided to change their corporate moniker to Raytheon Incorporated. Despite the fact that raytheon is Greek for “god of life,” the name was actually chosen for its modern sound. By 1926, Raytheon had become a major manufacturer of tube rectifiers and generated $321,000 in profit on sales of $1 million.

Virtually all the tubes produced by Raytheon were used in radio sets whose design patents were held by RCA. In 1927 RCA altered its licensing agreements with radio manufacturers to stipulate that the radios could be built only with new rectifier tubes (called Radiotrons) manufactured by RCA. Raytheon was, in effect, denied access to its markets. The company was forced to switch to the production of radio-receiving tubes, a field in which more than 100 companies were engaged in fierce competition.

Marshall’s response to operating in this difficult environment was to diversify. Raytheon acquired the Acme-Delta Company, a producer of transformers, power equipment, and electronic auto parts. Profits resulting from new products were immediately put back into research and development to improve products, particularly in industrial electronics and microwave communications.

Marshall also sought the support of the National Carbon Company (a division of Union Carbide Corp.) during this difficult period. In 1929, National Carbon took a $500,000 equity position in Raytheon and held an option to buy the remaining portion of the company for an additional $19.5 million. National Carbon knew that Raytheon rectifier tubes had originally replaced its B battery business and was also convinced that its battery distribution would do well handling replacement tubes marked Eveready-Raytheon. Although the cooperative project was unsuccessful, National Carbon’s investment carried Raytheon through the Depression. National Carbon allowed its option to acquire Raytheon to lapse in 1938.

With world war looming in 1940, U.S. President Franklin Roosevelt and British Prime Minister Winston Churchill authorized the joint development of new radar technologies by American and British institutions. Through the Radiation Laboratory at the Massachusetts Institute of Technology, Raytheon was chosen to develop the top-secret British magnetron, a microwave radar power tube. The technology would provide the range and clearer images required for successful detection and destruction of enemy planes, submarines (when they surfaced), and German warships. The new device had over 100 times the power of previous microwave tubes and was cited as one of the Allies’top secrets. However, Britain needed the United States’ manufacturing capacity. In June 1941 Raytheon also won a contract to deliver 100 radar systems for navy ships.

Workers produced 100 magnetrons a day until plant manager Percy Spencer discovered a method, using punch presses, to raise production to more than 2,500 a day. Spencer’s ingenuity won Raytheon an appropriation of $2 million from the U.S. Navy for the construction of a large new factory in Waltham, Massachusetts. By the end of the war, Raytheon magnetrons accounted for about 80 percent of the one million magnetrons produced during the war. By 1944, virtually every U.S. Navy ship was equipped with Raytheon radar. The company became internationally known for its reliable marine radar. The company also offered complete radar installations, with the help of subcontractors, and developed tubes for the VT radio fuse, a device that detonated fired shells when it sensed they were near solid objects. Over the course of the war, Raytheon’s sales increased 55 times, from $3 million in 1940 to $168 million in 1945.

Raytheon was fortunate to be involved in a high-growth area of defense industry. When the war ended, companies specializing in high-technology military systems suffered less from cuts in the postwar defense budget than aircraft or heavy-vehicle manufacturers, or shipbuilders. Largely as a result of the war, Raytheon emerged as a profitable and influential, but still financially vulnerable, electronics company.

During the spring of 1945 Raytheon’s management formulated plans to acquire several other electronics firms. As part of a strategy to consolidate independent component manufacturers into one company, in April the company purchased Belmont Electronics for $4.6 million. Belmont, located in Chicago, was a major consumer of Raytheon tubes and was developing a television for the commercial market. That October, Raytheon acquired Russell Electric for $1.1 million and entered merger negotiations with the Submarine Signal Company. Sub Sig, as the company was known, was founded in Boston in 1901 as a manufacturer of maritime safety equipment, including a depth sounder called the fathometer. Sub-Sig manufactured a variety of sonar equipment during the war and, like Belmont, was a major Raytheon customer. When the two companies agreed to merge on May 31, 1946, it was decided that Sub-Sig would specialize in sonar devices and that Raytheon would continue to develop new radar systems.

Despite Raytheon’s strengthened position as a result of the mergers, the company faced severe competition in both the sonar and radar markets from companies like General Electric, RCA, Westinghouse Electric, and Sperry. Belmont, which planned to bring its television to market in late 1948, suffered a crippling strike during the summer and, as a result, lost much of its projected Christmas business. Unstable price conditions the following spring created further losses from which the subsidiary was largely unable to recuperate.

Laurence Marshall, though a superb engineer, was generally regarded as a poor manager. His inability to effect positive changes within the company led him to resign as president in February 1948. The following December he resigned as CEO, but he remained chairman of the board until May 1950, when he resigned after failing to gain support for a proposed merger with International Telephone & Telegraph. Charles F. Adams, a former financial advisor who joined Raytheon in 1947, assumed Marshall’s responsibilities.

The sudden resumption of military orders after the outbreak of the Korean War in June 1950 greatly benefited Raytheon, as Defense Department contracts enabled the company to develop new technologies with initially low profitability. That year, a “Lark” missile equipped with a Raytheon-designed guidance system made history when it intercepted and destroyed a Navy drone aircraft. Raytheon’s advanced research center, called Lab 16, was designed to develop the Sparrow air-to-air and Hawk surface-to-air missiles. Raytheon became a partner in Selenia, a joint venture with the Italian firms Finmeccanica and Fiat that was established to develop new radar technologies. Raytheon’s association with Selenia afforded it an opportunity to work with the Italian rocket scientist Carlo Calosi.

Raytheon’s Belmont operation was re-formed in 1954, but two years later all radio and television operations were sold to the Admiral Corporation. Raytheon continued, however, to develop new appliances such as the Radarange microwave oven. In 1956 Charles Adams hired Harold S. Geneen, a highly innovative and dynamic manager, as executive vice-president. Three years later, however, Geneen left Raytheon to become chief executive of ITT. Richard E. Krafve (who once headed the Ford Motor Company’s Edsel project) enjoyed only a short tenure as Geneen’s successor; he disagreed frequently with Adams and was apparently unable to gain the respect of engineers. Thomas L. Phillips, manager of the Missile Division, replaced Krafve.

In 1956 and 1957, Raytheon and Minneapolis-Honeywell jointly operated a computer company called Datamatic. Raytheon soon sold its interest to Honeywell when Datamatic failed to compete effectively against IBM. Raytheon’s joint-venture projects with Italian companies continued to expand, however. D. Brainerd Holmes, a former director of the American manned-space-flight program, joined Raytheon in 1963 to manage the company’s military business, reporting to Phillips.

Raytheon’s top managers began to recognize weaknesses in the company’s organizational structure perhaps as early as 1962; Raytheon, they decided, had become too dependent on government contracts. So in 1964 Adams and Phillips, who had become chairman and president, respectively, conceived a plan that aimed to diversify the company’s operations. Raytheon acquired Packard-Bell’s computer operations and a number of small electronics firms. In 1965 Raytheon acquired Amana Refrigeration. Although Raytheon had invented the microwave oven twenty years earlier, it needed Amana to commercialize the technology. Caloric Corporation, a major manufacturer of gas ranges and appliances, was added in 1967. By 1967, Raytheon had absorbed a number of additional companies, including the E. B. Badger Co., Inc.; United Engineers and Constructors; D.C. Heath & Company; and a geological-survey company called the Seismograph Service Corporation.

Raytheon’s association with Selenia became strained in 1967. Raytheon’s directors concluded that its Italian partners were unwilling to reform the operations of Selenia and Elsi (a jointly operated electronics firm). They voted to sell Raytheon’s share of the companies to its partners and end their association with Calosi. Nevertheless, the defense department selected Raytheon as the prime contractor for the new SAM-D missile.

The goal of reducing Raytheon’s proportion of sales to the government from 85 percent to 50 percent was achieved on schedule in 1970. But, while Raytheon’s sales continued to rise, profits began to lag. Intra-company discussions determined that, with the exception of D. C. Heath, Raytheon should dispense with its marginally performing educational-services units. In 1972, after several relatively small acquisitions, Raytheon purchased Iowa Manufacturing Company (now called Cedarapids, Inc.) a producer of road-building equipment.

When Charles Adams retired as chair in 1975, Tom Phillips was elected the new chairman and chief executive officer. Brainerd Holmes was promoted to president. Raytheon’s financial performance during the mid-1970s was impressive: from 1973 to 1978 sales and profits grew at annual rates of 15 percent and 26 percent respectively. Acquisitions in the latter years of the decade included Switchcraft, Inc., an electronics manufacturer, Glen wood Range and Modern Maid gas range producers. The laundry products and kitchen appliance divisions of McGraw-Edison, which included the popular Speed Queen brand name, were added in 1979. The company’s retained earnings were placed in high-yielding money-market accounts until needed to finance acquisitions.

In 1977 Phillips tried to acquire Falcon Seaboard, an energy-resources company involved primarily in strip mining coal, but withdrew the offer when favorable terms could not be reached. Instead, Phillips entered into negotiations to acquire Beech Aircraft, a leading manufacturer of single- and twin-engine aircraft. Raytheon acquired Beech in February of 1980 for $800 million. The new affiliate recorded annual losses in each of the ensuing seven years, finally turning a profit in 1988.

At this time Raytheon’s business with the government consisted mainly of radar systems, solar systems, communications equipment, and the Hawk, Sparrow, Patriot (formerly SAM-D), and Sidewinder missiles, all of which totaled less than 40 percent of Raytheon’s sales. Raytheon was now more widely exposed to commercial computer and consumer markets, but these markets had become unexpectedly competitive, leading Raytheon management to reconsider its trend of moving away from stable military contracts.

Raytheon’s Data Systems division, created in 1971 through the merger of the company’s information-processing and display units, established a small market by manufacturing terminals for airline reservation systems. Raytheon failed, however, to integrate Data Systems effectively with a word-processing subsidiary called Lexitron, which it acquired in 1978. As the computer-products market expanded, Data Systems found itself unable to compete. After mounting losses, the division was sold to Telex in 1984.

In January 1986 Raytheon acquired the Yeargin Construction Company, a builder of electrical and chemical plants, and the following October it acquired the Stearns Catalytic World Corporation, an industrial plant maintenance company.

When Brainerd Holmes retired on May 31, 1986, as he reached the traditional retirement age of 65, he was succeeded as president by R. Gene Shelley, who himself retired in July 1989 and was replaced by Dennis J. Picard. Picard succeeded Tom Phillips as chairman and chief executive of Raytheon in 1990, and Max E. Bleck rose to president.

While other major defense contractors moved to convert to civilian interests in the wake of post-Cold War defense budget cuts, Raytheon planned to buttress its position within its four business segments. In 1992, Picard announced a new five-year plan. Its goals included increasing foreign military sales from 20 percent to 40 percent of total defense revenues; doubling energy and environmental services’ $1.7 billion sales; doubling Beech’s $1.1 billion sales; and increasing appliance sales by 60 percent. The versatile Patriot missile—Raytheon’s single most important product in the 1990s—was considered pivotal to an increase in the company’s overseas sales. From the end of the Gulf War until late in 1994, Raytheon received nearly $2.5 billion in orders for the missiles from overseas customers. The corporation’s environmental and energy service was consolidated to form Raytheon Engineers & Constructors International Inc. (RECI), one of the world’s largest engineering and construction groups, in 1993. The acquisitions of Harbert Corp., Gibbs & Hill, and key segments of EBASCO Services, Inc., that year were intended to help boost RECI’s annual sales. British Aerospace Corporate Jets was also purchased that year for $387.5 million. The acquisition helped expand Beech’s penetration of the business aircraft market. An extensive overhaul of the appliance segment, including downsizing, consolidation, and the 1994 acquisition of UniMac Companies, helped increase that division’s sales and profits.

CEO Picard noted in his 1994 annual report that Raytheon’s goal was “to become a diversified commercial company with a strong defense electronics base.” That year, Raytheon launched a new public relations campaign to emphasize this unified corporate image.