Raytheon Company

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Raytheon Company

141 Spring Street
Lexington, Massachusetts 02173
U.S.A.
(617) 862–6600

Public Company
Incorporated: 1922 as American Appliance Company
Employees: 77,000
Sales: $8.2 billion
Stock Index: New York

Raytheon is one of the largest and most diversified electronics companies in the United States. While it conducts approximately half of its business with the United States government, it also manufactures such consumer items as Amana microwave ovens, Speed Queen washers and dryers, and Caloric cooking ranges. Raytheon’s historical area of expertise, however, remains its strongest—radar technology for the military.

Raytheon was founded in 1922 when a civil engineer named Laurence Marshall was introduced to an inventor named Charles G. Smith. Marshall proposed a business partnership with Smith after hearing that he had developed a new method for refrigeration using compressed gases. Marshall raised $25,000 in capital from his former World War I comrades and incorporated the partnership in Cambridge, Massachusetts 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. Having concluded that consumer demand for radios was about to increase dramatically, Marshall negotiated the purchase of patents for the S-tube, a gas-filled rectifier that converted alternating current (AC) to the direct current (DC) used in radio sets (Charles Smith himself had developed the S-tube some years earlier while he worked for the American Research and Development Corporation).

In 1925, shortly before S-tube production began, Smith and Marshall decided to change the company’s name to Raytheon Incorporated. Contrary to a once widely held idea that raytheon is Greek for “god of life”, the name in fact has no meaning, but was 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 Delta Manufacturing, 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.

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 British magnetron, a high-frequency radar power tube. In June, 1941 Raytheon won a contract to deliver 100 radar systems for navy ships and patrol boats. Shortly after the Japanese attack on Pearl Harbor, the U.S. Navy appropriated $2 million for the construction of a large new factory for Raytheon in Waltham, Massachusetts.

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. By the end of the war, Raytheon magnetrons accounted for about half the one million magnetrons produced during the war. Raytheon 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.

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 Electronics 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. Percy Spencer and Charles Adams, a former financial advisor who joined Raytheon in 1938, 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. Raytheon’s advanced research center, called Lab 16, was designed to develop the Sparrow air-to-air and Hawk surface-to-air, or SAM, missiles. Through Lab 16 (later renamed the missile & radar division), Raytheon became a partner in Selenia, a joint venture with the Italian firms Finmeccanica and Italian Societá Edison that was established to develop new SAM 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. 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 unable to gain the respect of engineers.

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, enhancing both the company’s expertise and reputation in the field of attack missiles. Dyer Brainerd Holmes, a former director of the American manned-space-flight program, joined Raytheon in 1963 to develop a new SAM missile using phased-array radar guidance. Holmes and a talented engineer named Tom Phillips (who had succeeded Krafve as president) assumed more specialized control over Raytheon’s growing missile operations as managers such as Percy Spencer retired.

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 Raytheon conceived a careful reorganization that aimed to diversify the company’s operations in a series of five-year plans. Raytheon acquired Packard-Bell’s computer operations and a number of small electronics firms. In 1965, Raytheon purchased Amana Refrigeration and the memory core division of Philco. By 1967, Raytheon had absorbed a number of educational-services companies including Dage-Bell and D.C. Heath & Company; a geological-survey company called the Seismograph Service Corporation; and the Caloric Corporation, a manufacturer of gas ranges and appliances.

Raytheon’s association with Calosi, the director of Selenia, became strained in 1967. Although an excellent engineer, Carlo Calosi, like Laurence Marshall, was a poor manager. 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.

Raytheon’s diversification continued with the acquisition of two construction-engineering firms: the Badger Company and United Engineers & Constructors. The goal of reducing Raytheon’s proportion of sales to the government from 85% to 50% was achieved on schedule in 1970. But, while Raytheon’s sales continued to rise, profits began to lag. After a series of heated discussions between Tom Phillips and Charles Adams, it was decided that, with the exception of D.C. Heath, Raytheon should dispense with its marginally performing educational-services units. In 1972, after several more smaller acquisitions, Raytheon purchased Iowa Manufacturing, a producer of road-building equipment.

When Charles Adams retired in 1975, Tom Phillips was named Raytheon’s new chairman and Brainerd Holmes was promoted to president. Adams had been Phillips’ most vocal (if amicable) opponent within Raytheon. But the five-year plans that were created to promote consensus between the two were retained even after Adams left.

Raytheon’s financial performance during the mid-1970s was impressive; from 1973 to 1978 sales and profits grew at annual rates of 15% and 26% respectively. 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. Shortly before it bought Beech, Raytheon also purchased the laundry products and kitchen appliance divisions of McGraw-Edison, which included the popular Speed Queen brand name.

At this time Raytheon’s business with the government consisted mainly of radar systems and the Hawk, Sparrow, Patriot, and Sidewinder missiles, all of which totaled less than 40% 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. As with all of the company’s other subsidiaries, Raytheon preserved the independence of Yeargin and Stearns and retained their individual staffs. Raytheon offers its new subsidiaries only the managerial assistance they require and the financial resources necessary for the implementation of new operating strategies.

Raytheon is responsible for a number of radar and microwave technologies, with applications ranging from microwave ovens to the B-1B bomber and the American air traffic-control system. Raytheon also had a substantial role in the construction of the Washington, D.C., Metro, one of the finest and most modern commuter rail systems in the world. Raytheon is thoroughly diversified, and has attained many of the goals it set forth over the years through successive five-year plans.

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. Tom Phillips remained chairman and chief executive of Raytheon, and Charles Adams continued to serve on the board of directors. The modern complexion of Raytheon is largely to the credit of these two men.

Principal Subsidiaries:

Raytheon Marine Co.; Switchcraft, Inc.; Cossor Electronics Ltd. (England); Data Logic Ltd. (England); Electrical Installations Ltd. (England); Raytheon Canada Ltd.; TAG Semiconductors Ltd. (Switzerland); Beech Aircraft Corp.; The Badger Company, Inc.; Seismograph Service Corp.; United Engineers & Constructors, Inc.; Amana Refrigeration, Inc.; Caloric Corp.; Speed Queen Co.; D.C. Heath & Company; Raytheon Service Co.; Cedarapids, Inc.