Thermo Electron Corporation
Thermo Electron Corporation
81 Wyman Street
P.O. Box 9046
Waltham, Massachusetts 02254-9046
Fax: (617) 622-1207
Sales: $948.9 million
Stock Exchanges: New York
SICs: 3823 Process Control Instruments; 3511 Turbines & Turbine Generator Sets; 3845 Electromedical Equipment; 8711 Engineering Services
Thermo Electron Corporation is a leading innovator in the practical application of heat science and energy conversion methods to the development of industrial and commercial products. The company represents the life work of Greek immigrant George Hatsopoulos, whose interest in applying technology to solving problems has led to the involvement of Thermo Electron in such fields as environmental monitoring instruments, alternative power generation, soil remediation, and artificial heart pumps. In addition to distinguishing himself as a scientist, Hatsopoulos has earned a reputation as a manager of extraordinary vision.
Hatsopoulos was born in suburban Athens in 1927 to a prosperous family of professors and politicians. He developed an interest in electronics during World War II when, upon the Nazi invasion of Greece in 1941, he constructed radios capable of tuning in Allied broadcasts—a practice punishable by imprisonment in a concentration camp. He clandestinely sold receivers to the public, and supplied transmitters to the Greek underground.
Following the war, Hatsopoulos studied electrical engineering at Greece’s national technical university, Athens Polytechnic, where he developed a strong interest in thermodynamics, the science of extracting energy from heat. Perceiving that Athens Polytechnic could not meet his educational needs, Hatsopoulos entered the Massachusetts Institute of Technology (MIT), where he became aware that there were practical applications of thermodynamics that had not yet been explored.
While still a graduate student at MIT, Hatsopoulos negotiated a $50,000 loan to found Thermo Electron. The company, which was at first based in a garage and employed only his brother John, was established to lend his thermodynamics experiments legitimacy, and in turn make grants easier to obtain. Hatsopoulos’s first professional endeavors were in the new field of thermionics, the science of converting heat into electricity without the aid of moving parts. Though several completed and patented mechanisms were too expensive to market commercially, his pioneering efforts placed Thermo Electron among several major corporations as a leading patent mill in the area of thermodynamics, and helped inspire nearly 30 companies—including General Electric, North American Aviation, and General Dynamics—to enter the field.
The company survived for several years on research grants and metal fabrication work for other businesses, but was often forced to disregard profits in order to underbid competitors, acquire experience, and develop a reputation. Many Thermo Electron contracts focused on improving electrical generators and furnaces, and served to draw Thermo Electron into the business of industrial power generation and heating. Contracted by the United States government and a consortium of natural gas companies, Thermo Electron also improved industrial drying and heat-treating processes. Despite the company’s status as the inventor of several new technologies, the government elected to award several subsequent contracts to larger competitors, such as GE and RCA, on the belief that the smaller organization did not have sufficient resources. In 1961 the company became the object of a takeover offer from Martin Marietta, which was interested in the application of thermionics to aerospace ventures. By this time, Thermo Electron had a staff of approximately 40 engineers and technicians, with Hatsopoulos heading the company’s engineering efforts and his brother presiding over financial operations. Martin Marietta offered to purchase 51 percent of the company, retain Hatsopoulos as president, and double his salary. Hatsopoulos refused. Afterward, the government also recognized the merit of Thermo Electron, awarding it several contracts that included projects related to the space program.
In the drive to commercialize and expand, Thermo Electron began in 1963 to acquire firms whose facilities and marketing could support company breakthroughs in metallurgy and rare metals manufacturing—both of which developed from high-temperature heat conversion technology. Furthermore, in order to increase the availability of funds, Thermo Electron stock was placed on the Over-The-Counter Market in 1967 and on the New York Stock Exchange in 1980.
Much of the company’s growth is directly attributable to Hatsopoulos’s unique entrepreneurial philosophy: Thermo Electron engineers are encouraged to pursue their own inventions, and concepts with potential for commercial success are allotted substantial development budgets. While some of these investments fail to yield a profit, many result in inventions with great practical and commercial promise. An example of the latter is a modified Rankine-cycle steam engine that does not pollute. In 1968, four years after the engine project was initiated, the Ford Motor Company established a joint venture with Thermo Electron to apply this technology to automobiles. Enthusiasm on Wall Street drove Thermo Electron’s share price to nearly ten times its value a year earlier, although stock values retreated when rising gasoline prices later led Ford to abandon the project in favor of high-efficiency engine research. Remade on a much smaller scale and powered by a miniature nuclear reactor, the steam engine was subsequently used to drive an artificial heart. When tested on animals, however, the device was found to be too hazardous for public use, and effective permanent models for humans never were developed. This work, however, led to the development of a battery-powered left ventricular-assist device, one of the most promising new product lines currently in clinical trials.
Thermo Electron’s work in heat conversion and conservation technologies led to an annual grant of more than $1 million from natural gas utilities. By 1968 this support enabled the company to develop an industrial and commercial furnace division and acquire Holcroft & Company, a furnace manufacturer based in Michigan. That same year, Thermo Electron purchased Lodding Engineering, a Massachusetts manufacturer of auxiliary equipment for the paper industry. By expanding into industrial manufacturing, Thermo Electron was better able to market its innovations, test applications of its technology, and maintain quality control. By 1970 the company had diversified into other areas of primary industrial equipment manufacturing.
Hatsopoulos has demonstrated the ability to anticipate and address burgeoning public and consumer needs. Recognizing the close relationship between technology and the environment, he monitors demand for environment-oriented technologies by observing social and political events. This was best demonstrated in 1971, when Hatsopoulos predicted that ratification of the Clean Air Act would create demand for environmental monitoring devices. Consequently, Thermo Electron marketed the first instrument to detect traces of nitrogen dioxide, a common compound in automobile exhaust and smog. Later, Hatsopoulos determined that the growing dependence of the United States on foreign oil would enable oil producing nations to use their commodity as a political weapon. Hence, he stressed the development of more efficient industrial furnaces for the paper and metals industries well before the OPEC oil embargo of 1973, making the energy efficient products and patented designs of Thermo Electron the first on the furnace market. With this type of success, the company exceeded $100 million in annual sales by the mid-1970s. In 1981, revenues surpassed $230 million and profits neared $9 million.
Thermo Electron struggled for several years in a shrinking American capital goods market, however, because of an economic recession and a diminished market for capital-intensive equipment such as furnaces. In 1983 the company grossed only $182 million, leaving a scant $50,000 profit after the deduction of new business development expenditures and write-downs. At that point, Hatsopoulos decided that Thermo Electron must explore areas other than the capital goods market, and began searching for new industries. In a characteristic move, he doubled the company research and development budget. Additionally, he mapped out what were determined to be the major issues of the 1980s and 1990s, and matched these issues with Thermo Electron’s strengths. Consequently, Hatsopoulos decided to develop atmospheric-particle sensing devices capable of detecting small, well-concealed bombs and controlled substances such as cocaine. Company technologies also suited the development of a hazardous substance incinerator, which can be used to treat petroleum-contaminated soil. Other market-driven innovations include surgical monitors, generators that burn agricultural waste, equipment that recycles paper, and air conditioners that run on natural gas.
In a search for an improved business structure, Hatsopoulos encountered the model on which Japanese trading companies are organized. These companies, he learned, are part of huge industrial groups often including hundreds of diversified firms. Each owns a small percentage of every other company; hence, a company is owned in sum by the group. Hatsopoulos found that Japanese companies, with strong interest in mutual success, have little problem raising the funds necessary for ambitious research and development. In America, however, companies such as Thermo Electron are financially hamstrung by the limited backing of banks. Following the lead of the Japanese, he created several Thermo Electron subsidiaries beginning in 1983, selling between ten and 40 percent of each company to outside shareholders. The proceeds were used to further research and development at Thermo Electron, and nurture other subsidiaries toward public share offerings. There are now eight publicly traded subsidiaries, as well as one other one partially sold to outside investors. By separating these promising units from the larger corporation, Hatsopoulos found, he was better able to control costs, raise funds, and inspire a greater sense of mission. “To take a company public,” he told CFO Magazine, “the company has to have an opportunity to grow at a 30 percent compounded rate for a long period. We must have the depth of management to run it as a public company, and we must have a need for the cash.” Furthermore, none of these companies pays dividends; all shareowner profit is realized from increased share value. As a result of managerial strategies such as this, as well as product diversification, Thermo Electron has shown remarkable growth, posting revenues of $615 million in 1989, $721 million in 1990, $805 million in 1991, and $949 million in 1992. Profits in 1992 totaled $61 million.
After nearly 40 years, Thermo Electron essentially remains an idea factory. While growing tremendously in size and scope, it has almost always existed as a mini-conglomerate, a venture capital group dedicated to the solution of problems facing society. The key to the company’s success, the New York Times noted, is that Thermo Electron “gambles on innovative technology to attack potentially huge markets in socially important areas.”
Thermo Power Corporation (52%); Thermedics Inc. (59%); ThermoTrex Corporation (62%); Thermo Energy Systems Corp. (87%); Thermo Instrument Systems Inc. (81%); Thermo Process Systems Inc. (71%); Thermo Cardiosystems Inc. (58%); Thermo Voltek Inc. (56%); Thermo FiberTek Inc. (80%).
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Year,” New England Business, December 1989; Feder, Barnaby J., “The Spinoff Stratagem: How Thermo Electron Copes with the High Cost of Capital,” New York Times, November 11, 1990; “Thermo Electron Corporation: Diverse Technologies Spin Off into Growth,” Better Investing: Investment Education since 1951 42, No. 3 (November 1992).