Zenith Electronics Corporation

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Zenith Electronics Corporation

1000 Milwaukee Avenue
Glenview, Illinois 60025
U.S.A.
(708) 391–7000

Public Company
Incorporated: 1923 as Zenith Radio Corporation
Sales: $1.5 billion
Employees: 35,000
Stock Index: New York

Zenith Electronics Corporation is recognized primarily as a manufacturer of high-quality consumer electronics products. From its start Zenith advertised that its reputation would be built and sustained by the superior workmanship, reliability, and innovation of all products bearing the Zenith name. The company became a huge American success as a top producer first in the radio industry and later in television. However, low-priced imports from Asia began to rock Zenith in the mid- to late 1970s. After major reorganizations, diversification into the personal computer market, initiation of production in other countries, and years of major financial losses despite constantly increasing sales, Zenith seems ready to make a comeback in the 1990s.

Zenith’s beginnings were very modest. Two ham radio operators, Karl E. Hassel and R.H.G. Mathews, began manufacturing radio equipment at a kitchen table in 1918. Hassel ran an amateur radio station with the call letters 9ZN, which were the basis for the name Zenith. These two men were joined by Commander Eugene F. McDonald Jr. in 1921. McDonald, already a self-made millionaire when he joined the company, was pivotal to Zenith’s growth. He was much more than a financial backer. McDonald’s flamboyant style was echoed in the company’s dramatic advertising methods and this style, coupled with innovative genius and an ability to sense changes in public tastes, meant that for more than three decades, in the public perception McDonald was Zenith.

McDonald was counterbalanced by Hugh Robertson, who joined the company as treasurer in 1923. Robertson’s financial expertise and careful planning led Zenith through many difficulties, including the Great Depression. 1923 was significant in many other ways. The company was incorporated as Zenith Radio Corporation that year, and 30,000 shares of stock were issued at $10 par, with the largest single block going to McDonald. At that time, Zenith Radio Corporation took over sales and marketing for the Chicago Radio Laboratory, a maker of radio equipment. Zenith later acquired all of Chicago Radio Laboratory’s assets and continued to manufacture under its own name.

Soon McDonald, who preferrred to be addressed as “The Commander” (as a lieutenant commander in the Navy during World War I he was entitled to the name), began to show his flair for drama. He persuaded Admiral Donald B. MacMillan to take a shortwave radio with him on his Arctic expedition. MacMillan’s transmissions proved to be exciting demonstrations of the efficiency of shortwave communication. In addition to his advertising schemes, Commander McDonald organized and became president of the National Association of Broadcasters in 1923.

Meanwhile, Zenith’s inventors and technicians were developing landmark products. In 1924 Zenith introduced the world’s first portable radio. Then in 1925, McDonald helped MacMillan organize another exhibition, this time to the North Pole. McDonald was part of the expedition as a ship commander, but went only as far as Greenland. His shortwave radio broadcasts of Eskimos singing into the microphone was a great success, and Zenith’s advertising always reminded the public that Zenith was the choice of the Arctic explorers.

More innovations followed. In 1926 Zenith introduced the first home radio receiver that operated directly from regular AC electric current, and automatic push-button tuning came in 1927. By the late 1920s Zenith was in twelfth place in a $400 million industry.

But when the Great Depression hit after the stock market crash of 1929, the radio industry was thrown into chaos. Zenith’s sales went from $10 million in 1929 to less than $2 million in 1932. Although the company suffered five successive years of losses, Treasurer Hugh Robertson managed to get the company through without borrowing until profitability returned.

McDonald, even during those times, did not give up his attempts to get Zenith technology into new areas. In 1934, he sent a wire to all U.S. oil and tire companies: “Watch absence of people on streets between eleven and eleven-thirty during presidential talk.” After the talk, he sent letters urging them to become Zenith auto-radio dealers and get rich.

One of McDonald’s most popular ideas during the 1930s was the “big black dial” for radios. Its large clock-style numbers were designed to be read from a distance or without glasses. McDonald also promoted portable shortwave radios for $75, an idea that was ridiculed at the time but was extremely successful in the end.

Zenith management valued and encouraged worker loyalty. Therefore, when the company began to be profitable again in 1936 for the first time in five years, Zenith paid its workers, rather than its stockholders, a dividend, in appreciation for sticking out the tough times of little money. Net sales of $8.5 million in 1936 resulted in net income of $1.2 million. By 1937 sales were up to almost $17 million, and net income was nearly $2 million.

By the late 1930s, Zenith was exporting to 96 countries, and was a pioneer in television and FM broadcasting. In 1939 Zenith’s station W9XZV, the first all-electronic television station, went on the air. This was followed the next year by W9XEN, one of the first FM stations in the United States. By 1941 Zenith had risen to second place in a $600 million industry, behind only RCA.

Although World War II meant a decline in normal consumer business, this decline was more than offset by war production. Zenith manufactured radar, communications equipment, and high-sensitivity frequency meters. Net sales were $23.8 million in 1941, and $34.2 million in 1942, with $1.4 million in net income that year.

Zenith’s major product outside of war-related materials during World War II was a highly successful hearing aid that retailed for $40. A miniature adaptation of a radio receiving set, it made hearing assistance affordable for many thousands of people. Zenith became the largest marketer of hearing aids in the world, outselling all other companies combined.

Once it was able to resume civilian research and production, Zenith concentrated on improving television, even though McDonald had resisted television for almost a decade. The company introduced its first line of black-and-white television receivers in 1948. Also in 1948, in order to meet an immediate increased demand, Zenith purchased the Rauland Corporation, a noted Chicago manufacturer of television picture tubes. One year after this purchase, the combined talents of the Zenith and Rauland researchers produced the non-reflective “black-tube.”

While Zenith continued research and development on color television throughout the early 1950s, and even participated in the development of industry standards for a compatible color television system, it still did not get into the color-TV market. McDonald was even more adamant about color television than he had been about black and white, saying “someday, the technical and service problems of color TV will be solved. When that day comes, we will offer you a line of outstanding color sets. In the meantime, we will not try to make an experimental laboratory of dealers and the public. We will keep color in our laboratories until it is ready.” Zenith continued to work on its black-and-white televisions, inventing the first wireless remote control in 1956, and held the leading position in black and white television from 1959 on.

The color television breakthrough came in 1961, when Zenith introduced a 10-receiver line of color sets. Demand for these sets grew so quickly that it had to expand its facilities. Also that year Zenith’s experimental stereophonic FM broadcasting system was approved by the FCC as the national standard.

Color television improvements continued steadily. In 1969 Zenith introduced the patented Chromacolor picture tube, which set the standard for brightness in the color-TV industry for many years. In 1970, the company received awards from the American Association for the Advancement of Science in recognition of its years of technological achievements. By 1972, the year it introduced a line of 25-inch television, Zenith was number one in production of color television sets.

Enormous profitability led to expansion. In 1971 Zenith acquired a 93% interest in Movado-Zenith-Mondia Holding, a watch manufacturer. It also acquired a one-third interest in a Venezuelan television company in 1974, and significantly increased its U.S. product distributors. Zenith was able to maintain the leading position in the fiercely competitive U.S. color-television market between 1972 and 1978, but was overtaken by RCA in 1979.

Domestic competition, however, did not prove to be Zenith’s greatest problem. Manufacturers in Japan, Taiwan, and Korea began selling great numbers of electronic consumer goods in the United States at prices below what American companies could afford to offer. Zenith’s then-chairman, John Nevin, filed suits against the Japanese and testified in Congress, accusing the Japanese of dumping goods on the American market at below-cost prices. Nevin’s demand that the federal government enforce its 1971 anti-dumping laws was finally met, but not before significant damage had been done.

In 1977, Zenith sold most of its domestic hearing aid instrumentation operation. Also in 1977, Zenith found itself contracting with Japan’s Sony Corporation, to market Sony’s Betamax home video television recorder in the United States under the Zenith label. By 1978, Zenith had sold most of its Movado watch assets and laid off 25% of its American workers when Zenith established plants in Mexico and Taiwan.

Zenith President and CEO Revone Kluckman realized that action outside Washington was needed to combat the pricing crisis. Kluckman is credited with refocusing Zenith’s competitive energies from legal battles to the factory floor by implementing cost-cutting measures and improved manufacturing procedures.

A sweeping reorganization also began in 1978. The corporate structure was rebuilt along product lines, with each group receiving a charter to move aggressively into new businesses. Jerry Pearlman, then a senior Zenith finance executive, now chairman and president, was instrumental in pushing for one business in particular: computers. In 1979, Zenith acquired the Heath Company, a long-time maker of do-it-yourself electronic kits. The shrewd and inexpensive ($64.5 million) purchase occurred right after Heath announced its first personal computer kit and only months after Apple introduced its first personal computer.

Zenith Data Systems, a wholly owned subsidiary, was born after the Heath acquisition. The parent company required that any new business tap at least two of three Zenith capabilities: technology, manufacturing, and distribution. Zenith Data Systems was a perfect match on all three counts. The first Zenith computer, the Z-100, was introduced in 1981; 35,000 Z-100s were shipped that first year.

In addition to complete computers, Zenith began to sell video terminals that were compatible with virtually all personal computers on the market. These became very successful, as were the components Zenith sold to other computer companies. Zenith also entered the market for convertors for the growing cable TV market.

Nevertheless, the early success of Zenith Data Systems was not enough to offset the impact of foreign competition. The company suffered a net loss of $24 million on revenues of $1.2 billion in 1982 and did not pay a dividend that year for the first time in almost half a century.

Zenith continued to push for cost reductions. These were achieved through the use of robotics and other improvements in design and manufacturing, which led to a higher sales volume to offset lower prices. By 1983, although it lacked the advertising dollars to mount the campaigns of other industry manufacturers, Zenith Data Systems boasted an installed base of 95,000 microcomputers. Computer sales mounted to $135 million that year, and Zenith was profitable. It also celebrated a victory in an antitrust suit against Japan that year.

Zenith worked to win large contracts with educational institutions and the federal government, greatly broadening its impact on the personal computer market. It also held a virtual monopoly on the do-it-yourself computer market through more than 70 Heathkit Electronic Centers. Whereas overall computer sales accounted for 1.4% of Zenith sales in 1979 (exclusively Heath), they were up to 15% in 1984. Also in 1984, the electronics industry adopted the Zenith-developed system for MTS stereo TV broadcast and reception. It was another profitable year, marked by a name change from the long outdated Zenith Radio Corporation to Zenith Electronics Corporation.

The roller coaster went down again for Zenith in 1985. Although computer-products sales rose from $249 in 1984 to $352 million in 1985, computer sales did not offset the $125 million loss in consumer electronics. The company was nearly $8 million in the red at year’s end.

In 1986 Zenith introduced more new products than at any time in its history, especially in the home entertainment and computer improvement areas. Record numbers of video cassette recorders were shipped, up 34%, and cable operations were up 16%. Foreign operations brought in 13% of overall revenues. Computer systems and components were up 56% to $548 million, accounting for 29% of total sales (consumer electronics figured at 64%, and components at 7% made up the rest). Nevertheless, 1986 was another overall loss—of $10 million—due to pricing pressures and lower profit margins. Japanese, Taiwanese, and Korean prices in the United States were 10% lower in 1986 than in 1985. Zenith chief Jerry Pearlman eventually asked the federal government once again to monitor foreign manufacturers’ illegal dumping of inexpensive TV sets on the American market. His request did little good, and as Zenith continued to lose money, pressure from investors to sell its consumer electronics unit mounted. Pearlman, however, resisted, hoping that high definition television (HDTV) would inject new life into the consumer electronics division. In 1988, Zenith entered into an agreement with AT&T Microelectronics. Zenith has developed techology for HDTV broadcasts which it hopes will become the industry standard, and AT&T Microelectronics and Zenith are jointly developing an HDTV receiver for market in the mid-1990s.

In 1988 Zenith reported a modest $12 million profit, ending a four-year streak of losses. But the company was saddled with heavy debt (incurred primarily to finance the growth of its computer business), and competition in both the consumer electronics and computer industries was heating up.

It was becoming increasingly evident to Pearlman that Zenith’s continued participation in two tough business areas was hurting the company’s competitiveness; while both were over $1 billion in sales by 1988, neither was highly profitable.

In 1989 Pearlman suddenly decided to sell Zenith’s computer business to Paris-based Groupe Bull. Zenith used the $500 million it received from Bull to pay off its short-term debt and some of its long term obligations as well.

Zenith management hopes this trimming will improve its ability to compete in consumer electronics in the 1990s. Zenith also continues to make cable products and electronic components, and the company has held onto its computer-monitor business, which, along with its flat tension mask high-resolution TVs, should play some role in the development of Zenith’s HDTV receiver.

Zenith’s slogan since 1927, “The Quality Goes In Before The Name Goes On,” exemplifies its philosophy. The company is focusing on the strength of its reputation and its continued market innovations. With over 30 subsidiaries, Zenith hopes its increasing mix of products will lead to permanent stability despite a highly unpredictable marketplace.

Principal Subsidiaries:

Zenith Distributing Corporation; Zenith Electronics Corporation of Arizona; Zenith Electronics Corporation of Texas; Zenith Electronics (Ireland) Limited; Zenith/Inteq, Inc.; Zenith International Sales Corporation; Zenith Microcircuits Corporation; Zenith Radio Canada Ltd./Zenith Radio Canada Ltee.; Zenith Taiwan Corporation; Zenith Video Products Corporation; Zenith Video Tech Corporation; Zentrans, Inc.; Cableproductos de Chihuahua, S.A. de C.V. (Mexico); Electro Partes de Matamoros, S.A. de C.V. (Mexico); Interocean Advertising Corporation; Productos Magneticos de Chihuahua, S.A. de C.V. (Mexico); Partes de Television de Reynosa, S.A. de C.V. (Mexico); Teleson de Mexico, S.A. de C.V.; Televisores Venezolanos S.A. (Televensa); Zenco de Chihuahua, S.A. de C.V. (Mexico).