General Signal Corporation Business Information, Profile, and History

History of General Signal Corporation

The General Signal Corporation is the leading manufacturer of equipment and instruments for process control, and electrical and industrial technologies. General Signal was founded in 1904 in New York as the General Railway Signal Company and primarily operated as a railway supplier. The company diversified its product base, most notably in the 1960s, and grew steadily into the 1980s when, after a foray into the world of high-tech semiconductor manufacturing, it ran into overwhelming competition and ended up going back to its more traditionally profitable markets.

The company's current operations are divided into three basic product sectors: process control, electrical controls, and industrial technology. The process control unit is the largest of the company's operations, with 38 manufacturing facilities in 15 states and eight foreign countries producing industrial mixers, pumps, valves, and instrumentation for the waste, wastewater, chemical, and paper industries. The electrical controls division operates 33 manufacturing facilities in 15 states and four foreign countries, producing fire protection systems and signaling products for the construction, electrical utility, computer, and industrial markets. The industrial technology sector produces related products for the semiconductor, telecommunications, automotive, and transit industries.

The origins of the company go back to June 13, 1904, the date the General Railway Signal Company was founded in New York. For most of its history, the company supplied control equipment to the railroad industry. General Railway sold products that were instrumental in automation, warehousing, switch yards, and other aspects of the railroad business; the company's equipment was designed to help carry cargo over America's railroads faster, more reliably, and at a lower cost. With the diversification of the transportation industry, General Railway moved into related markets, such as mass transportation rail lines, and became a leader in transportation supply.

During the 1950s, sales in railroad supply remained around $20 million per year (while profits grew, albeit slowly), and the company took on a new CEO and chairman, Nathan R. Owen. Owen had been a partner in a venture capital firm, J. H. Whitney & Company, when it merged one of its holdings, Regina Corporation, into General Railway. Regina manufactured household floor-care appliances while, of course, General Railway was still solidly in the railroad equipment business. One of Owen's tasks was to forge a company "in between" General Railway and Regina Corporation.

In 1960 the firm made strong profits, but the potential for growth was limited by the fact that the railroads were its main markets. Owen, who had been the leader of numerous corporate takeovers, often targeted electronics companies that specialized in related transportation industries, marine and military air traffic controls, which led to spin-offs that could be applied to related areas. General Railway could achieve benefits from its merger with New York Air Brake Company, supplier of brake systems to railroads, which was a perfect complement to General Railway's control systems. Air Brake's expertise in pneumatic and hydraulic control systems dovetailed nicely with General Railway's electrical and electronic controls as well.

The company doubled in size between 1960 and 1962. By 1963 the company had diversified enough to drop "Railway" from its name, taking on its present name, General Signal Corporation. Still a respected supplier to the railroad industry, much of the company was converted to the manufacture of specialty control devices that could be adapted to many purposes, notably pollution control, mass transit systems, and medical and educational facilities. By the mid-1960s, more than 50 percent of the company's sales were in these areas. The mix of businesses created by Owen was 20 percent water treatment plants and industrial process controls, 27 percent transportation controls, 18 percent building controls and protection devices, 16 percent home appliances, 13 percent fluid power controls, and 6 percent defense electronics, with each division yielding profits in proportion to its share of the company's revenues. From 1963 to 1970, sales and earnings grew every year. More than 80 percent of the water treatment plants in the United States used some of General Signal's equipment and controls.

Expansion and diversification continued through acquisition and internal expansion. Some major acquisitions included ACF Industries Electronics Division, later renamed Avion Electronics Inc.; the company was sold two years later when it lost $1.8 million. In all, General Signal picked up eight companies between 1961 and 1966, focusing on the areas of electronics and electrical equipment.

At that time, General Signal still sold nearly half of its output to the railroads, but as transportation diversified and as mass transit systems and new highways were being built, General Signal diversified to meet the growing demand for infrastructure. The company reaped markets from federal government programs to build schools and hospitals, as the federal government shifted spending away from the Vietnam War and increased spending for social needs at home. General Signal got a piece of federal spending on water pollution control ($1 billion in fiscal year 1971) and medical facilities ($2.8 billion). The federal government at that time committed $5 billion over five years for mass transit alone.

Owen dubbed his flexible product line "social capital goods" to reflect his "manufacture of specialty control devices that can be adapted to many purposes, notably pollution controls, mass transit, and medical and educational facilities." Social spending by the federal government was clearly instrumental in General Signal's growth in the 1960s. The company landed a contract in 1969 in New York City to supply over $1 million in controls for new subway cars.

Other markets were growing as well into the 1970s. From 1970 to 1974, net sales more than doubled, going from $206 million to $470 million; net income rose from $9.4 million to $20.6 million in 1974. The product mix changed slightly over this period as some of the firm's operations grew while other unprofitable operations were sold off. General Signal's home appliance operation, most notably Elektrik Broom and other floor care items (which made up only 10 percent of the firm's sales), in the red to the tune of $1.7 million, was sold off as consumer demand fell off during recessionary times. Mobile controls (12 percent of revenues), a line that included hydraulic valves, pumps, and motors and other forged parts experienced growth, buoyed by strong demand for fluid power controls for mining and agricultural equipment.

David Kimball took over the company from Owen in 1974, with optimistic prospects. In total, General Signal had made over twenty-seven deals in the previous two decades. Markets were growing and federal government contracts in particular continued to be important markets for the three key parts of General Signal's business--transportation controls, life safety, and building controls (including detection, parking systems, power distribution, and safety and building controls). Government contracts also supported environmental and industrial process controls, which were tied to petroleum, petro-chemicals, and chemical and mining activities. The water controls segment, including waste water systems and controls, benefited from a portion of the $9 billion of federal funds earmarked for municipalities. General Signal's wastewater market continued to be strong--80 percent of all installations included one or more of General Signal's products.

One of General Signal's biggest transit deals at the time was a contract to supply transit controls for the Washington, D.C., Metro System in the late 1970s, a $42 million potential deal. They also won contracts for mass transit controls in other cities and other municipal traffic systems as well. By 1980 General Signal was one of the fastest growing conglomerates, with assets of more than $260 billion and sales of $1.5 billion. The firm went into the utilities industry, acquiring Leeds & Northrup, a leader in utility controls. The acquisition reaped large benefits for General Signal, with an increased demand for electricity and the conversion from oil to coal requiring a new set of controls.

General Signal was shifting into high-technology industries, becoming the Silicon Valley's third largest supplier of equipment for producing electronic chips. In 1980, 20 percent of the company's revenues were derived from high tech fields. Moving strongly into this area, General Signal hoped that suppliers of production machinery would need their services as companies sought to automate more of the manufacturing process.

In support of the move into high tech, General Signal acquired several other companies, most notably Xynetics, a leader in probing machines used to test microcircuits, and Kayex, a leader in the $20 million silicon crystal market whose furnaces were used to convert silicon for use in electrical chips. These purchases brought General Signal's "chip" revenue to $100 million. Its purchase in 1988 of the GCA Corporation, a large chip maker, had a profound effect on the company's direction. GCA was best known for a new technology called the XLS stepper, a semiconductor manufacturing machine that put the circuit pattern on a chip. In all, between 1982 and 1988 Owen and Kimball spent $260 million on technology for General Signal, planning to make machines for all the major stages of chip manufacture. At the time of the GCA purchase, General Signal was lauded for keeping this technology in the United States.

In support of the U.S. semiconductor industry, the federal government had poured money into GCA and other Silicon Valley companies through Sematech, the American Semiconductor Industry Consortium, in order to keep the technology from being controlled by Japanese-owned companies Nikon and Canon.

Even government subsidies, however, could not save the industry or GCA. The semiconductor division of General Signal lost over $100 million from 1984 through 1988. Once the largest semiconductor chip maker, GCA now held a meager four percent of market share, (and the company lost $4 million in 1990). Competition in the industry during the decade was fierce, and GCA lost the war to Canon Inc. and Nikon Corp. As a result, General Signal's total revenues remained flat in the late 1980s.

General Signal faced on ongoing struggle to recover from defeat at the hands of its competitors. The decline of GCA led the firm to try to return to its successful "low-tech" roots. Edmund Carpenter took over the company in 1988 and started the retrenchment needed to revive the company. He immediately lopped off over $200 million in assets and reduced costs by cutting his work force by 20 percent and introducing strict inventory control methods in order to reduce turnover time. The reforms were limited as Carpenter was hemmed in by a debt load of $395 million (which was 47 percent of total capital), so he had limited financial flexibility. He did succeed in scaling back the high-tech division and went in the direction of basic process control, which was pushed up to 80 percent from the 50 percent share of the total revenues it had in 1987. General Signal's net income hit bottom in 1990 when it lost $13 million.

By the end of the 1980s, the company's core business, industrial and electrical controls, was hurting as well. The recession in the early 1990s reduced demand for the valves and pumps used to regulate and control the flow of material used to make paper, chemicals, cement, and other manufacturing products. The fourth quarter of 1990 showed a 33 percent decline in earnings in electrical controls, though by 1991 things picked up a bit.

Competition and restructuring reduced General Signal's semiconductor business from 41 percent of the company's business in 1988 to 25 percent of sales in 1990. The company as a whole showed signs of growth. In 1992 capital goods orders improved and orders increased for restoring the infrastructure. By the end of the year, the company made a major acquisition, picking up Ryken Tube Group, a producer and distributor of a variety of automotive tubular parts. With this addition to the General Signal stable, net income rose 12 percent in the fourth quarter of 1992 compared with one year prior. Revenues over the same period increased 4 percent to $408 million. Any profit growth over the year was largely attributed to higher margins for instrumentation, pumps, and heat treating business as well as acquisitions in the electrical controls unit.

Longer term restructuring continued. The company cut costs by shedding workers, consolidating its management, and keeping a close eye on inventory and payables. General Signal expected an increase in domestic sales and new product sales as well as in electric and process control groups. They also expected increased demand for high vacuum pumps and industrial valves used to rebuild municipal and industrial infrastructure.

Finally, General Signal, having tried to shed its ailing semiconductor company, GCA, finally shut the company down in May of 1993. The move left Canon and Nikon (which controlled 80 percent of the market) with control over the semiconductor industry. GCA had been kept alive largely through the efforts of Sematech, in an attempt to keep the industry out of complete Japanese corporate control. In fact, some concern was expressed by the National Security Council that the lack of a "pure domestic" microlithography supplier would be hazardous to American national security. In any case, unable to compete and unable to find a buyer, General Signal shut GCA down and took an $85.6 million charge for the fourth quarter of 1992. The remaining American firms in the market entered into joint operating agreements with Canon. Under a Sematech agreement, the Silicon Valley companies agreed to share new improvements with Canon and divide up the markets, with the Silicon Valley getting the U.S. and Korean markets and Canon getting Japan and Asia.

Principal Subsidiaries: Assembly Technologies Inc.; DeZurik Inc.; Dielectric Communications; Drytek Inc.; Dual-Lite Inc.; Edwards Company Inc.; General Signal Corporation Aurora Pump; General Signal Corporation Edwards Systems Technology Division; General Signal Corporation Electroglas Division; General Signal Corporation GFI-GENFARE; General Signal Corporation GS Electric; General Signal Corporation General Signal ThinFilm Company; General Signal Corporation Hevi-Duty Electric; General Signal Corporation Kinney Vacuum Company; General Signal Corporation Lindberg Blue M; General Signal Corporation Lindberg Division; General Signal Corporation OZ/GEDNEY Company; General Signal Corporation Sola Electric; General Signal Corporation Stock Equipment Company; General Signal Corporation Technology Industries; General Signal Corporation Warren G-V Inc.; Hevi-Duty/Nelson Electric; Kayex Corporation; LIGHTNIN; Leeds and Northrup Company; Midwest Electronics Industries Inc.; O-Z Gedney Company Inc.; Tau-tron Inc.; Telecommunications Technology Inc.; Telenex Corporation; Xynetics Inc.