General Datacomm Industries, Inc. Business Information, Profile, and History

History of General Data Comm Industries, Inc.

General DataComm Industries is a leading provider of multimedia networks and telecommunications equipment used by businesses, telephone companies, and governments worldwide. The company is involved in all aspects of its telecommunication networks, from designing, manufacturing, and marketing its products, to offering installation and maintenance services as well.

General DataComm was founded by Charles P. Johnson, a native Chicagoan who had trained as an electronics technician when he joined the Navy in 1945. After the war, he worked for the telephone company during the day, while he attended Northwestern University in the evenings on the GI Bill. He then worked as a transmission engineer at Illinois Bell and a sales manager for Kellogg Switchboard, a subsidiary of ITT. While at Kellogg he went up against AT&T in selling equipment to independent telephone companies, a challenge that honed his sales skills and taught him the intricacies of the telecommunications market.

After working for another electronics company and a data communications company, Johnson decided to start his own firm, C.P. Johnson Associates in 1968. Using his own funds, he rented 25,000 square feet of office space for his fledgling company, a work space obviously far too large but valuable in establishing the credibility he needed in the industry. His first few employees were industry contractors, hired on as consultants, who had experience developing telecommunications networks for the military, and from the beginning the firm planned to design and manufacture equipment for complete network systems.

Working quickly, Johnson developed a business plan, raised $1.5 million in venture capital, and reincorporated as General DataComm (GDC). A decision by the Federal Communications Commission during this time had opened up the market for telecommunications, enabling customers to connect their own computer equipment to telephone lines. Johnson, who thoroughly knew the business and its technology, also proved an excellent salesman. He realized that large manufacturers of telecommunications equipment, like AT&T, made all of their products to the specifications of their most demanding clients, which meant that it was better and more expensive than most customers needed. So GDC made products that were slightly less sophisticated and much less expensive. GDC soon won a large multiplexer order from Shell Oil Co., and with Shell on its client list, the new GDC was able to attract business from smaller companies.

GDC's multiplexers made it possible to send many circuits simultaneously over a single connection, decreasing the need for many telephone lines. Eventually, GDC also moved into producing modems, which sent digital data over telephone lines. Thus, GDC's customers were businesses with computer data they needed to send over the telephone.

In its own manufacturing system, GDC stressed standardization. The firm's modular design and interchangeable parts made it easy to customize equipment for clients. This kept manufacturing costs low and was another reason why the firm could undersell rivals like AT&T, which did not stress standardization. GDC also developed technical improvements that made its products easier to use and service. For example, it was the first company in its field to put light emitting diodes on its equipment to aid in diagnosing breakdowns.

By 1973 GDC was reporting revenues of $6.8 million. The company was also spending about 13 percent of revenues on research and development, as it was in the midst of converting all of its products to large scale integrated circuitry. This process put a number of discrete components onto a single chip, reducing costs and the power demand of its products. By the late 1970s, GDC was spending about eight percent of sales on research, hoping to keep its manufacturing costs the lowest in the industry. Its largest customers were AT&T rivals like Bell of Canada, which accounted for 12 percent of sales, and GTE, at 16 percent.

Facilitated by its practice of producing interchangeable parts, GDC was able to quickly develop new products. In fact, by the end of 1977, GDC was manufacturing more than 200 types of data transmission equipment using fewer than 2,000 different components, a ratio that far outshone its industry rivals. In 1977 GDC bought a 150,000 square foot plant in Danbury, Connecticut, for about $2.7 million, or about eight-years rent on the facility it had been leasing about 16 miles from there.

By 1979, GDC's $41.4 million in sales made it the fourth largest data transmission equipment company in the United States, ranking second in number of units sold. In fact, the company's sales had been growing at 30 percent a year since 1974, and Johnson noted in a Forbes interview that he would not want the firm to grow any faster because it might then become more unwieldy. Even so, this growth forced the firm to carry a lot of debt and to make several stock offerings to raise cash.

During this time, GDC primarily made low- and medium-speed equipment and systems, leaving the high-end equipment to rivals like AT&T. The company sold its products to three market segments: the common-carrier market, which consisted of independent telephone companies, specialized common carriers, Western Union, and railroads; the business systems market, with customers ranging from Fortune 500 companies to small businesses; and the international market, including businesses and telephone companies in Canada, Europe, Latin America, and the Far East.

In 1980 a Federal Communications Commission decree affecting the telephone companies caused that market to shrink. To compensate, GDC moved to increase its share of the business market. It increased its business sales force to 175 from 32, and put more money into developing high-speed equipment. Still, company growth slowed somewhat, as it reached sales of $57.6 million in 1981, up from $53.6 in 1980. Sales grew to $60.7 million in 1982.

At the beginning of 1984, the telecommunications market changed drastically with the break up of AT&T. Suddenly the regional Bell operating telephone companies became potential customers. Sales soared to $145.7 million in 1984 as GDC signed on Ameritech and Bell Atlantic as customers. Nevertheless, domestic business users were becoming GDC's biggest customers, accounting for 55 percent of sales in 1986. Domestic telecommunications carriers only accounted for 15 percent of sales, while international customers accounted for 30 percent. GDC was particularly strong in Canada and Britain where it had direct sales staffs.

Other changes in the data communications and telephone markets were prompted by rapid breakthroughs in technology. GDC began providing some of the equipment used by businesses for video conferencing and in 1986 came out with 20 new products, but due to economic recession and weak computer sales, GDC's sales declined in 1986. The company responded with a boost to its sales staff, and cost-cutting measures that included a ten percent reduction of paid work hours during the first quarter. The telecommunications market continued to change rapidly, with increased use of fiber optic cable, satellites, and microwave radio, which bypassed telephone company facilities; GDC scrambled to keep up with the changes.

The firm established a Network Services Group in 1986 which combined network engineering, program management, systems integration, and field service. Believing that network management was an important long-term market, the company named its customer network service Meganet and stressed GDC's ability to offer its customers a wide range of network services from a single vendor. A new 360,000-square-foot plant in Naugatuck, Connecticut, finished in 1986, focused on problems relating to customer network requirements.

Sales recovered in 1987, but 1988 was again a tough year for the firm. As sales declined and the firm lost $15.7 million, management decided to restructure. Still, GDC continued to win new business from companies like Hongkong Bank. It used the firm's Megaswitch multiplexer as the backbone of an international network that sent information between the bank and subsidiary offices via satellite and fiber optic cable. GDC installed over 600 high-speed modems at more than 300 locations in a three-month period for McDonnell Douglas as part of a nationwide network built for the Veterans Administration. Moreover, the State of Colorado was building a communications network using a full line of GDC products.

In 1989 GDC agreed to develop telecommunications technology with Japan's Hitachi Ltd. The firms worked on adapting GDC's multiplexers to a new technology called Integrated Services Digital Network, which carried voice, data, and video transmissions over a single phone line. Hitachi already operated a private information network in Japan that used some of GDC's multiplexers. Later that year, GDC installed one of the world's first multiplexer networks with ISDN capabilities. ISDN was expected to rapidly become an important technology as computers and video information became more central in communications. GDC also signed a three-year multimillion dollar deal with TRT, the data communications group of N. V. Philips, under which Philips resold the firm's multiplexers in Europe under the Philips name.

In the late 1980s and early 1990s, local area networks (LANs), which linked personal computers together, were rapidly becoming an important communications method, especially with the growing prevalence of personal computers. In 1990 GDC entered the LAN bridge business, becoming part of a technology that otherwise could have been a threat to its network business. The firm also reached an agreement with Alcatel Network Systems to use that company's Synchronous Optical Network interface, a standard for fiber optic networks that controlled channel bandwidth. GDC quickly moved multiplexers using the interface to market, selling from $28,000 to $180,000.

In 1991 the firm increased its presence in Europe when it bought Eurotech France, a telecommunications equipment company. Later in the year, France's Société Général bank built an international network around GDC multiplexers, also using the firm's voice compression technology. With the Mexican economy expanding, the firm also bought a majority interest in General Telecomm of Mexico. McDonald's Corporation, Citicorp, and other companies placed orders to create or upgrade multimedia networks.

Global communications systems were changing rapidly from analog to digital, but not always in ways that GDC had predicted ten years earlier. Rather than relying on centralized, mainframe computers, corporations were creating and sharing information over LANs. Accordingly, GDC began working on methods for customers to use the low-speed copper wires that most businesses already had in place. The firm also announced that it would develop multimedia networks for business customers and governments. Because such networks dealt with large volumes of video and voice information going through a variety of interconnected networks, GDC worked on several strategies and products, putting special emphasis on a high-capacity backbone switching architecture.

The firm continued to work with and develop products for major telecommunications companies, including products designed to hook up to corporate LANs via analog phone lines. Although many telecommunications firms had installed fiber optic lines in large parts of their systems, copper cables were still present throughout their systems, especially in the final links to customers' premises. Telcos were therefore very interested in methods of using copper cables efficiently, and GDC hastened to oblige them, producing equipment to send high-speed digital signals over copper.

An important component of the firm's multimedia network strategy was to move into Asynchronous Transfer Mode Technology (ATM), which was a wide-area network technology, one that GDC believed would not only succeed in the corporate world, but would eventually be used for interactive home entertainment. ATM governed the switching and transmission of information, dividing it into 53-byte information cells that could carry data, video, image, and voice information. In 1993, GDC introduced Apex, an ATM-supporting backbone switch for corporate local area networks. The firm also bought Netcomm Limited of Basildon, England, an ATM technology firm, for about $7.5 million in cash and stocks. Netcomm became GDC's Advanced Research Centre Limited. Apex switch manufacture was transferred to GDC's Connecticut factory. The switches were soon used for the world's first international ATM service, which ran between London and New York City. They were also used for the first ATM networks in Eastern Europe and China. All told, GDC had shipped about 240 ATM switches and related products to customers in 15 countries by the end of 1994, making it one of the leading ATM firms. It seemed the firm's ATM strategy might pay off.

Principal Subsidiaries: General DataComm, Inc.; General DataComm Systems, Inc., General DataComm, Ltd. (Canada); General DataComm Limited (UK); Eurotech France SARL; General DataComm SARL (France); General Telecomm S.A. de C.V. (Mexico); General DataComm Pte Lrd. (Singapore); General DataComm Pty. Limited (Australia); General DataComm de Venezuela C.A.; General DataComm Leasing Corporation; DataComm Service Corporation; General DataComm Advanced Research Centre Limited (UK); General DataComm Industries GmbH (Germany); General DataComm CIS (Russia); General DataComm China, Ltd.; General DataComm Do Brasil LTDA, S.C.