Gould Electronics, Inc. Business Information, Profile, and History

History of Gould Electronics, Inc.

Gould Electronics, Inc., is a designer and manufacturer of materials and components for use in the electrical and electronics markets. Headquartered in Eastlake, Ohio, the company is a wholly owned subsidiary of Japan Energy Corporation, a diverse corporation with interests in petroleum, specialty metals, electronics, biotechnology, and pharmaceuticals. Following an extensive history in the automotive battery market, Gould diversified during the 1970s and 1980s, but incurred significant debt that led to its acquisition. In 1993, Gould Inc. was liquidated and a new company called Gould Electronics, Inc., was established.

The origin of Gould Electronics dated to the late 1800s. Charles J. Gould started a small foundry to forge couplers for railroad cars. During its early years, Gould Coupler was a successful business and continued to add other products to its line, including batteries for railcars. When a fire destroyed Gould's plant in 1895, he rebuilt his business on a much larger scale and established a town around his factory. The new community of Depew was founded on 1,300 acres outside Buffalo, New York, and named after Chauncey Depew, president of New York Central Railroad and Gould's biggest customer.

The growing market for storage batteries prompted Gould to expand his product line and change the business name to Gould Storage Battery Corporation. Gould produced storage batteries for use by trains, electric utilities, subways, elevators, and farms. Gould also became a principal supplier of submarine batteries to the United States Navy. In addition, Gould developed a battery for the rapidly growing automotive industry. By 1930, the company had become an established name in the battery industry and was one of the largest manufacturers of industrial batteries in the country.

Over 900 miles away in St. Paul, Minnesota, another company was carving a successful niche in the battery business during this time. The Electric Manufacturing Company was originally a distributor of electrical accessories, but after a man named Lytton J. Shields bought the company, he guided it into the automotive battery distributorship business. Realizing that the real success came from the manufacturing end of the business, Shields pursued an affordable way to make lead grids and connectors for batteries. After two years of research, the company went into battery production and was renamed the National Lead Battery Company.

Unfortunately, the combination of a small customer base, a fire which destroyed the battery factory, and a recession after World War I left National Lead Battery Company with great financial problems. Shields was faced with the difficult decision of whether to close the business or to rebuild. A legend said that Shields and his associates decided to toss a coin: heads, they would rebuild; tails, they would give up. According to the story, heads was tossed.

Shields began to build his business again with determination. To increase sales, Shields needed a customer with a national business presence. He pursued Sewell Avery, then president of Montgomery Ward, and arranged a meeting with him to visit National Lead Battery. Shields hired men to work just for the afternoon of the very important meeting and had only enough materials to keep the production line moving for a few hours. The staged production line was convincing and Avery signed a contract with National Lead Battery. This first national customer helped National Lead Battery emerge from financial ruin.

The battery company's next big success came when it developed a way to produce replacement batteries for $5 to $10. At this time, replacement batteries normally retailed for as much as $40. As a result of its significantly lower prices, National Battery received national contracts with Goodrich, Goodyear, and Phillips, making it one of the largest producers of replacement batteries. Shields established plants throughout the country and pursued growth through a series of acquisitions during the 1920s. Taking "Lead" out of its name, the company was known simply as National Battery.

In 1930, a patent brought the companies of Gould Storage Battery Corporation and National Battery together. Always looking for new business opportunities, Shields' interest was drawn to a fiberglass method of insulating battery plates for which Gould Storage Battery Corporation held the patent. Shields saw an application for this process in the production of automotive batteries. The ambitious Shields acquired Gould Storage Battery Corporation for $225,000. The fiberglass separator batteries were perfected for automobiles, and, in 1936, Shields introduced a significant advancement in the industry. The Kathanode Glass-Klad battery was guaranteed to last "as long as you own your car." At his death in 1936, Shields left behind a national company with branches in 16 cities and seven plants across the country.

However, in the late 1930s, competition in the replacement battery continued to increase, while demand did not. To continue to build the company, Shields' successor, Albert H. Daggett, expanded the business into the industrial battery market. With the advent of World War II, the industrial division of National Battery grew into a major supplier of batteries for submarines and aircraft. Industrial battery sales doubled, and, after the war, the company had sales of almost $25 million and earnings over $890,000. In addition, the acquisitions of other battery manufacturers doubled the size of the company; in 1948 revenues grew to $50 million and earnings to $3.1 million. The company also changed its name to Gould-National Batteries, Inc., to capitalize on Gould's past focus in the industrial market.

Gould-National Battery struggled during the 1950s and 1960s. Costs grew faster than margins in replacement batteries, and the industrial market slowed after the war. In an effort to increase market share, the company began to diversify. In 1958 Gould-National acquired from White Machine Works a group of companies that manufactured parts for internal combustion engines. This purchase began Gould-National's presence in automotive engine manufacturing, a presence the company developed further by acquiring another engine parts manufacturer called Wilkening Manufacturing Company in 1960. Wilkening Manufacturing Company developed a patented heat-shaping process for making piston rings and later provided equipment rings for aircraft engines. With the acquisition of Cyclone Filter Corporation, Gould-National entered the air and fuel filter markets, expanding their business to make it a supplier to store brands like Montgomery Ward. The company also branched out of the industrial battery business to develop a presence in the alkaline battery and rechargeable battery markets.

In the late 1960s demand for automotive batteries continued to decrease because improvements in technology and the use of alternators had extended battery life twofold. Earnings at Gould-National also continued to fall, and the company needed to reevaluate its business strategy. After the retirement of Daggett, the board hired William T. Ylvisaker as the new chief executive officer. In his new position he worked to eliminate debt, sell unprofitable businesses, reduce inventories, and decentralize division operations. Ylvisaker's other goal was to diversify and move the company away from its reliance on the battery market. Following this strategy, Gould-National merged with Cleveland-based Clevite Corporation. Clevite Corporation manufactured precision automotive parts, batteries, and electronic systems and components. The merger resulted in Gould, Inc. In 1969, the company reported total sales of $342 million and earnings over $12 million. Other smaller acquisitions, which included a maker of heating equipment parts, a smelter and refiner of lead, and a maker of specialized electric motors, helped Gould to diversify. Another major acquisition in 1976 helped Gould strengthen its position in electronics: I-T-E Imperial Corporation focused on distribution, transmission, and control of electricity, and manufactured hydraulics and fluid power systems.

From 1969 to 1976, Gould acquired 20 companies, including makers of electronic controls, computer output devices, battery-related equipment, medical instrumentation, and electronic test and measurement equipment. It transformed itself into a major electronics company, ranking in size among the top 150 U.S. corporations. Gould now had 35,000 employees and sales of $1.2 billion. Its markets had grown throughout the United States and into Japan and Europe. Its business mix was 55 percent electric, 30 percent industrial, and 15 percent batteries. The company moved into a new corporate headquarters in Rolling Meadows, Illinois, just outside of Chicago. In Ylvisaker's final step in transforming Gould into a high-tech electronics company, he divested Gould's industrial group of businesses and sold the company's battery operations. Money from these sales was used to further strengthen the business as an electronics company. Gould's electronic business now made up 75 percent of sales.

The rapid transition from batteries to electronics did come at a cost to the company. According to a 1987 article in Industry Week, Gould divested businesses from 1980 to 1984 with more than $1 billion in earnings. Although the revenues reached a high of $2.2 billion in 1980, the following years Gould found itself losing money. Over half of Gould's upper management left in the late 1970s because of personality conflicts with Ylvisaker, and in 1984 David Simpson, president and chief operating officer, resigned. He was replaced by James McDonald, a former IBM manufacturing executive.

McDonald was hired to reorganize the company and strengthen its financial position. During the late 1980s, Gould had more than $270 million in losses caused by excessive spending and failed business ventures. According to Forbes magazine in 1987, Ylvisaker bought a Florida real estate development in the late 1970s and invested over $80 million in the property to build a polo club, one of his favorite interests. However, interest rates rose and land values dropped, contributing to almost $50 million in losses for Gould on this speculation. Gould also incurred additional losses in its defense business. Ylvisaker replaced former Gould defense executives with his friends. His inexperienced colleagues badly underestimated production costs on a contract with the Air Force. They also bid on a fixed-price contract to produce a field radio for the Navy and Marines before plans for the project were completed. Gould never did produce a radio. To help lessen this debt, Gould sold its defense contracting business. Under McDonald's guidance, Gould also reduced employment by more than 9,000 people, cut corporate staff by over 50 percent, sold two corporate aircraft and three corporate apartments. By 1986, the board encouraged the resignation of Ylvisaker, and, after he stepped down, McDonald took over his position.

After four years of divestment and reorganization, Gould had brought in billions of dollars and paid off or established reserves for almost all its debt, making it an attractive company to purchase. The buyer emerged through a joint venture with Gould. In 1988, Nippon Mining Co. Ltd. had become Gould's agent for selling fuses in Japan, and the two companies later formed a computer marketing alliance. Nippon Mining Co. Ltd. was Japan's largest non-ferrous metals smelting company with annual sales of $6.5 billion. Nippon offered to buy Gould for over $1 billion dollars, a purchase price double the book value of Gould. The deal was too good for stockholders to resist, and Gould took the offer immediately. McDonald resigned from the position of chairman and CEO just hours after the acquisition, as one of the largest stockholders in Gould with over 240,000 shares. McDonald was replaced by a veteran Gould executive named C. David Ferguson.

The acquisition of Gould made Nippon Mining into a major electronics companies. It became one of the 50 largest non-U.S. electronics companies in the world. Nippon was particularly interested in Gould's copper foil production capability. Gould was the world leader in copper foil production, offering the largest selection of standard and specialty copper foils. Nippon had studied the world market's growing demand for copper foil, which was used in the production of circuit boards, and saw great potential in Gould's foil production plant in Eastlake, Ohio. As a result of this focus, Nippon moved Gould's headquarters to Eastlake.

Nippon Mining merged with Kyodo Oil Company in 1992 and formed Nikko Kyodo Co. Ltd. Investing $150 million in Gould, Nikko Kyodo concentrated its efforts on restructuring Gould and renovating its copper foil production facilities in the United States. However Nikko Kyodo had overestimated the demand for copper foil and circuit materials. Prices fell and Nikko Kyodo was forced to cut Gould's workforce from over 7,000 people down to just 2,600. In addition, Nikko Kyodo sold Gould's minicomputer business. According to a 1993 article in The New York Times, Gould had not made a profit since it was acquired and in 1992 lost $70 million. The financial problems that burdened Gould during the 1980s apparently continued even after new management tried to revive its balance sheet.

After consecutive years of operating losses, Gould Inc. was liquidated in 1993. It was estimated that Nikko Kyodo would need approximately 90 billion yen ($857 million) to pay off the debts incurred by Gould Inc. and its U.S.-based holding company called Nippon Mining U.S. Inc., which was also dissolved. Nikko Kyodo stated that they did not regret buying Gould because the area of high-technology remained their main focus for the 21st century. The company also reported that, as the computer market recovered, they expected copper foil demand for circuit boards to increase. With capital of $630 million, Nikko Kyodo established two new companies in the United States to take over the business of Gould Inc.: Gould Electronics Inc., still headquartered in Eastlake, was formed to continue production of copper foil for printed circuit boards, and Gould Instrument Systems Inc., based in Valley View, Ohio, was established to make test and measurement equipment. Although Gould Electronics and Gould Instrument Systems were newly formed, their roots definitely were well established in the history of Gould.

In December 1993 Nikko Kyodo changed its name to Japan Energy Corporation, to reflect the company's commitment to energy supply, new business growth, and technological development. According to Japan Energy Corporation's 1994 annual report, the businesses transferred to Gould Electronics and Gould Instrument Systems had promising growth areas and good operating performance in their first stage of operation.