Sarnoff Corporation Business Information, Profile, and History

Company Perspectives:

Sarnoff creates technology the world needs, science that succeeds in the markets. Sarnoff technology reaches the market in three ways: Contract research for government and commercial clients, licensing of Sarnoff technology, and venture companies based on new Sarnoff technology.

History of Sarnoff Corporation

Sarnoff Corporation is one of the leading developers of new technology in the United States. The company began as the research and development arm of RCA Corporation, and produced the first viable color television system. Sarnoff is now involved in a broad array of technological research, which it carries out under contract to client companies. The company has considerable expertise in electronic communications, and it has parlayed this into ventures in on-demand video, pharmaceutical information processing, advanced medical and genetic diagnostics, and many other fields. Sarnoff is one of the major patent-holders in the United States. It collects income from licensing its technology as well as from contracting its researchers. Sarnoff also acts as an incubator for new technology companies. Since the mid-1990s Sarnoff has launched more than 20 new companies, which capitalize on specific technology markets. Some of Sarnoff's spinoffs include Orchid Biosciences Inc., Songbird Medical, and Wavexpress. Sarnoff is a subsidiary of another venerable technology research firm, SRI International.

Namesake's Rise in the 1920s

Sarnoff Corporation was originally conceived as the research and development department of RCA Corporation. RCA was established in 1919 as the Radio Corporation of America. This was a successor company to the early radio pioneer American Marconi, which had been bought by General Electric. American Marconi existed to exploit the inventions of the Italian scientist Guglielmo Marconi, the founder of wireless communications. Marconi had invented a revolutionary means of connecting people through Morse code messages traveling on radio waves, and in the early years of the 20th century, his companies in Great Britain and the United States ran a network of ship-to-shore communication stations. Radio in its early years was an effective and important means of getting news from distant points. But it took a young, poorly educated messenger boy at American Marconi to conceive of radio as mass media, which would connect an audience of thousands to music, news, and entertainment broadcast from a fixed point. This was David Sarnoff.

Sarnoff was born in a small Jewish village in Russia in 1891. He immigrated to New York when he was nine years old, and very soon became his family's breadwinner, as his father was incapacitated by tuberculosis. Sarnoff began as a newsboy, getting up before dawn to hawk newspapers on the street. Later he ran his own newsstand, employing his younger siblings. His formal education lasted only through the eighth grade. Then, at the age of 15, he went to work full time. His ambition was to be a newspaper reporter, and he duly went to the offices of the New York Herald to apply for an entry-level post. By mistake he applied instead to the Commercial Cable Company, located in the same building, which took him on as a messenger. Sarnoff taught himself how to operate a telegraph while working at Commercial Cable. He left that job in 1906 and next got a job as an office boy at American Marconi. The young Sarnoff made himself indispensable, doing everything from filling in for absent telegraph operators to buying flowers for Mr. Marconi's women friends. Sarnoff became something of Marconi's apprentice, and the inventor made sure that the boy had adequate opportunity to study the technical aspects of wireless. Sarnoff also enrolled in New York's Pratt Institute to take its course in electrical engineering. Sarnoff quickly moved up the ladder at American Marconi, and by 1915, he was named the company's contract manager, overseeing all of Marconi's sales and service contracts. That year Sarnoff penned a long memo to Marconi, outlining a scheme to make the radio a consumer entertainment item, a home music box that might one day be as popular as the phonograph or the piano. Apparently this memo did not make a big impression on Marconi. Yet Sarnoff was convinced he was on to something.

General Electric (GE) took over Marconi's radio empire in 1919, and Sarnoff became a mid-level executive at the new company, RCA. In 1921, Sarnoff took it upon himself to get the attention of his bosses, and the world, by masterminding the first radio broadcast of a popular sporting event. Sarnoff jerryrigged a station to broadcast the championship boxing match between the American Jack Dempsey and the French Georges Carpentier. The event was not only a technical feat (the transmitter gave out right after the match, which had luckily lasted only four rounds), but a marketing coup, as Sarnoff hooked up with a fundraising drive for French war relief headed by the daughter of financier J.P. Morgan. The broadcast coincided with Miss Morgan's fundraising parties all along the East Coast, and the radio audience for this seminal event was estimated at 300,000. The fight broadcast immediately made clear the mass entertainment possibilities of radio, and the industry began to boom.

David Sarnoff became president of RCA in 1930. The company became a leader in electronic technology, venturing beyond radio to television and motion pictures. In 1932, government antitrust litigation broke up the partnership of RCA and GE, and RCA became an independent company. RCA had a research department as of 1922, headed by an electrical engineering professor from the City College of New York. In 1924 RCA moved its research department into its own quarters in the Bronx, while corporate headquarters were in Manhattan in New York City. The research department was responsible for quality control and for making improvements to existing RCA products. Beginning in 1934, the research department began a major push to develop new product lines for the company, culminating in 1939 with RCA's introduction of television. Television had been in the works since the 1920s, with various scientists around the world contributing bits and pieces. RCA hired a Russian scientist, Vladimir Zworykin, and backed him with some $5 million in research and development money. At the same time, the company bought the Jenkins Television Company, an early television pioneer that went bankrupt in 1932. RCA also licensed the patents of the American inventor Philo T. Farnsworth. While the inventors were inventing, Sarnoff put together a broadcasting network, lining up programming and running promotional events, so that when the technology was in place, consumers would be ready for it.

Birth of RCA Laboratories in the 1940s

RCA's research and development division made several other key inventions. In 1939 RCA scientists not only unveiled television but also the electron microscope and the facsimile machine. As the United States entered World War II, RCA researchers bent their skills to many military applications of electronics. In 1942 RCA founded a separate RCA Laboratories facility on 260 acres of land in Princeton, New Jersey. The new lab was farther from the corporate headquarters in Manhattan, but close enough for a quick commute. RCA Labs made many advances in military technology during the war, from improved radio systems for fighter planes to radar jamming devices. The labs also made significant improvements to television technology in the 1940s. In the late 1940s, RCA was manufacturing an improved black-and-white television set that retailed for an affordable $375, leading to a boom in television similar to the radio boom the company had stimulated in the 1920s.

The next step was color television. Rival CBS developed a color television system as early as 1940, but it employed a mechanical spinning disk that was incompatible with most existing television sets. By the late 1940s, RCA Laboratories scientists were working overtime to come up with a better color television system. The RCA system debuted in 1949, though the Federal Communications Commission (FCC) had already given its imprimatur to the CBS system. RCA had a huge technical advantage, however. Its color system was compatible with the millions of black-and-white televisions that were already on the market, giving minimal pain to consumers. In 1953 the FCC reversed its earlier decision, and accepted the RCA color television system as the industry standard.

In 1951 the RCA Laboratories was renamed the David Sarnoff Research Center, in honor of Sarnoff's enormous contribution to RCA and to the consumer electronics industry. The lab's physical plant expanded in the 1950s, and by 1955 the division employed 270 researchers. The lab continued to make strides in consumer electronics. A researcher at Sarnoff came up with an improved music recording technology in the late 1950s that became known as the "Dynagroove" record. Sarnoff scientists also contributed to advances in transistors and in semiconductor technology. Researchers at Sarnoff in the mid-1960s developed the liquid crystal display (LCD), which became a key component of many electronic devices. Sarnoff scientists were also responsible for the development of the CMOS (Complementary Metal Oxide Semiconductor) in the late 1960s and early 1970s. The lab also produced other advances in superconductivity, solar cells, and infrared imaging.

Corporate Changes in the 1970s and 1980s

David Sarnoff stepped down from the chief executive position at RCA in 1965. His son Robert became president, and then CEO. David Sarnoff remained chairman until 1970. He died in 1971. The company's earnings began to slide at that time, and in 1975, the RCA board refused to renew Robert Sarnoff's contract. RCA's next CEO lasted less than a year. The company then continued to flounder under its next CEO, Edgar Griffiths, as poor economic conditions socked its record division in particular. RCA also had bought up businesses unrelated to electronics, such as the Hertz car rental company and Banquet frozen foods. Meanwhile, the David Sarnoff Research Center had mushroomed. By 1980 it employed more than 1,500 scientists, engineers, and researchers. It was receiving a large number of patents, even more than its competitor Bell Labs. Yet its role at the forefront of electronics research was eroding. Another CEO, Thornton Bradshaw, took over in 1981, and he resolved to get the company back to its basic business. He sold off the outlying divisions and used the cash to invest in electronics, broadcasting, and new technology research. The company turned around in the early 1980s, and seemed restored to stability. But RCA was abruptly sold to GE in 1986.

GE had divested itself of RCA more than 50 years earlier, and was now spending $6.28 billion to buy it back. It was immediately clear to GE that it did not need the David Sarnoff Research Center. GE had its own research laboratory not very far away, in Schenectady, New York, and there was no reason for the company to operate two such facilities. In 1986 the David Sarnoff Research Center employed some 1,200 people, and its annual budget was $98 million. The lab was redundant as far as GE was concerned, as its own research center was nearly twice the size of Sarnoff. Consequently, the parent company gave the David Sarnoff Research Center to another technology development firm, the nonprofit SRI International. SRI, based in Menlo Park, California, had done consulting for GE, and it had been looking for an East Coast location. The giveaway gave GE a hefty tax break. GE also agreed to support Sarnoff with $250 million in research contracts for the next five years. The lab remained in New Jersey, and operated as a for-profit subsidiary of SRI. It incorporated in 1987 as Sarnoff Laboratories.

The transition was difficult, nevertheless. The staff shrank by about one-third soon after the change in management. Sarnoff's role under SRI was quite different from what it had been as part of RCA. It was expected to pay for itself by garnering lucrative research contracts. SRI depended heavily on military contracts, while Sarnoff had only about 13 percent of its contracts with the military or government. SRI prompted Sarnoff to seek more government work, aiming to get about half its contracts from the military over the coming years. But the military market began to shrink soon after it took over Sarnoff. Sarnoff still maintained its focus on television, working with a consortium of other companies on high-definition television (HDTV), which was expected to bring theater-quality pictures to home sets. But Sarnoff's television contracts became complicated when GE sold its consumer electronics business in 1987 to the French firm Thomson. By the early 1990s, SRI was in the red, and Sarnoff, too, lost $9.3 million in 1991 on revenue of $75 million.

Technology Incubator in the 1990s

SRI got new leadership in 1993, and Sarnoff began focusing on more entrepreneurial projects. It began actively encouraging researchers to come up with viable business applications for their ideas by offering them bonuses and profit-sharing. One Sarnoff researcher who had left the company in the mid-1980s described it to a New York Times reporter (August 15, 1994) as having had "pretty much of an academic atmosphere" when he had worked there. But on returning to Sarnoff in 1994, the researcher said, "I didn't recognize the place. People were really plugged into the outside world." Sarnoff employees were coming up with unique high-tech projects, and the company was backing them. Some workers ran their own companies, in partnership with Sarnoff, out of their Sarnoff offices. It also spun off companies that evolved on its premises. In 1995, Sarnoff spun off Sarnoff Real Time Corporation. Real Time made a supercomputer that had first been used to simulate video circuitry. The supercomputer was next used as a flight simulator, but it soon found a consumer application as a server for video on demand. This seemed to typify the new Sarnoff trajectory. A complex electronic product with an arcane or specialized use was recast for a commercial market. Sarnoff backed the idea in development, then helped the principals launch an independent company.

In 1997, Sarnoff Laboratories renamed itself Sarnoff Corporation. Its business plan called for spinning off two new companies every year. Its offspring included Sarif Inc., a Vancouver, Washington-based company that manufactured liquid crystal optical systems. Another was Orchid Biocomputer Inc. (later Orchid Biosciences), which spun off from Sarnoff in 1995. Orchid developed a medical screening device the size of a business card, which could conduct thousands of chemical tests simultaneously. Orchid went public in 2000, the first Sarnoff spinoff to do so. By that time it had developed a new method of gene mapping. Sarnoff continued to come up with new technology in a variety of fields. Company researchers unveiled a paper-thin plastic in 2001 that could be used as a video screen. Sarnoff found a way to make television or computer monitors thinner in 2001, and was negotiating with manufacturers to license the new technology. In 2002 Sarnoff released a medical device that measured oxygen flow in the brain by shining a low-level laser at a patient's eye. By 2002 Sarnoff had spun off 20 new high-tech companies, while continuing to come up with commercial applications for its technology under its own name. The early 2000s were not the best of times for high-tech start-ups. Sarnoff's public spinoff Orchid Biosciences, for example, went through rounds of cost-cutting and a change of chief executive as its stock traded at under a dollar in 2003. Yet Sarnoff seemed to have evolved a workable way to exist as an independent company, out from under the wing of RCA. It continued to draw income from patents and licensing, as well as from research done under contract. In addition, it had fostered an entrepreneurial culture, where its workers had learned not only to invent but to market and sell the diverse products of the laboratory.

Principal Competitors: AT&T Bell Laboratories, Inc.; Battelle Memorial Institute, Inc.; Wyeth-Ayerst Research.

Chronology

• Key Dates:
• 1919: RCA is incorporated.
• 1942: The company founds RCA Laboratories as a separate facility.
• 1951: RCA Laboratories is renamed the David Sarnoff Research Center.
• 1986: GE buys RCA.
• 1987: GE gives David Sarnoff Research Center to SRI International.
• 1997: The company is renamed Sarnoff Corporation.