Cobra Electronics Corporation Business Information, Profile, and History

History of Cobra Electronics Corporation

Cobra Electronics Corporation designs and markets consumer electronics products like cordless telephones, telephone answering machines, citizen band radios, and car stereos. Its products are built to specification by manufacturers in East Asia.

Cobra was founded as Dynascan in 1961 by electronics engineer Carl Korn, who served as president, and Samuel Horberg, who became chief financial officer. The two had worked together in the electronics field since 1947, and they had formed another company in 1954. Dynascan initially sold electronic testing equipment like oscilloscopes and television testing equipment. It soon added a limited range of remote-controlled materials handling tools under the brand name Telemotive. They were used to operate cranes used for mining, construction, and shipping.

The U.S. government delegated radio spectrum for a citizens band in 1958, and in 1963 Dynascan took advantage of the new market by bringing out its first citizens band radio. CBs were still an obscure medium, used by some hobbyists and truckers. Dynascan initially manufactured its own CB radios but switched to importing lower-priced models manufactured by two Japanese companies, Toshiba and Uniden, in 1971, around the time CBs became more popular with a wider public. Dynascan's Cobra brand CB radios caught on, propelling the company to sales from sales of $13.8 million in 1973 to sales of $102 million in 1976, with gross profits of $15 million.

Part of the popularity of CB radios proved to be a fad, however. And just as the fad was fading, the Federal Communications Commission abruptly increased the number of channels CBs could use to 40 from 23. Overnight, 23-channel CB radios became obsolete, and Dynascan was caught with a large inventory that no one wanted. A large number of other CB manufacturers suffered from the same conditions and several went out of business. But Dynascan sold its inventory through dealer promotions and could rely on earnings from its other equipment and tools to carry it through the crisis.

The firm moved to lessen its dependence on CBs. It introduced a line of sound products for cars that included speakers, amplifiers, stereos, and cartridge and cassette players. Dynascan's engineers designed these products after thorough market research. The products were then manufactured in East Asia. The firm's products had a good reputation and were considered a higher-quality option to lower-priced competing products like the Radio Shack and Realistic lines manufactured by Tandy. The firm sold its Cobra products via a two-step distribution network composed of 90 wholesale distributors who in turn sold to 10,000 local outlets. The Cobra line of audio products accounted for 74 percent of 1977 revenues; the other 26 percent came from the firm's industrial products.

In 1979 Dynascan introduced another important product: cordless telephones. Like CB radios, they were still something of a novelty item when the firm introduced them, but demand soon exploded. Dynascan aggressively sought market share for its Cobra telephones and earned $17 million in 1983 on sales of $173 million. In four years the firm's stock rose to 35 from 3.5, making it worth $165 million.

Once again the fad came to an end. Cordless telephone sales in the United States plunged from $850 million in 1983 to $325 million in 1984. Once again caught with a large inventory, Dynascan lost $31 million in 1984. The firm had to borrow large amounts of money to remain solvent. It postponed raises and froze hiring for six months.

As a result of these boom and bust cycles, Korn rethought the firm's priorities and decided to focus on merchandising rather than manufacturing. Because it imported products from Asian manufacturers, the company's investment lay in inventory and receivables rather than the high fixed costs of owning a factory. Korn forced out the firm's president, Frank DiLeo, and in April 1985 replaced him with Jerry Kalov, a turnaround specialist who was signed to a ten-year contract. Kalov had already saved the speaker company JBL Inc. in the 1970s as well as the stereo maker Jensen International Inc. Dynascan began a three-year plan geared toward profits rather than sales volume.

When another of its products caught on, this time the Cobra radar detector, Dynascan refused to overextend itself. Kalov was unwilling to invest too much of the firm's capital in inventory, even if it meant passing up some sales. Rather than emphasizing total sales, the firm'management began pushing all of its product lines, giving it a broader base and, it hoped, less vulnerability to business cycles. Cordless telephone sales began increasing again, and Cobra had become the leading brand of CB radio. The firm was also manufacturing telephone-answering machines and corded telephones. It ended its losses in 1985 and made a small profit the following year.

Dynascan began placing more emphasis on creating new products. In October 1986, it introduced a line a line of high-frequency radio scanners that enabled users to listen to radio bands used by the police. It also began producing some of its phones with decorator colors, responding to consumer demand for more choices. Neither of these introductions cost very much because they were extensions of existing products.

By the end of 1986, Dynascan had experienced seven consecutive quarters of stronger profits. It had $20 million of debt and working capital of $47 million. Feeling that it had successfully turned around its own consumer electronics operation, Dynascan decided to do the same for companies with similar businesses. In late 1986, it bought 51 percent of Marantz Co., a manufacturer of high-quality audio and video equipment based near Los Angeles, for about $15 million. Although its products were well known and respected, Marantz had lost $1.6 million in 1985 on sales of $50 million and hadn't made a profit in five years. Like Dynascan, Marantz ordered its products to specification from manufacturers in the Far East.

In 1987 and 1988, Dynascan worked to expand its lines of telephones and answering machines, feeling it had a tiny percentage of a huge market. The firm used an in-house sales staff but also used independent manufacturers' representatives to market its products to retail outlets like catalog showrooms and electronics stores. A line of precision test and measuring equipment was sold to electronics distributors for use by schools, electronic service technicians, and electronics firms. It monitored its suppliers via a subsidiary, Dynascan AK, and had buying offices in Hong Kong and Tokyo.

Continuing its attempts to expand, in 1988 Dynascan bought Lloyd's Electronics, a money-losing manufacturer of low-end clocks and portable stereos based in New Jersey.

With consumer electronics increasingly competitive, Dynascan began stressing its own research and development. Around 1985, the firm was spending about 1.5 percent of sales on R&D, or $2.18 million per year. The firm had not been known as an inventor, usually copying the technology of others and adding a few innovations. But in 1988, the firm introduced the first cordless answering machine, which proved popular with consumers and retailers. It then introduced the first cordless telephone that did not require an exterior antenna. Competitors asserted that the Intenna, which used a built-in antenna, would suffer from poor reception, but Dynascan initially had trouble meeting demand for the popular phone. With a price under $100, the Intenna also got Dynascan into the discount distribution network that its high-end cordless phones had prevented it from entering.

These successes were tempered by losses. Though 1988 sales rose 12 percent to $213.8 million, income fell ten percent to $7.2 million because Lloyd's and Marantz continued to lose money. Lloyd's proved difficult to turn around. For not much more money, consumers could buy name-brand products like Sony, and Lloyd's continued to be unprofitable. Dynascan introduced a new Marantz line in 1989 aimed at the high end of the market. Called Century, the new line won approval from the trade press, but, with some components costing over $1,000, it proved too expensive for Marantz's dealer base. As a result, Marantz continued to lose money. Finally, in October 1990, Dynascan announced it was selling Marantz to Dutch electronics conglomerate Philips N.V. for $8 million.

The early 1990s was a difficult time for Dynascan. Revenue shrunk, and the firm lost money four years in a row, losing $5.7 million in 1992 on sales of $117.7 million, for example. In 1992, Kalov became president, and he began cutting costs by shrinking the corporate staff by one-third and shutting down the firm's Tokyo office. He also moved the firm's products into corporate phone centers, the Fingerhut and Spiegel catalogs, and home shopping networks, which brought higher profit margins and fewer product returns. Many Cobra products, such as a cordless telephone that used a scrambler to give users privacy, required explanations to make consumers understand their benefits. Consumers did not receive such explanations while shopping in the aisles of discount stores, and so they either failed to buy the product or returned it later. In 1993, to emphasize its successful lines of Cobra products, the firm changed its name to Cobra Electronics Corp. In 1994, Cobra expanded its retail presence by signing an agreement to sell its Cobra line through Sears, Roebuck and Co. stores.

In 1994 the struggling company hired Stephen M. Yanklowitz as chief operating officer in hopes of turning itself around. Yanklowitz had no background in the consumer electronics industry. Instead, he was hired for his marketing skills. As executive vice-president of Western Publishing he had marketed children's books and software. He had also served as the president of a firm that marketed porcelain and china sculptures, and as general manager of the Crayola products division of Hallmark Cards, where he added new products to the line.

Yanklowitz's arrival beefed up the firm's marketing muscle and gave Kalov more time to work on expanding Cobra's product line. Kalov visited defense contractors, looking for technologies with applications in the home electronics market. Some of the more advanced technologies used in cordless phones had their origins in military communications.

"We're a little company and we can't afford to develop this stuff in our back room," Kalov told Crain's Chicago Business in September 1994. "We've got to get hold of some of these emerging technologies in other ways."

Cobra continued to reshape its management to strengthen its new emphasis on marketing. In 1994, Charles Stott, who had a background in product development, became the firm's new vice-president of operations. John Pohl, an experienced consumer-marketing executive, became vice-president of marketing in early 1995.

New products included two radios geared toward car travelers needing inexpensive communications for emergencies, as well as new CB radios that automatically alerted drivers to predicted weather emergencies. The CBs signaled users to tune into National Weather Service channels whenever it sent out an alert signal. To better stay in touch with consumers, the firm expanded its customer-service hotline, which received 400,000 calls in 1994. Cobra also began using focus groups and quantitative market research. It began plans to expand its consumer advertising and promotions, direct-marketing programs, and point-of-purchase techniques.

The firm was profitable the first two quarters of 1994, but, largely because of problems with product availability, it lost money the following two quarters and had a loss of $1.5 million for 1994. Sales volume declined because of Cobra's switch from low-margin, high-volume distribution. Also due to this switch, the firm redesigned old products and introduced new ones more quickly than in the past, causing some problems with the firm's contract manufacturers.