Rockwell Turns Back on Defense Business to Become High-Tech Giant
NEW YORK (AP) _ If you’re in the market for a new computer modem, you may notice a colorful label on the box identifying the microprocessor chip inside.
Guess again. ``Connect with Rockwell,″ is the new catch phrase.
Rockwell International Corp., the long-time defense and aerospace contractor that helped build the Apollo missions and the space shuttle, is shedding its famous past to try to become equally known in high technology.
Nearing completion of a monumental transformation, Rockwell shareholders on Wednesday approved the company’s sale of its defense and aerospace businesses to Boeing Co. in a $3.2 billion deal expected to close on Friday.
The Seal Beach, Calif. company emerges from the transaction as mainly a commercial electronics and automotive parts supplier, selling everything from microprocessor chips to car doors to factory automation systems.
Boeing is assuming $2.17 billion in debt and other Rockwell liabilities. While already a major high-technology concern, a debt-free Rockwell is freer to pursue acquisitions of other companies, expand its investments and buy back stock to drive up its share price.
``In my judgment, this is a true win-win transaction for Boeing, for Rockwell, for our employees and for our shareholders,″ gushed Rockwell chief executive Donald R. Beall at a midtown Manhattan meeting where shareholders completed their overwhelming approval of the deal.
But rumbles of dissent among shareholders underscored the challenge Rockwell faces in leaving these relatively staid businesses for a hotly competitive industry that is changing at rocket speed.
``It’s outrageous. We have walked away from the business that made us,″ shareholder Gerald Kornfeld complained to Beall at the meeting. Kornfeld, 75, said he was selling his 3,200 shares that his father began buying in 1952 ``the minute this is over.″
Rockwell may never become another Intel Corp., the world’s largest maker of chips that act as the ``brains″ of computers. But analysts say Rockwell is likely to become a more formidable rival in technologies such as chips that make modems and other electronic devices faster and more efficient.
Rockwell’s chips are already used in mobile phones, central devices that relay wireless communications and in a new type of cordless phone that uses digital signals to increase voice clarity.
``On balance they’ve positioned themselves very well,″ said Jeffrey Sprague, an industry analyst in the New York office of Cowen & Co.
``The challenge is always going to be that it’s a very fast moving business,″ he said. ``You have to keep a pipeline full of new faster things coming all the time.″
Toward that end, Rockwell is steadily boosting research and product development in these new areas, lifting spending by nearly 17 percent to $700 million in 1996, or about 13 percent of sales.
Rockwell already supplies chips for about 65 percent of modems sold in the United States, according to Dataquest, a market research firm. Early next year, it is introducing a new chip that cuts in half the time it takes computer users to go online and download information, helping to answer a common complaint by cybersurfers that the World Wide Web takes too long to access.
And while not yet a widely recognized brand, Rockwell has launched an advertising campaign in major consumer and cyberspace magazines to popularize its red-white-and-blue ``Connect with Rockwell″ label.
Fueled by sales of new and more powerful computerized devices, worldwide sales of chips are expected to more than double to $300 billion in 2000 from $130 billion this year, analysts say. By the year 2010, they are expected to reach $1 trillion.
``They are focusing on a high growth market that is going to be the technology fuel of the next century,″ said Daniel Klesken, chief semiconductor analyst at Robertson, Stephens & Co. in San Francisco.
``The strategy is on track and it’s a good strategy, but what I’m saying is that they have to constantly be moving faster.″
About 97 percent of Rockwell’s shareholders voted for the sale, which will be accomplished without any taxes paid by either party due to a tax break for merger-related spinoffs. The Clinton Administration is considering eliminating the tax break next year.
Under the transaction, Rockwell’s shareholders will receive about $860 million in Boeing stock, or about $4 a share.