In 1974, Radiation Systems Inc. was about to join the failed high-technology companies whose corpses then littered the Beltway.
"We didn't know how to do business," RSI President Richard E. Thomas said recently. "No discipline. We had a bunch of engineers in the company, each pretty much doing his own thing."
But in the years since, this small antenna firm has tightened up and taken off. Sales and earnings for the year ended June 30, 1980, were up a respectable two-thirds from 1976. For the 11 months ended May 31, earnings shot up a third and sales rose 36 percent. And company officials expect to report earnings of close to $1.5 million this year -- up almost 80 percent -- on sales of about $10 million. In March RSI was confident enough to form a new subsidiary, SatCom Technologies Inc., around three top executives pirated from Scientific-Atlanta Inc.
A Sterling, Va., firm ensconced in plush new headquarters near Dulles International Airport, Radiation Systems has been the focus of intense investor interest. The company's stock, traded in the over-the-counter market, was selling at less than $3 a share three years ago. But in January, a 225,000-share new issue sold for $17 a share, and another batch of 260,000 sold for $21.2 5 a share in July.
Company officials say they will have annual sales of $50 million to $100 million within three to five years. By then, literally thousands of RSI dishes will be pointed toward the skies, receiving transmissions from orbiting satellites, sister antennas or even tank commanders in the Middle East.
If there is a single key to RSI's rosy future, it is that this antenna company avoids competition whenever it can. For one thing, says Dick Thomas, "We are the only company that builds antennas all the way from three meters to 32 meters and then has a full family of antennas for tactical military applications." Moreover, almost all the firms's designs are proprietary, bucking the government's preference that antenna manufacturers turn over their engineering drawings and duplication rights.
Like many Washington-area firms, LRSI is also well-positioned to take advantage of the Reagan administration's military buildup. The company hopes to gain substantial business from the military's larger communications needs and from the new emphasis on the Rapid Deployment Force. "Our military antennas are fully transportable and can be assembled in 15 or 20 minutes," Thomas says. "We expect to get a large share of the RDF market."
Just as important, Thomas says, is Radiation Systems' vow to make antennas without trying to sell them with the attached electronics. The company hopes this strategy means that even the giants of the communications industry -- companies such as Scientific-Atlanta, Macom Corp. and Harris Corp. -- can feel secure buying their antennas from RSI.
"We don't compete with our customers," says thomas, who bridles at the suggestion that RSI might some day diversify into building radios or receivers. "I'm the guy that constantly talks to all of these people and tells them that they'll never see us competing with them, and I want them to rest easy. I don't want them to think we have a plan somewhere in the back of our heads that we're going to become a general systems company, because that would be wrong."
All this grinding of the gears of prosperity tends to make one forget that the company's balance sheet wasn't always something to be proud of.
"We were a poor business house," says Thomas. "We didn't know how to do business." For half a decade after its founding in 1960, RSI was firmly although unspectacularly profitable. But by the late 1960s, says Thomas, "things began to go to pot." As debits mounted, RSI's stock plunged from almost $3 a share to 25 cents, giving the firm a net worth of only $200,000.
"It was a company that didn't know what it wanted to do when it grew up," says Harold Letaw, an engineering PhD who became president of RSI in 1974.
"What happens is five, six, seven guys start a company and everybody's friends," Thomas says. "For one reason or another they start to split apart. And then somtime your banks, financial people, take a look at things and start to pull the plug. They require a shift in management, and that's exactly what happened here."
Insiders say that the prime plug-puller was the Bank of Virginia. Throughout 1973 the bank had told the company that it must either change its direction or lose its financing.
Within a month, the board had the resignations of president Robert Bawer and two of the three vice presidents. Only Thomas was spared, becoming executive vice president under Letaw's leadership. The husky, bespectacled Thomas became president and chairman in June 1978.
The new management team drastically pared down RSI's product line to six antennas. Employment, which stood at almost 300 at its peak in 1974, was slashed to 68 in 1975. The strategy yielded immediate results for the shareholders, if not for the laid-off employes. "We had been doing a volume of $5 million," Steinman says, "and we cut that to $2.7 million. That gave us a huge amount of cash, compared to what we had before." After cutting losses to $122,000 on $3.3 million in sales in 1974, the new management team earned $253,000 in 1975 on a $2.6 million volume.
Ex-president Bawer, an electronics specialist who now works for the U.S. Customs Service, says: "It's a great company with a great future. I couldn't be more pleased with the way things turned out." While he prefers not to discuss the events of the early 1970s, Bawer says the time saw "a little personal disagreement about which direction we should go in." But he adds that "if you look at the performance since then, you could say that they [Thomas and Letaw] have been proved right."
Radiation Systems' backers are predictably happy with the way things have turned out. "They're taking the area of the business that they're known in, and only that area, and not tyring to compete with their competitors," says John Sanders, a vice president at Wachtel & Co. and an early investor in RSI's securities. "And the beauty of dealing with a small company is that its market is virtually unlimited, compared with its size."
Like many companies given the amorphous "high-tech" label, Radiation Systems developed as a government contractor. Even now, as the firm turns increasingly to the commercial market, Director Lee M. Paschall is a former Air Force Lieutenant general, and board member Earle F. Cook is a retired Army major general.
Reliance on the government market contributed to RSI's crisis.The problem was with the military's preferred contract -- the fixed-price deal for research, development and production of an antenna -- under which the engineering drawings had to be delivered with the finished product. The result was a two-fold problem. Such agreements left the company with few proprietary designs, and underbidding left RSI with losses rather than profits.
Another drag on profits may have been engineering overkill: Designers often continued working even after they had fulfilled a contract's specifications, company officials say. "There was a real interest in excellence in engineering," recalls Letaw. "But the desire for excellence has to be limited by what's possible. One cannot hope to push the frontiers forward on a fixed-price contract."
This experience understandably soured Thomas. "We are not doing fixed-price research and development," he says firmly."That's the road to hell. We walked that road once." RSI's method now is to finance its own product development, even if the development is for a government product.
Another company strategy has been to sell in the commercial market many of the products developed for the government. Says Steinman: "The technology that we develop for the military is immediately transferable to the commercial line, and that means that our commercial line is far superior to anyone else's."
Commercial sales are just beginning to take off. For the nine months ended March 31, U.S. government sales were only 40 percent of RSI's total, versus 53.5 percent in the 1980 fiscal year which ended June 30 and 77 percent the before. Commercial sales for the nine months were up to 37 percent from 18 percent in fiscal 1980.
Other sales include deals to provide 32-meter satellite earth stations to foreign governments -- one is already at work in Israel -- and an attempt to provide small satellite dishes for home use, a project that has now been abandoned. "It's too much trouble to bother with the small deals," Thomas says.
One new product that carries hopes of large future revenues is an antenna labeled Torus. The Torus, which resembles a rectangular plate with its ends and corners curved inward, can communicate simultaneously with as many as 14 satellites at once, versus the single communication link handled by a conventional dish.
The huge Communications Satellite Corp., which develop Torus, picked RSI to manufacture and sell the antenna, and analysts take Comsat's action as a major endorsement of Radiation Systems. "It's going to scoop the industry," Thomas says. "It's going to blow everyone away."
Comsat may have been swayed by the fact that RSI is licensed to operate a unique machine called AccuShape. "I think it's by far the driving force behind the company," says stock market analyst Eric C. Buck, whose firm, Baker, Watts & Co., helped First Boston Corp. underwrite RSI's two stock offerings this year.
This driving force is a patented device that can form a variety of metals to virtually any specifications the company's engineers want, all without heating. The company says AccuShape allows the production of antennas that are cheaper, easier to assemble and more precisely engineered.
"The AccuShape provides the product differentiation, the competitive edge," says Marc Schulman, an analyst with First Boston. "I told management they should put the machine in a concrete bunker. At least if the roof fell in, they'd still have the AccuShape," he adds.
Is Radiation Systems truly a "high-tech" company?
"Sure," says Wachtel's Sanders. Then he hesitates. "But not in the sense that they're relying on advancing technology to make their sales. It's not like a semiconductor or computer company."
Company officials are less equivocal. "We are the only company that designs and builds antennas that can truly be classified as high-technology," says Steinman. "Our antennas are head and shoulders above anyone else's. They just don't compare."