Evans & Sutherland Computer Corporation History

Address:

600 Komas Drive
Salt Lake City, Utah 84108
U.S.A.

Telephone: (801) 588-1000
Fax: (801) 588-4510

Website: www.es.com

Public Company
Incorporated: 1968
Employees: 784
Sales: $131 million (1996)
Stock Exchanges: NASDAQ
SICs: 3571 Electronic Computers; 3577 Computer Peripheral Equipment; 7372 Prepackaged Computer Software

Company History:

Evans & Sutherland Computer Corporation is an industry leader in computer graphics, especially in providing realistic simulators to train military and commercial pilots. E&S provides the majority of worldwide civilian pilot simulators and NASA and all branches of the U.S. military use its products. In the 1990s more foreign nations began using E&S simulators for military training. Avionics display systems for cockpit training are other E&S products. According to independent authorities, Evans & Sutherland ranked in 1996 as one of the nation's most competitive firms in the aerospace industry. The firm also provides graphics accelerator technology for some leading workstation and personal computer manufacturers, such as Digital Equipment Corporation, IBM, Sun Microsystems, Mitsubishi, and Hewlett-Packard. Many professionals, including scientists, architects, engineers, and historians, use Evans & Sutherland products to digitally create and manipulate images.

Evans & Sutherland has also used its technology for entertainment and education. It is the world leader in creating and producing computerized planetarium projection systems. Its virtual reality products, such as its trademarked Virtual Glider simulator, are targeted to the general consumer market. The firm also produces virtual studios for customers in the television, video, and film industries. Although E&S continues to produce expensive technology for large corporate and government customers, it also has taken advantage of the fact that smaller firms and even consumers have access to increasingly powerful computers. Thus Evans & Sutherland in the last few years has diversified and expanded its goals to give new customers access to its advanced graphics technology. The applications seem limited only by human imagination.

Founders and Company Origins

E&S began with the collaboration of two men, David C. Evans and Ivan E. Sutherland. Evans was born in 1924 in Salt Lake City, where in 1953 he received his Ph.D in physics from the University of Utah. From 1953 to 1962, Evans was director of engineering in Bendix Corporation's computer division. In 1962 he started a visiting professorship at the University of California at Berkeley. In those early years Evans became more and more interested in using computers for more than just number crunching. Since humans use sight as a primary means of interacting with the world, Evans became focused on using computers to produce visual images for a wide range of applications. When in 1966 he returned to Salt Lake City to start the University of Utah's computer science department, he continued his interest in computer graphics and was on the lookout for others with similar interests.

Ivan Sutherland at the same time was working in the field of computer graphics. In 1960, as part of his Ph.D. dissertation at the Massachusetts Institute of Technology, he produced a movie called Sketchpad: A Man-Machine Graphical Communication System, which for the first time portrayed three-dimensional objects on a two-dimensional computer screen.

In 1967 Sutherland and Evans talked about collaborating in the relatively new field of computer graphics. Sutherland, then a Harvard professor, told Evans he could get him a position at Harvard, while Evans made a similar proposal for Sutherland to come to the University of Utah. In the end, Evans decided he definitely could not leave Utah, partly because of his devout faith as a member of the Latter Day Saint church headquartered in Salt Lake City. So Sutherland decided to join Evans at the University of Utah.

About the same time, the University of Utah computer science department began receiving $5 million from the Defense Department's ARPA (Advanced Research Projects Agency) to develop a flight simulator. However, both Evans and Sutherland felt that their common goals concerning the development of graphics as a means to create computer simulations would require the creation of a private company.

In 1968 the two founders created Evans & Sutherland on a financial shoestring. They and some employees and family friends contributed what they could. Venrock, a group of investors associated with the famous Rockefeller family, also provided crucial funds for the firm incorporated on May 10, 1968 in Utah.

At its base in an old Army barracks at the University of Utah, E&S produced in 1969 its first product, LDS (Line Drawing System) 1. Although E&S sold only three or four of this new and expensive technology, the firm later used LDS 1 in its first simulator.

By 1972 the firm had developed LDS 2 and other new products but had not generated any profits. At the same time it recruited three key engineers from General Electric. Rod Rougelot, Bob Schumacker, and Ed Wild had approached GE about using computers for pilot training, but GE was not interested at the time. GE's loss eventually proved to be a huge gain for E&S.

Writing in the firm's 1990 newsletter, secretary/treasurer Dick Leahy described what had happened as Christmas approached in 1972: "The company had around $700 left in the bank, had used up its lines of credit, and was running on personal loans taken out on the founders' homes." Just in time, an overseas investment firm sent a check for $500,000 to save the struggling company.

Expansion in the 1970s

With the aid of the three former GE engineers, Evans & Sutherland entered what would become one of its key markets. In 1973 the company began a joint project with RSL (Rediffusion Simulation Limited) of Great Britain, in which E&S would make NOVOVIEW visual simulators for commercial airlines, and RSL would market those items. The Dutch airline KLM bought the first NOVOVIEW system.

NOVOVIEW products brought E&S its first profits in 1974 and continued success as the decade progressed. The flight simulator business boomed following the Arab oil embargo of 1974, which made fuel and thus live pilot training much more expensive. By 1977, the SP1, NOVOVIEW's successor, was certified by the Federal Aviation Administration and brought in more sales to E&S than all its other simulators combined. In 1978 the SP2 became a full color product and in 1980 the FAA certified the SP3 for meeting its requirements for a daylight training system.

At the same time, E&S was developing its CT (continuous tone) line of high-performance image generators. In 1972 the company sold a CT1 system to Case Western Reserve University, and in 1975, a CT2 was shipped to CAORF, a maritime facility for training and research. E&S also contracted with NASA in 1976 for a CT3 and with Lufthansa for a CT4 in 1977.

The CT systems to that point were specialized products for single customers and therefore not very marketable. But then engineer Bob Schumacker designed the CT5 which increased the system's capability about 1,000 percent. That gained the firm a contract with the Naval Training Equipment Center. Delivered in 1981, the CT5 was so powerful it could serve many customers without individual changes.

In the 1970s David Evans led the E&S effort to produce graphics systems for the CAD/CAM (computer-aided design/computer-aided manufacturing) market. The company created the picture system family, starting with PS1 in 1973 and culminating in the PS 300 in 1981. One key advantage of the more advanced PS systems was decreasing reliance on one host computer; for the first time several designers could work simultaneously.

With this variety of products, E&S expanded it workforce in the 1970s and early 1980s. The firm employed 88 persons in 1973 and 144 in 1975. During the company's early years as a private firm, it was backed by eastern companies, including Venrock, the Venture Capital Investment Company of the Rockefeller family, GCA Corporation, the Endowment Management and Research Corporation, and Hambrecht & Quist investment bankers. E&S continued to grow after it became a public firm in 1978. By 1983, 779 individuals worked for E&S.

Realizing they could not run such a growing firm and fulfill their faculty responsibilities, both Evans and Sutherland had resigned from the University of Utah by 1974. And in 1974, Sutherland decided to resign as the vice-president and chief scientist of the firm he helped start. However, he continued his role as a company director into the 1990s.

Boom Times in the 1980s

Although E&S had started creating products for military flight simulators in the mid-1970s, that aspect of its business rapidly expanded in the 1980s, in part because of the growth of the military under President Ronald Reagan.

In his firm's 1990 newsletter, founder David Evans pointed out key challenges in approaching military markets: "There's a lot of ritual, a lot of regulation, a lot of standards that are required of military contractors in terms of documentation, the security of...information, and the nature of contracts. The typical military contractor is not a risk taker. Your typical military contractor does research and development paid for by the government and produces intellectual property they don't own. E&S has always developed products at its own expense and offered those products for sale. That's part of our...culture."

Military requirements, tremendous growth, and more competitors influenced E&S to become more structured in the 1980s. By 1986 E&S employed 1,072 persons. More firms entered the simulator market after the 1986 federal deregulation of civilian airlines. So E&S in June 1986 created three formal company divisions.

The Simulation Division was headed by Rod Rougelot, and Gary Meredith led the Interactive Systems Division. Previously both divisions had operated as informal working groups. E&S also created the Computer Division from a new group of European employees. Unlike the other two divisions based in Salt Lake City, the Computer Division was based in Mountain View, California.

Shortly after this reorganization, E&S also renegotiated its contract with RSL regarding marketing tactics. E&S now began its own marketing efforts to the United States military, which RSL had been cautious about approaching. Since E&S products had been marketed under the name RSL, many in the military were not aware of E&S's contributions until the late 1980s.

At the same time, E&S improved its product lines for both the military and civilian markets. It began creating simulators to train entire crews, not just the pilot or main operator. In 1988 E&S also renamed the CT and SP product lines to use the ESIG (Evans & Sutherland Image Generator) prefix.

In the 1980s Evans & Sutherland entered into several joint agreements to share technology and in some cases acquired related firms. For example, it invested in VLSI Technology Inc. in 1980 to gain access to that company's computer modeling tools, which enabled E&S to develop its Shadowfax circuit chips. Shadowfax enabled E&S to display nonvertical and nonhorizontal lines in a smooth and continuous manner, instead of the jagged stair-step lines previously used.

In 1987 the firm acquired Tripos Associates, a St. Louis based firm which in 1979 had pioneered the field of Molecular Information Analysis Systems. That important new technology for the scientific community enabled researchers to see and manipulate either two or three-dimensional images of simple or complex molecules.

In 1988 E&S and Digital Equipment Corporation (DEC) announced the availability of the VAXstation 8000, a color workstation featuring DEC's VAX computer and a very fast graphics system produced by E&S. Both corporations marketed the jointly produced item.

E&S also diversified in the 1980s by beginning to use its technology for entertainment and education. For example, the 1982 movie Tron, a science-fiction tale of human entities living inside a computer at the microchip level, employed some E&S products to create its special effects.

In the 1980s the company cooperated with Salt Lake City's Hansen Planetarium to create Digistar, a computerized projection system which could do much more than the old mechanically based methods of projecting stars onto the dome of a planetarium. E&S sold a couple Digistar systems in the 1980s, but the market for this technology was quite limited.

To finance such expanding operations, E&S in 1987 offered investors convertible debentures worth $56 million. Then it started constructing its new Building 600 at the University of Utah Research Park and planning for another building to house the Simulation Division's dome projection system.

Not all E&S ventures succeeded in the 1980s. One dead end was its supercomputer project. In April 1988 the firm announced it would develop and market the world's first general supercomputer and in 1989 it introduced the ES-1 supercomputer. However, about 70 other firms also were exploring new technology sponsored by the Department of Defense's ARPA and based at Carnegie-Mellon University. By 1989 commercial versions were available from not only E&S, but also three other companies. All these supercomputer projects featured parallel processing, in which several microchips were linked together for advanced computing power. Due to technical problems and severe competition, in late 1989 Evans & Sutherland decided to end its supercomputer project and use its funds for other purposes.

In 1989, after being diagnosed with a neurological condition, David Evans retired from his position as president and CEO, while remaining company chairman. The offices of president and CEO were turned over to Rodney Rougelot, who would then work with Stewart Carrell, who became chairman of the board in 1991.

Challenges in the 1990s

With the end of the Cold War and the dissolution of the Soviet Union, the U.S. military closed many bases and in other ways decreased its forces. At the same time, total U.S. aerospace sales dropped dramatically from almost $140 billion in 1991 to about $108 billion in 1995.

Like other military contractors, Evans & Sutherland during this period significantly reduced its workforce. In 1991, 50 employees lost their jobs. In January 1994 E&S announced that 170 workers would lose their positions, and the following January the firm reduced its numbers by another 200. By 1997 it had downsized to only about 800 employees, several hundred less than the boom times of the 1980s.

At the same time, E&S experienced declining finances. Compared to 1988 and 1989 when the company had net earnings of $1.88 million and $1 million, in 1994 it had a net loss of $3.7 million. Due to Evans & Sutherland's declining revenues and profits and several other difficulties, Moody's Investors Service in March 1994 reduced the Utah firm's convertible subordinated debentures rating from B1 to B2.

However, Evans & Sutherland made several positive moves in the midst of these trying times. In November 1993, E&S and Iwerks Entertainment introduced their jointly produced "Virtual Adventure," a location based system used at theme parks. Whether traveling through space or through an underwater scene, individuals enjoyed themselves without the risk of real dangers. By 1997, E&S had sold 22 of its Virtual Glider systems to customers in several American cities, London, Hong Kong, and Canada. These products represented the company's diversification into the rapidly growing consumer market for entertainment and education, a small but expanding part of the firm's business in the 1990s.

International sales also increased significantly for Evans & Sutherland in the 1990s. For example, in April 1991 E&S sold a newly introduced ESIG-2000 image generator to Germany's Krupp Atlas Elektronik. By 1993 Krupp was using that E&S technology in simulators to train operators of Britain's main Challenger battle tank. In 1994, E&S opened an office in Beijing.

To expand into such foreign markets, E&S took advantage of the language abilities and cultural sensitivities learned by employees who had served foreign missions for the LDS church. The bottom line: by 1996 almost half of Evans & Sutherland's annual revenues were from international sales.

Since 1973, E&S and Rediffusion jointly had sold over 400 simulator systems to civil airlines worldwide. But since Rediffusion, renamed Thomson Training and Simulation, began offering its own image generators, E&S in 1994 ended their contract and began marketing its own systems directly to civil aviation customers.

The company in 1994 also spun off its Tripos, Inc. subsidiary to become an independent public company. E&S shareholders each received one share of Tripos common stock for every three shares of E&S common stock they owned.

The following year, 1995, the corporation sold two of its CAD/CAM products called CDRS (Conceptual Design and Rendering System) and 3D Paint. Those systems had been developed in the late 1980s and early 1990s to help designers of automobiles and other products become more efficient. Evans & Sutherland had contracted with Ford, Chrysler, Fiat, Hyundai, and other companies for these products.

In December 1994, upon the retirement of Rougelot, James R. Oyler became the company's new president and CEO. There were some indications by the mid-1990s that managerial and technological changes at E&S were good for the company. After a 14-month study of the American aerospace industry, Aviation Week & Space Technology, in its June 3, 1996 issue, ranked E&S second in the total company index of competitiveness and first in the total multi-industry company index of competitiveness. The magazine cited Evans & Sutherland as a good example of smaller firms which generally had done better than those with over $500 million in annual sales. The company attributed its success to significantly slashing operating expenses and increasing research and development spending.

In the E&S 1996 annual report, Oyler noted that other signs were very positive. For example, in August 1996 the firm announced that the U.S. Air Force had awarded it a contract to provide upgrades on training systems for KC-135 and KC-10 pilots. The firm estimated that this contract, the largest in its history, could generate about $70 million in revenues over the next five years. Moreover, Oyler stated that "only company in the world supplying a complete range of graphics systems priced from $2,000 to $2 million." To implement that goal, in late 1996 the company initiated a new strategy called Universal 3D to make its graphics technology available to customers using widely available Windows NT workstations and personal computers.

In 1996, E&S sold a subsidiary called Portable Graphics Inc., an Austin, Texas, based firm acquired just two years earlier. It also completed its purchase of Terabit Computer Specialty Company, Inc., a firm which provided cockpit instruments and other displays for airplane simulators. E&S organized its new Display Systems division using these new resources.

To market its trademarked REALimage technology which produced 3D graphics for personal computers, Evans & Sutherland organized in 1996 its new Desktop Graphics division or business unit. E&S and Mitsubishi had formed a nonexclusive partnership to create REALimage.

Also that year, David Evans and Ivan Sutherland received a major honor for their contributions to the computer industry. They won the Price Waterhouse Information Technology Leadership Award for Lifetime Achievement at the annual Computer World Smithsonian Awards ceremony. That recognition for past work and the fact that for two years (1995 and 1996) the firm had continual growth in operating profits and annual revenues proved to the company's leadership that it had completed its turnaround from the struggles of the early 1990s and had created a strong basis for future growth.

In cooperation with Salt Lake City's Bonneville International, E&S in January 1997 formed Digital Studios to real time virtual sets for television, film, and video producers. That year, Evans & Sutherland's leadership seemed quite upbeat about the firm's future prospects in the rapidly changing high tech field. President/CEO Oyler said in the February 2, 1997, issue of Salt Lake City's Deseret News, "What excites me is the chance to develop at the high end and migrate down to the desktop. There really is no other company in the world doing that. Our belief is that we're only at the beginning of this. We're at the edge of doing things that have been too expensive [for the consumer or small firm] to do in the past."

Principal Divisions: Government Simulation; Commercial Simulation; Displays; Digital Studio; Desktop Graphics; Entertainment and Education

Evans & Sutherland Computer Corporation History

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