Control Data Systems, Inc. History

Company History:

Control Data Systems, Inc., (CDSI) provides computer systems integration services to businesses and governments around the world. In addition, the company provides services and software to owners of CYBER mainframe computers, once manufactured by the company's corporate parent. CDSI is one of two companies created from the ruins of the Control Data Corporation in the early 1990s. Throughout the 1960s and 1970s, Control Data was a worldwide leader in manufacturing scientific computer systems. Under the guiding hand of its strong-willed founder, the company gained a leading place in the market for proprietary mainframe computers used by the government, military, and large corporations.

Control Data also became involved in a variety of other endeavors that were idealistically intended to improve society. When the computer industry changed in the early 1980s, Control Data was caught off guard by the new technology, and the company suffered severe losses for nearly a decade before abandoning mainframe technology and splitting itself into two small and limited enterprises.

Control Data was founded in the late 1950s by William C. Norris and a number of partners. Norris had grown up on a Nebraska farm and trained as an engineer. During World War II, he joined the Navy and was assigned to a code-breaking team, where he first became familiar with the technology of digital computing. After the war Norris became a Navy contractor, starting a company that continued the work he had done during the war. When his firm was acquired by Remington Rand Inc., a much larger company, Norris stayed on but soon found himself stifled by corporate bureaucracy. In 1957 he and a number of his fellow Remington Rand employees quit to found a new enterprise, Control Data Corporation.

To finance their venture, Norris and his colleagues sold stock on the open market, making Control Data the first computer company to be publicly financed. In a harbinger of later socially-oriented programs, Control Data sold its 600,000 shares at the rock-bottom highly inclusive price of $1 each.

With the funds they raised through the sale of stock, Norris and his colleagues set out to build the most powerful computer in the world, and in 1958 the company released its 1604 model. The prototype of this product was sold to the U.S. Navy Bureau of Ships a month after its creation. With this purchase, Control Data began a close relationship with the military and a long career as a defense contractor. Control Data also made its first acquisition that year. The company bought Cedar Engineering, which made peripheral equipment for computers. Within two years of this purchase, Control Data had released two further models of its computers.

In addition to its primary line of high-speed computers, Control Data also began to offer data services in the late 1950s. Because at that time many companies could not afford the enormous expense of a computer or did not generate enough work to make such a purchase economical, Control Data set up time-sharing programs on machines that it owned. In this way, companies were able to rent time on a Control Data computer at a more reasonable cost. Time-sharing and computer manufacturing made up the bulk of Control Data's business throughout the 1960s. The company dramatically expanded its time-sharing capacity in 1967 when it bought the software company CEIR, parent to the Arbitron Company.

In the following year, Control Data moved to seize a greater portion of the time-sharing market when it filed an antitrust suit against the International Business Machines Corporation (IBM). In bringing the legal action, Norris claimed that IBM discouraged potential buyers of Control Data mainframe computers by making claims about the superior qualities of an IBM machine which had not yet been built.

Defying the conventional wisdom of the financial community by filing the suit, Norris demonstrated his willingness to go his own way. At the time, Wall Street thought that Norris had 'lost his marbles,' as his biographer later recounted. The move paid off in the early 1970s, however, when IBM settled the suit out of court, and turned over its entire time-sharing operation, called the Service Bureau Corporation, to Control Data.

By the late 1960s Control Data's rapid expansion had depleted the company's financial resources. This process was exacerbated by the fact that Control Data's leasing arrangements made it necessary for the company to finance the build-up of the enormously expensive mainframes. Control Data was forced to take out loans, which contributed to the company's unfavorable balance sheet. In an effort to redress these structural difficulties, Control Data began making plans to acquire a finance company. In order to fend off a hostile takeover attempt, the Commercial Credit Company of Baltimore agreed to become a wholly owned subsidiary of Control Data in 1968.

While these arrangements were being made, social and political changes were sweeping American society. Norris first became aware of the upheaval when race riots erupted in Minneapolis and many other cities during the summer of 1967. That year Norris met with civil rights activist Whitney Young to discuss the situation. In the wake of that meeting, Control Data embarked on a series of ventures that Norris labeled 'social projects.' Although these activities seemed to be at odds with Control Data's status as a technology-driven defense contractor, Norris argued that 'you can't do business in a society that's burning.' Instead, Norris expanded Control Data's mission to include 'addressing society's unmet needs,' as his biographer later put it.

Norris believed that the methods of capitalism could be used to effect positive social change. To fulfill this philosophy, Control Data embarked on a wide variety of activities, including vocational training programs for prisoners, experimental farms in Alaska, projects to develop windmills as a power source, and an extensive range of education and training programs that incorporated computers. Believing in corporate urban renewal, Norris built a plant in a Minneapolis slum and poured a huge number of resources into its success. Later, Control Data began to provide financing and office services to struggling entrepreneurs, and the company set up consulting firms that advised municipal governments on inner city development.

Like Norris's suit against IBM, these efforts met with severe disapproval from the financial community. Despite Norris's claims that none of the company's efforts were philanthropy and that all were planned to become profitable businesses, he was branded a flake, and Control Data gained a reputation, according to Inc. magazine, as a 'far-out firm.'

By the end of the 1970s, Control Data's social engineering projects and its efforts to incubate small businesses had eclipsed the firm's bedrock activities in the public eye. Although it was better known for its high-profile, unorthodox moves, the vast majority of the company's business remained the production and sale of its family of proprietary CYBER computer systems. Control Data was the leading maker of computers used in scientific research, and by 1979 the company was fourth in the number of machines installed for these purposes around the world. In addition, Control Data was involved in hundreds of other ventures, ranging from technology components to real estate.

In the early 1980s, the structure of the computer industry began to change. American dominance in the field was seriously threatened by international competition, primarily from the Japanese, for the first time. In addition, new technology began to shift the industry's emphasis away from large, expensive, proprietary mainframe systems, like those created by Control Data, towards microcomputers operated on an open computing system. With open computing, an industry standard operating system enabled a wide variety of vendors to provide software and peripherals for use with smaller personal computers.

While other computer companies struggled to adapt to these changes as quickly as possible, Control Data remained slow to react, possibly distracted by its wide range of activities and social engineering goals. By the early 1980s, for instance, Control Data had lost its dominance in the supercomputer market to Cray Research, whose founders had initially worked at Control Data. In an attempt to regain its lost lead, Control Data began a new supercomputer development effort and spun the unit off to its employees in 1983. It was hoped the new unit, called ETA Systems, Inc., would circumvent the company's bureaucratic structure. Control Data retained an 89 percent stake in ETA Systems, in exchange for providing its development funds.

Despite this move, Control Data's revenues began to drop sharply in the early 1980s. In 1985 the company posted losses of $568 million on revenues of $3.7 billion, and defaulted on a $300 million loan. These ills were universally blamed on Control Data's refusal to stick to the business of computer making, and Norris was charged with corporate irresponsibility by the financial community. In January of 1986 he resigned his position at the head of the company, and Control Data began the process of trying to recover its profitability.

In mid-1986 Control Data floated a public debt offering, which allowed it to resolve its most immediate financial crisis. The company then turned to the task of shedding peripheral and money-losing units. Later that year Commercial Credit, whose profits had provided one bright spot in the mid-1980s, was also divested. During 1985 and 1986 Control Data lost $832 million, and by 1987 the overall staff had been cut by 25 percent, and top management had been halved. Administrators had not only been eliminated, many of them had been replaced with executives who brought a fresh perspective to the company. Norris's successor also reduced or sold dozens of subsidiaries, including most of the social engineering outfits, in order to narrow Control Data's focus to its computer and peripherals manufacturing and its service branch.

By January 29, 1987, these actions had started to show results, as Control Data posted its first profitable quarter in two years. Despite this bright spot, however, the overall situation looked bleak. Nearly 40 percent of Control Data's revenues were derived from its Computer Systems group, which held just 2.5 percent of the market. Concerned about Control Data's overall health, customers had become wary of purchasing big systems from the company. If it folded, they would be left with no support and no further development of compatible products. In an effort to revive this business, Control Data began to market a wider range of mainframe computers, and it also invested in software to join Control Data machines into networks. As a result, Control Data reported a profit for 1987 of $19.3 million on sales of $3.36 billion.

In 1988 Control Data continued its efforts to build greater profitability, despite adverse market conditions. While the company suffered withering price competition and weak demand for its conventional computer programs, its supercomputer subsidiary, ETA, was draining cash. Since 1984 ETA had soaked up an average of $50 million a year as the company developed its next generation supercomputer, called the ETA-10. When this product finally reached the market, however, demand proved to be less than expected, and the machine's software did not work properly. With these setbacks, the subsidiary's losses for 1988 reached $100 million.

By the end of the year, Control Data's total losses had mounted once again, and the company posted a five-year loss of $1.3 billion. Out of cash and in default on its loans, Control Data was forced by its bankers to appoint a new president, who moved to raise capital quickly. To do so, Control Data once again undertook a sweeping downsizing effort. The company laid off 3,100 workers and shut down ETA in April of 1989. In addition, it began to sell off its few profitable subsidiaries, a process that Business Week compared to 'breaking up the furniture to feed the fire.' In June Imprimis Technology Inc., a disk drive subsidiary ranked number two in the industry, was sold to market leader Seagate Technology, Inc. for $450 million. By the end of the year Control Data had also sold Ticketron, its money-making ticket broker. Control Data also made a fundamental shift in the direction of its computer business. Recognizing that its core mainframe business was a relic of the past, the company moved away from its hardware line towards manufacturing engineering and information management systems, which were run on the new open systems.

With this transformation under way, Control Data posted an annual profit in 1990 of $2.7 million on revenues of $1.7 billion. Abandoning its proprietary focus, the company's redefined mission was to be a provider of computing and systems integration services for a few core markets, including utilities and manufacturers. Government contracts for mainframes would be replaced by commercial clients who would purchase programs to be used with any computer hardware. With this shift, Control Data hoped to stem the tide of losses from its computer operations, which reached $119.4 million over the four years between 1987 and 1991.

In September of 1991 Control Data began restructuring its remaining units so that they could attract investment capital and forge competitive alliances with other companies. Finally, on May 27, 1992, the company announced that it would change its name to the Ceridian Corporation and spin off its computer operations into a separate company, to be called Control Data Systems, Inc. Ceridian retained the company's defense electronics operations and its information services, while CDSI became a computer systems integrator, developing technological solutions to business problems using a wide variety of hardware, software, and peripheral products.

In August, CDSI sold stock to the public for the first time, and the company subsequently embarked on a series of strategic alliances designed to increase its number of partners and suppliers. A joint venture called Metaphase Technology, Inc. was formed with the Structural Dynamics Research Corporation. The company also expanded its partnership with Silicon Graphics, Inc. and cemented an agreement with the Intergraph Corporation, along with Japan's NEC Corporation.

In 1993 CDSI joined with three computer makers, the Hewlett-Packard Company, the Acer America Corporation, and Sun Microsystems, to offer their products to its clients. In order to expand its Canadian business, the company bought Antares Electronics, Inc. and further added to its international operations with the purchase of the London-based MICHAEL Business Systems Plc.

At the end of 1993, CDSI reported a profit of $9.1 million, up from the previous year's loss. The company had moved aggressively to exit the computer manufacturing business, reducing CYBER's contribution to revenues to one-third. In addition, CDSI had worked to build its systems integration operations throughout the world. Seventy percent of CDSI's returns came from Europe, where the Control Data name had not suffered from adverse publicity, and CDSI moved to enhance its operations there. The company bearing the Control Data name was a very different enterprise from the business that had entered the 1980s as a leader in mainframe computer manufacturing. The company hoped its stripped-down and specialized operations would allow it to flourish in the highly competitive business climate of the late 1990s.

Principal Subsidiaries: Antares Electronics, Inc.; MICHAEL Business Systems Plc; Metaphase Technology, Inc.

Further Reading:

• Gross, Steve, 'The Big Fix at Control Data,' InformationWeek, April 15, 1991.
• Houston, Patrick, 'Control Data is Moving Forward By Looking Back, ' Business Week, April 18, 1989.
• ------, 'How Bob Price is Reprogramming Control Data,' Business Week, February 16, 1987.
• Mitchell, Russell, 'A Control Data Child That's an Underachiever,' Business Week, October 10, 1988.
• ------, 'Control Data May Finally Have the Right Stuff,' Business Week, April 24, 1989.
• ------, 'Fine Job, Larry--But Don't Get Too Settled,' Business Week, October 16, 1989.
• Pitzer, Mary J., 'Do or Die Time for a Superfast Supercomputer,' Business Week, December 22, 1986.
• Wieffering, Eric J., 'The Other Company,' Corporate Report Minnesota, April, 1993.
• Worthy, James C., William C. Norris: Portrait of a Maverick, New York: Ballinger, 1987.

Source: International Directory of Company Histories, Vol. 10. St. James Press, 1995.

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