Westinghouse Electric Corporation History

Company History:

Westinghouse Electric Corporation is among the country's largest electronics companies, with units committed to serving the U.S. defense industry, as well as interests in power generation and manufacturing. The company also maintains an office furniture subsidiary, The Knoll Group, and a broadcasting subsidiary, Westinghouse Broadcasting.

George Westinghouse, who invented the air-brake as a 22 year-old engineer with little formal education, founded the Westinghouse Electric Company in Pittsburgh in 1886 as a way of entering the infant electrical industry. He began by trying to develop an economical system of transmission using alternating current (AC). At that time direct current (DC), championed by Thomas Edison, was the only form of electrical power in common use. Edison and his Edison General Electric Company responded to the challenge by sponsoring a smear campaign aimed at convincing the public that AC was unsafe. Despite this effort, Westinghouse Electric installed the nation's first AC power system in 1891 in Telluride, Colorado, and scored two major victories in 1893 when it provided the generating system that powered the World's Fair in Chicago and won a contract to provide generators for the new hydroelectric power station at Niagara Falls.

During these years both Edison General Electric and Westinghouse spent small fortunes accumulating patents, with the result that neither company could market new products without fear of patent infringement litigation. After a series of expensive legal battles in the early 1890s, the two companies called a truce in 1896 and set up a patent control board to avoid all such disputes (in fact, they established a virtual duopoly in electric railway equipment during the 1890s). It marked the beginning of the odd relationship between the two largest electrical companies in the United States, a relationship that has ranged over the years from illegal collusion to fierce competition. The infancy of the electrical industry was dominated by inventor-entrepreneurs like George Westinghouse and Thomas Edison, but their professional rivalry would continue long after both men had died and the Edison General Electric Company had dropped its founder's name.

Westinghouse's association with the company that he founded ended in 1910. After years of expansion, Westinghouse Electric found itself unable to produce the necessary cash to pay $14 million worth of debt that was about to come due because a stock panic had depressed the financial markets and made it impossible to raise money through them. The company was placed in receivership and the bankers who reorganized it appointed a new board of directors. From January, 1909 to July, 1910, when he was ousted, Westinghouse continued as president, with limited authority. He died in 1914 at the age of 67.

But if Westinghouse Electric missed the guiding hand of its founder, it didn't show. During the 1910s the company accumulated patents in the area of wireless communication. In 1919 and 1920, it joined RCA, General Electric (GE), United Fruit, American Telephone & Telegraph Company, and Wireless Specialty Company in a series of cross-licensing agreements that paved the way for the commercial introduction of radio. Under these agreements, Westinghouse and GE carved up the exclusive right to manufacture radio receivers between them, with RCA as the selling organization.

Westinghouse had also become a pioneer in radio broadcasting when it realized that continuous service would help receiver sales. In 1920 it set up radio station KDKA, which broadcast from the roof of the Westinghouse plant in East Pittsburgh. Over the next five years it opened several more stations across the country, and broadcasting has remained a substantial part of Westinghouse's business ever since.

Westinghouse, however, missed a chance to get in on the ground floor of television manufacturing. Vladimir Zworykin, the inventor of the electronic picture tube, began his research at Westinghouse in the early 1920s. But his superiors showed indifference to his work, and when RCA acquired the manufacturing and sales rights for radio and TV receivers and tubes, David Sarnoff was able to woo him to RCA. While at RCA, Zworykin filed the patent that would form the basis for the modern television set.

The first electrical appliances for consumers were also introduced in the 1920s and Westinghouse was in the forefront. The company offered a variety of products, from electric ranges to smaller household appliances. It introduced a line of electric refrigerators in 1930 and later added washing machines to its repertoire. It also entered the elevator business in 1927 when it acquired Kaestner & Hecht Company.

Westinghouse did not expand very much during the 1930s, as the Depression cast a pall over American industry. All of that changed, however, in 1941, when Westinghouse entered the military electronics business. It became one of the leading contractors for radar, which was invented before World War II. In fact, Westinghouse radar had provided a warning signal of the advance of Japanese planes on Pearl Harbor, but it was assumed that the planes were American. During the war years, Westinghouse grew at a frenetic pace and its defense business became so large that CEO A. W. Robertson hired banker Gwilym Price in 1943 just to handle financial negotiations on military contracts. Price succeeded Robertson as CEO in 1946.

Westinghouse's performance during the postwar economic boom shows a mixture of successes and difficulties. Its longtime connections with electrical utilities enabled it to move quickly into the burgeoning field of nuclear power, and the company has remained a leading producer of nuclear-generating equipment ever since. The company also became the leading supplier of reactors for the U.S. Navy's nuclear submarine fleet. And during the Korean War, it scored what Fortune called "a brilliant coup" by developing the axial-flow jet engine, which became the prototype for jet engines for the rest of the decade. But following a change in weight specifications for navy airplanes the navy canceled millions of dollars worth of contracts for Westinghouse's J-40 and J-46 engines.

Westinghouse also moved slowly in targeting other branches of the armed forces, with the result that from 1955 to 1957 it ranked only 25th in sales among defense contractors. Rival GE, by comparison, ranked third. Adding to its troubles, poor marketing plagued its consumer-appliance operations and it all but conceded the foremost place in this business to GE. Beginning in October, 1955 Westinghouse suffered through a five-month electrical-workers strike, the longest walkout against an American corporation since the Depression. And in the early 1950s, the three principal manufacturers of heavy electrical machinery--Westinghouse, GE, and Allis-Chalmers--waged a devastating price war that cut into revenues.

As a result of that price war those three companies, along with 26 smaller manufacturers who did business with electrical utilities, entered into a bid-rigging scheme in 1955 in hopes of securing their profit margins. Under the plan, each of the participants agreed beforehand on the amount of each bid and on who would win the contract. In the area of power switchgear, for instance, it was agreed that Westinghouse would win 35 percent of the contracts, GE 39 percent, I-T-E Circuit Breaker 11 percent, Allis-Chalmers eight percent and Federal Pacific Electric seven percent. In 1957 the Justice Department began to investigate possible violations of the Sherman Antitrust Act, and two years later a grand jury was called into session after the Tennessee Valley Authority complained of collusion among the manufacturers. Forty-five executives from 29 companies were indicted and all pleaded guilty. In the wake of the scandal Mark Cresap, who had succeeded Gwilym Price as CEO in 1958, announced that a section of the company's legal department would devote itself solely to compliance with antitrust laws.

Cresap resigned in 1963 because of ill health and died later that year. He left a Westinghouse that had, according to Fortune, "reached a low ebb in its corporate life." Still reeling from the bid-rigging scandal, the company was also plagued by stagnant sales, eroding prices, and declining profits. Into this unenviable position stepped engineer Donald Burnham. It was said of the affable and unpretentious Burnham that when he wanted to rearrange the paintings in the CEO's office, he asked his secretary for a hammer and started pounding nails into the wall himself.

One of Burnham's top priorities as chief executive was to reorganize the corporate chain of command, decentralizing authority and giving individual division heads more freedom. Along with shaking up the bureaucracy, he sought ways to cut costs and use incentives to improve managerial performance. Westinghouse also embarked on a remarkable program of diversification under Burnham, buying into businesses as divorced from its core operations as soft-drink bottling, car rental, motels, transport refrigeration, land development, and mail-order record clubs. One of its most unusual ventures was Urban Systems Development Corporation, which Westinghouse set up in 1968 to respond to the need for low-cost housing by building pre-fabricated residential units. It was a venture consistent with Burnham's belief that social responsibility and corporate profitability were not necessarily incompatible.

In 1964 Westinghouse recorded record sales of $2.1 billion, but profits were sharply lower than in the previous year because of continued depressed prices in its major product lines. In 1966, however, profits reached $119.7 million, nearly a threefold increase from 1963. By the late 1960s the company's financial outlook had brightened considerably, and Burnham was hailed as a hero of corporate America.

By the time he retired in 1974, however, Westinghouse was once again in trouble. Decentralization of corporate authority had allowed overzealous division managers to stretch the company's resources to the breaking point. As vice-chairman Marshall Evans told Fortune in 1976, "we learned to our horror that these companies had gone totally hog-wild in committing the corporation to very substantial projects that were costly to complete." A prime example of this was Urban Systems Development. Although Robert Kirby, Burnham's successor, blamed its failure on lack of cooperation from the federal government, Urban Systems also expanded far too quickly for its own good and wound up posting after-tax losses of $45 million from 1972 through 1975. And although some of the unfamiliar businesses into which Westinghouse diversified turned a profit, like the Seven-Up Bottling Company of Los Angeles (purchased in 1969), many others did not. The acquisition of Longines-Wittenauer Watch Company, undertaken in 1970 mainly for its mail-order record operations, turned sour immediately, as discount record shops began to give mail-order businesses unwelcome competition. By the time Westinghouse divested its mail-order business in 1975 it had lost $65 million after taxes.

Westinghouse was also hurt by the continued lackluster performance of its consumer-appliance business and the high inflation of the early 1970s, which reduced revenues from fixed-price heavy-equipment contracts that it had signed years earlier. Wall Street analysts continued to downgrade the company, despite the fact that in April, 1974 it received an order for twelve nuclear power systems from France's state-run nuclear power agency, with options for four more units--the largest single order for nuclear equipment in history. One analyst told the New York Times that Burnham's decision to continue manufacturing appliances was "greeted with horror." Later that year Westinghouse stock dropped to $8 a share, from a high of $55 several years earlier. In late 1974, it sold its appliance business to White Consolidated Industries, leaving a field it had helped to pioneer, although White continued to market its products under the name White-Westinghouse.

When Robert Kirby became CEO he immediately declared that Westinghouse would get back to basics and in 1975 the company began to spin off its other unprofitable businesses. But the major event of the first half of Kirby's watch came about as a consequence of Westinghouse's decision in the early 1960s to become a uranium supplier. It had agreed to supply utilities that purchased its reactors with a total of 65 million pounds of uranium concentrate over a period of 20 years, at an average of $9.50 a pound. In 1973, however, the price of uranium skyrocketed, eventually exceeding $40 a pound. Westinghouse was caught with scanty reserves and found itself unable to buy enough uranium to meet its commitments. The 27 utilities with which it had uranium contracts sued to force Westinghouse to live up to those contracts. This would have cost the company $2 billion, the entire worth of its shareholder assets at the time. Westinghouse settled the last of these lawsuits in 1980, having paid a total of $950 million in damages, and managed to recoup some of those losses by suing a number of foreign and domestic uranium producers, charging that they had formed a cartel to drive up uranium prices unfairly. Some of these lawsuits were thrown out of court, but others were eventually settled for cash damages.

With its uranium problems mostly out of the way as it entered the 1980s, Westinghouse once again gave thought to expansion. As early as 1980 it had declared its intention to enter the field of robotics. In 1982 it acquired Unimation, a leading robot manufacturer. Westinghouse Broadcasting also expanded its cable television operations, acquiring cable giant Teleprompter Corporation in 1981 in the largest merger between communications companies in U. S. history. In 1982, a proposed joint cable venture with the Walt Disney Company fell through, but Westinghouse did join with NLT Corporation, a Nashville-based entertainment concern, to form The Nashville Network.

Reduced demand and utility overcapacity in the late 1970s and growing anxiety in the 1980s over the safety of nuclear power hurt Westinghouse's nuclear-equipment business, but the Reagan administration's massive military buildup added life to its defense operations. During the 1980s, Westinghouse received major contracts on such weapons as the F-16 and F-4E fighters, the B-52 and B-1B strategic bombers, the AWACS radar plane, the Mk 48 torpedo, the Trident nuclear submarine, and the MX missile. In 1985 the Wall Street Journal ranked Westinghouse as the nation's 13th-largest defense contractor. And in 1988 Westinghouse's electronic systems business, which is comprised almost entirely of military projects, accounted for roughly one-fifth of sales.

Douglas Danforth succeeded Robert Kirby as CEO in 1983. Also in that year, Westinghouse Broadcasting sold its Satellite News Channel to rival Cable News Network after the two had exchanged antitrust and unfair-competition lawsuits. Westinghouse sold its cable television operations in 1986 to a consortium of cable companies for $1.7 billion as part of a major restructuring program.

The mid- and late 1980s were marked by a number of divestitures of small- and medium-sized companies. Westinghouse also entered a series of joint ventures with foreign firms, most of them reflecting the growing dominance of Japanese companies in the electronics industry. In 1982 and 1985, it joined with Mitsubishi Electric to produce and market circuit breakers. In 1984 it formed a joint venture, subsequently dissolved, with Toshiba to manufacture high-resolution color picture tubes for computers and televisions. It also formed a joint venture with the Korean company Hyundai in 1984 to manufacture elevators and escalators, and with Siemens of West Germany to manufacture automation products in 1988.

Between 1985 and 1987 Danforth sold 70 less-profitable businesses, replacing them with 55 acquisitions that complement existing Westinghouse spheres of operation. In early 1989, Westinghouse also sold off two of its businesses to Swiss concerns: its elevator operations were acquired by Schindler Holdings and, after several years of disappointing performance, Unimation was purchased by Staubli International.

By 1990 Westinghouse's focus was no longer on manufactured goods for the consumer. Rather, the company focused on producing such technology as turbines for power generators and radar for the F-16 fighter plane, earning around $11 billion a year in sales. Westinghouse's Paul Lego assumed the chairmanship in 1990 and set a goal of 8.5 percent annual revenue growth for the company. Under Lego, Westinghouse briefly enjoyed a period of fiscal stability that was stronger than at any other time in its history. Its defense business pulled in annual revenues of $2.5 billion through developing products that would survive U.S. defense department cuts. Its financial service department was also quite strong, with annual earnings over $115 million.

Once Westinghouse was streamlined into a handful of core businesses, the company began to expand on its existing expertise. One venture, Westinghouse Government & Environmental Services, employed the company's knowledge of nuclear materials to operate hazardous, nuclear and municipal waste sites. This helped offset Westinghouse's declining sales in the nuclear power industry, which would soon become a thorn in its side. Another new undertaking successfully used Westinghouse's military technology to develop civilian products such as air traffic control equipment and home and office security systems. Westinghouse's broadcasting division also ventured into new arenas, handling the lucrative distribution rights and advertising for such popular television programs as "Teen-Age Mutant Ninja Turtles" and the "Cosby Show."

Westinghouse's financial stability was short-lived, however. It's restructuring was largely financed by the success of Westinghouse Credit Corp., a unit in its Financial Services division. During the 1980s, Credit Corp.'s assets grew from $2 billion to $10 billion due to a strategy of investing in high-interest real estate and commercial loans. When the bottom fell out of the real estate market in the early 1990s, a large number of Credit Corp. customers defaulted. The division posted a $1.6 billion loss in the second quarter of 1991, and by 1993, the company had amassed over $5 billion in debt. The company's reputation among financial analysts was further damaged when Westinghouse, at the recommendation of Lazard Freres & Co., put $1 billion worth of junk bonds up for sale. According to Business Week, the bonds were dumped at the bottom of the market, and Westinghouse filed suit against Lazard, charging that the brokerage firm was siphoning off some of Westinghouse's profits.

With its enormous new debt load, the company sought to trim its operations once again. In 1992, Westinghouse exited the rough and tumble financial service business and also announced plans to sell its office furniture, residential real estate, electric-supply, and electric distribution and control subsidiaries. In 1993, Westinghouse sold its electric distribution and control unit to Eaton Corp. for $1.1 billion. After the sale, Westinghouse realigned its operations into five units: broadcasting, electronic systems, environmental, industries, and power systems. It continued to seek buyers for its electric-supply, residential real estate, and office furniture subsidiaries.

In the mid-1990s, Westinghouse suffered a number of public relations setbacks. It successfully fought a suit filed by the Philippine government charging that Westinghouse conspired to bribe former president Ferdinand Marcos to win a $2.1 billion nuclear power contract. In 1993 a U.S. jury absolved Westinghouse of the charges, but the Philippine government vowed to appeal the case. More threatening to the company's bottom line was a series of lawsuits stemming from allegations that Westinghouse sold faulty equipment to a group of five utilities companies in the late 1960s. Business Week estimated that&mdash⁄ould Westinghouse lose the hotly contested suit--the company could pay up to $1 billion in damages and potentially face a number of "copycat" suits from other utilities companies.

Despite these problems as well as cuts in the defense industry, Westinghouse's core businesses in broadcasting, electronic systems, environmental, industries, and power systems remained strong in the mid-1990s. The company continued to retrench, focusing on paying down debt and fortifying its existing businesses.

Principal Subsidiaries: Westinghouse Broadcasting Company; Thermo King Corporation; The Knoll Group; Aptus, Inc.; Resource Energy Systems; WCI Communities; Westinghouse Government and Environmental Services Company; Westinghouse Savannah River Company.

Further Reading:

• Baker, Stephen, "Can Westinghouse Dodge a Nuclear Knockdown Punch?," Business Week, October 3, 1994, p. 58.
• Berg, Eric N., "Westinghouse Seeks Growth in Old Lines," New York Times, June 19, 1990, pp. D1, D5.
• Novack, Janet, "What's a Westinghouse?," Forbes, April 4, 1988, pp. 34-36.
• Nulty, Peter, "Behind the Mess at Westinghouse," Fortune, November 4, 1991, pp. 92-99.
• Passer, Harold C., The Electrical Manufacturers 1875-1900, Cambridge, Mass.: Harvard University Press, 1953.

Source: International Directory of Company Histories, Vol. 12. St. James Press, 1996.

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