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Company Profile of Zenith Electronics
Company Profile of Zenith Electronics - May 14th, 2011
Zenith Electronics Corporation is a brand of the South Korean company LG Electronics. The company was previously an American manufacturer of televisions and other consumer electronics, and was headquartered in Lincolnshire, Illinois. LG Electronics acquired a controlling share of Zenith in 1995 and eventually the rest in 1999. Zenith was the inventor of subscription television and the modern remote control, and the first to develop HDTV in North America.
Zenith-branded products are sold in North America, Germany, Thailand (to 1983), Cambodia, Laos, Vietnam, India and Myanmar.
The company was co-founded by Ralph Matthews and Karl Hassel in Chicago, Illinois as Chicago Radio Labs in 1918 as a small producer of amateur radio equipment. The name "Zenith" came from its founders' call sign, 9ZN. They were joined in 1921 by LCDR Eugene F. McDonald, and Zenith Radio Company was formally incorporated in 1923. Zenith introduced the first portable radio in 1924, the first mass-produced AC radio in 1926, and push-button tuning in 1927. It added automobile radios in the 1930s, with its Model 460 (bragging it needed no separate generator or battery) selling at US59.95. The first Zenith TV set would appear in 1939, with its first commercial sets in 1948. The company would eventually go on to invent such things as the wireless remote control, FM multiplex stereo, high-contrast and flat-face picture tubes, and the MTS stereo system used on analog television broadcasts in the US and Canada (as opposed to the BBC-developed NICAM digital stereo sound system for analogue TV broadcasts, used in many places around the world.) Zenith was also one of the first companies to introduce a digital HDTV system implementation, parts of which were included in the ATSC standard starting with the 1993 Grand Alliance.
The last logo used during the US-owned period, outside Zenith's corporate headquarters in Glenview, Illinois, in 1995.
In the 1980s, Zenith encountered increasing financial difficulty as their market share progressively went to Japanese companies who had lower overhead, and could sell their sets cheaper. In 1979, they entered the home computer market with the purchase of Heath Company and their H-8 computer kit; Zenith renamed Heath's computer division Zenith Data Systems, and eventually sold ZDS and Heath to Groupe Bull in 1989 to raise money for HDTV research efforts. Zenith changed its name to Zenith Electronics Corporation in 1984, to reflect its interests in computers and CATV, and since it had left the radio business two years earlier.
By 1990, Zenith was in trouble and looking more attractive to a hostile takeover. To avoid this, Zenith sold 5% of itself to LG Electronics as part of a technology-sharing agreement. With their analog line aging (the last major update to the line had been the Systemł chassis in 1978), and the adoption of HDTV in the US decades away, Zenith's prospects were dim. Eventually, LG would raise its stake in Zenith to 55%, enough to assume a controlling interest. Zenith filed for Chapter 11 bankruptcy in 1999, and in exchange for its debts, LG offered to buy the part of Zenith it didn't already own. During this era, some of Zenith's products were being rebadged as OEM under the Admiral name.
Today, LG produces the Zenith DTT-900 and Zenith DTT-901 ATSC digital TV converter box. LG also offers some Zenith branded plasma, LCD, and direct view televisions through selected retail outlets.
Having jettisoned its manufacturing operations in favor of outsourced production, Zenith Electronics Corporation has repositioned itself primarily as a designer and marketer of high-quality consumer electronics products under the Zenith brand. Among the products it sells are high-definition, flat-screen, and other television sets, set-top boxes for cable and satellite systems, DVD players, and digital audio products, such as MP3 players and CD recording systems. From its start Zenith advertised that its reputation would be built and sustained by the superior workmanship, reliability, and innovation of all products bearing the Zenith name. The company became a huge American success as a top producer first in the radio industry and later in television. Low-priced imports from Asia, however, began to rock Zenith in the mid-to-late 1970s. Although continuing to produce innovative products--including the high-definition television (HDTV) technology chosen as the standard by the industry alliance in the United States--Zenith posted losses through much of the 1980s and the entire decade of the 1990s. With no end in sight to the mounting losses, Zenith sold a controlling interest to South Korea-based LG Electronics Inc. (part of the LG Group conglomerate) in 1995, then emerged in late 1999 from a prepackaged bankruptcy as a wholly owned subsidiary of LG.
But starting with 1989, Zenith posted five straight years of heavy losses--the smallest, the 1991 loss of $52 million; the largest, the 1992 loss of $106 million. In the midst of these losses&mdash′imarily caused by continued depressed prices for televisions--the company moved forward with the development of new, innovative products.
The company's most publicized foray involved high-definition television (HDTV), the super-sharp digital television technology that was supposed to replace the standard analog television. With the prodding of the U.S. government, which feared that Japanese manufacturers would completely dominate the television industry unless American companies moved quickly to develop HDTV, three company partnerships were formed in the late 1980s, each working on their own HDTV standard. Zenith and its partner AT & T Microelectronics developed a digital transmission technology that was among the finalists for adoption. In 1993, however, the government wanted to speed up the adoption process by having all seven company finalists cooperate on developing a digital HDTV system, forming the Grand Alliance. The following year, Zenith's transmission system was chosen by the alliance to be the U.S. standard to be submitted to the Federal Communications Commission (FCC) for final approval. With the alliance arrangement, Zenith would receive a royalty for its role--a slice of perhaps $10 to $20 per television set--but could not expect a sizable return on its $15 million HDTV investment until the early 21st century when the market for HDTV sets was expected to approach that of regular TVs.
With its HDTV payoff years away, Zenith faced a proxy fight in 1991 from a dissident stockholder dissatisfied with the management of the company. Pearlman was able to ward off this attempt for his ouster by wooing a foreign investor. South Korea-based Lucky-Goldstar Group, a huge conglomerate and maker of low-end consumer electronics products, purchased a five percent stake in the company for $15 million. Zenith and Lucky-Goldstar (LG) had a relationship dating back to the 1970s when the Korean firm began making radios for Zenith. Later, LG started buying picture tubes and other components from Zenith, while Zenith bought LG-made VCRs and combination TV-VCR sets. Following the equity purchase, LG also gained access to Zenith's work on HDTV and on flat, high-resolution screens for computers and televisions.
Starting in 1992, Zenith attempted to improve operating results through a series of reengineering efforts initiated by the firm's president and chief operating officer, Albin F. Moschner. In addition to reducing its workforce by 25 percent over the next two years, the program aimed to improve new product development and get products to market faster, increase quality, and establish greater integration between factories. These efforts, however, did not produce immediate results, and continuing pressure from shareholders over the lack of improvement led the Zenith board of directors to begin closely monitoring Pearlman's performance through frequent and lengthy meetings and the tracking of numerous performance measures. A further blow came in early 1993 when one of Zenith's creditors, the Bank of New York, found the company in violation of the net worth covenant in its credit agreement.
Zenith's performance did improve in 1994, but not enough to put it back in the black. The company continued to suffer from price erosion--$48 million worth--brought on by its foreign competitors, leading to another loss, this time of $14.2 million. This represented an $83 million improvement over 1993 results, in part attributed to savings of $40 million in costs from the reengineering efforts.
Early in 1995, Pearlman retired as CEO, naming Moschner to the position. Pearlman also announced that he would retire as chairman at the end of the year. Shortly thereafter, Moschner and Pearlman revealed that the firm planned to concentrate on the production of large-screen TV sets, those with screens larger than 30 inches. This segment of the market was predicted to enjoy much greater revenue growth than the industry overall. To begin production of the large-screen TVs, Zenith needed $150 million to upgrade its production facilities, money it did not have and needed to secure from the outside. Once again, Zenith turned to the Lucky-Goldstar Group, later known as LG Group, for an infusion of cash. LG Electronics Inc., a subsidiary of LG Group, acquired a nearly 58 percent controlling interest in Zenith through the purchase of $351 million in Zenith stock. The last of the American-controlled television manufacturers was thus in the hands of foreign ownership.
Through the sale, Zenith acquired the immediate capital it needed for its plans to produce large-screen picture tubes and large-screen TV sets. The deal was synergistic in that Zenith would also be able to make large-screen picture tubes for Goldstar TVs sold via LG's distribution system to such emerging markets as Latin America and Asia. The cash infusion and the potential for further LG investment in Zenith if the need arose placed Zenith in a stronger position to survive until it could benefit from its commitment to large-screen TVs and from its investment in HDTV.
But with the payoff from its high-end consumer electronics products still off on the horizon, and with sales and prices of television sets falling, Zenith continued to bleed red ink--at an accelerating pace. The company posted losses of $92.4 million, $178 million, and $299.4 million in 1995, 1996, and 1997, respectively. Moschner resigned abruptly in July 1996 and was replaced by Peter S. Willmott, first as interim CEO and president and then on a permanent basis. In late 1996 Willmott announced the layoff of 25 percent of the company's U.S. workforce, or about 1,175 workers; the indefinite postponement of the construction of a $100 million large-screen picture tube plant in Woodridge, Illinois; as well as layoffs at the company's four plants in Mexico. Early the next year, Zenith attempted to revitalize its brand image through a redesign of the corporate Z-bolt logo and a $10 million national ad campaign, the company's first in five years, which promoted its sleeker and more technologically advanced line of standard and large-screen television sets. It also began using a subbrand, Inteq, on its high-end products to differentiate them from lower-end models. At the same time, Zenith continued to pursue cutting-edge products. In 1996 it joined with U.S. Robotics Corporation to build a cable modem for accessing the Internet through a cable television wire, and it won a $1 billion contract to build three million digital television set-top boxes for Americast, an alternative cable consortium owned by several Baby Bell phone companies and the Walt Disney Company. In addition, in late 1996 the FCC adopted Zenith's digital transmission technology as part of the HDTV standard in the United States.
During 1997, Zenith shipped its first DVD player, which actually had been manufactured by Toshiba. In August it canceled outright plans for the Woodridge large-screen picture tube plant. Instead, it focused its capital expenditures on its existing picture tube plant in Melrose Park, Illinois. The following month, Willmott, after only ten months on the job, announced that he would retire earlier than expected, sometime during the following winter. Following a successor search, Jeffrey P. Gannon, a 24-year veteran of General Electric Company, was hired as the new president and CEO in January 1998.
Under Gannon's leadership, Zenith moved ahead on the HDTV front, shipping its first HDTV set in August 1999, a 64-inch widescreen rear-projection model. The market for HDTV remained small, however--there were only 70 digital TV stations on the air by September 1999--and the company posted another substantial loss in 1998 of $275.5 million (on sales of just $984.8 million). Zenith began planning a more radical remake centering on its exit from manufacturing. In late 1998 Zenith closed its only remaining U.S. factory, the Melrose Park picture tube plant. Then in August 1999 the company filed a prepackaged bankruptcy plan with the support of its creditors as well as LG. It emerged from bankruptcy in November of that year as a wholly owned subsidiary of LG, and as a company focused solely on designing, marketing, and distributing consumer electronics products. Of the company's remaining Mexican manufacturing plants, three were sold off and one was transferred to LG ownership. Zenith began outsourcing all of its manufacturing, with most of the products built by LG itself. These moves left the company with a workforce of fewer than 7,000, after having started the decade with 32,000 employees.
After leading the company through its reorganization, Gannon resigned from his leadership position. The new president and CEO was Australia native Ian G. Woods, a senior LG executive who had served previously as CFO of Australia-based Matrix Telecommunications Limited. With its finances on more stable ground and its new leadership in place, Zenith in early 2000 unveiled a revamped product lineup, which featured HDTV sets, flat-screen plasma displays, liquid crystal display (LCD) TVs, a KidsView line of TVs for children, home theater projection TV systems, HDTV satellite receivers, a five-disc DVD player, digital audio products, and a variety of accessories. This impressive range of projects and the company's improved financial performance during 1999 appeared to signal the beginning of a long-awaited Zenith turnaround.
Principal Subsidiaries: Interocean Advertising Corporation of Illinois; Zenith Distributing Corporation of Illinois; Zenith Electronics Corporation of Arizona; Zenith Electronics Corporation of Pennsylvania; Zenith Electronics Corporation of Texas; Zenith/Inteq, Inc.; Zenith Video Tech Corporation; Zenith Video Tech Corporation--Florida; Zenith Radio Canada, Ltd.; Zenith Taiwan Corporation; Zenith Electronics (Ireland), Ltd.; Zenith Electronics (Europe), Ltd.; Cableproducts de Chihuahua, S.A. de C.V. (Mexico); Zenith Partes De Matamoros, S.A. de C.V. (Mexico); Productos Magneticos de Chihuahua, S.A. de C.V. (Mexico); Telson, S.A. de C.V. (Mexico); Zenco de Chihuahua, S.A. de C.V. (Mexico); Radio Componentes de Mexico, S.A. de C.V.
Principal Competitors: Emerson Radio Corp.; Hitachi America, Ltd.; Matsushita Electric Industrial Co., Ltd.; Motorola, Inc.; Philips Electronics North America Corp.; Pioneer Electronics (USA) Inc.; Samsung Electronics America, Inc.; SANYO North America Corporation; Scientific-Atlanta, Inc.; Sharp Electronics Corporation; Sony Corporation; Thomson S.A.; Universal Electronics Inc.
Wholly Owned Subsidiary of LG Electronics Inc.
Incorporated: 1923 as Zenith Radio Corporation
Sales: $984.8 million (1998)
NAIC: 421620 Electrical Appliance, Television, and Radio Set Wholesalers; 421690 Other Electronic Parts and Equipment Wholesalers
1918: Two ham radio operators form Chicago Radio Laboratory.
1921: Commander Eugene F. McDonald, Jr., joins the company.
1923: Company is reincorporated as Zenith Radio Corporation.
1924: Zenith introduces the world's first portable radio.
1926: Company introduces the first AC-powered radio.
1927: Company debuts the first push-button radio.
1939: The first all-electric TV station, Zenith's W9XZV, goes on the air.
1948: Company's first line of black-and-white TV receivers makes its debut.
1956: Zenith invents the first wireless remote control.
1961: Company's first line of color TVs is introduced; Zenith's FM stereo broadcasting system is approved by the FCC as the national standard.
1969: Company introduces the revolutionary Chromacolor picture tube.
1979: Heath Company, maker of do-it-yourself electronic kits, including a personal computer, is acquired.
1980: Zenith Data Systems is created as a computer subsidiary.
1981: The first Zenith computer, the Z-100, is introduced.
1982: Company suffers a net loss of $24 million and fails to pay a dividend for the first time in nearly 50 years.
1984: The electronics industry adopts a Zenith-developed system as the standard for MTS stereo TV broadcast and reception; company changes its name to Zenith Electronics Corporation.
1989: Company sells its computer business to Paris-based Groupe Bull for $511.4 million.
1991: South Korea-based Lucky-Goldstar, later LG Group (LG), purchases a five percent stake in the company for $15 million.
1994: The industry chooses Zenith's transmission system as the U.S. standard for HDTV.
1995: LG gains a 58 percent controlling stake in Zenith by buying $351 million in company stock.
1996: Company announces the layoff of 25 percent of its U.S. workforce; FCC adopts Zenith's digital transmission technology as part of the HDTV standard.
1998: Zenith closes its last U.S. manufacturing plant.
1999: Zenith begins shipping its first HDTV sets; the company emerges from a prepackaged bankruptcy filing as a wholly owned subsidiary of LG and as purely a designer and marketer--not a manufacturer--of electronics products.
1000 Milwaukee Avenue
Glenview, Illinois 60025-2495
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