Harris Corp.

Public Company
Incorporated: 1926 as Harris-Seybold-Potter Company
Employees: 14,000
Sales: $5.11 billion (2013)
Stock Exchanges: New York
Ticker Symbol: HRS
NAICS: 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 334290 Other Communications Equipment Manufacturing; 334210 Telephone Apparatus Manufacturing; 541512 Computer Systems Design Services; 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing; 333318 Other Commercial and Service Industry Machinery Manufacturing; 423690 Other Electronic Parts and Equipment Merchant Wholesalers

Harris Corporation, whose roots date back to a printing company established in 1895, operates as a leading international communications and information technology (IT) company. Harris makes a leading line of broadband-enabled tactical radios (Falcon) used by military and public safety personnel. It is also active in government IT services and communications systems. In 2012 Harris announced plans to sell its broadcast and production business, allowing it to focus on what the company has trademarked as “assured communications.”

OHIO ORIGINS

In 1895 the Harris Automatic Press Company was founded in Cleveland, Ohio. This company manufactured large multicolor presses used to print books and newspapers. In the early decades of the 20th century, the Harris Automatic Press acquired the properties of two other companies involved in the printing business: Seybold Machine Company of Dayton, Ohio, and Premier & Potter Printing Press Company, Inc., of New York. The name of the company was then changed to Harris-Seybold-Potter Company.

In June 1957 the company merged with the Intertype Corporation of Brooklyn, New York, and its name was again changed, this time to Harris-Intertype Corporation. Intertype, a manufacturer of hot metal typesetting machines, also operated a plant in England.

Throughout these acquisitions the business remained essentially unchanged: it built and marketed printing machinery. Such machinery included offset lithographic presses, envelope presses, paper cutting machines, and bindery equipment, and at Intertype, hot metal typesetting machines. Later acquisitions, in particular the Gates Radio Company, gave the company the capacity to manufacture broadcasting transmitters and microwave equipment.

The boom in the aerospace industry that began in the 1950s gave rise to many companies that produced components for government projects. One of the earliest of these businesses was Radiation, Inc., established in 1950 by Homer Denius and George Shaw, both of whom were electronics engineers. At first Radiation employed a staff of only 12 and was housed in space rented from the Naval Air Station in Melbourne, Florida. The site was convenient because it was located only a few miles south of Cape Canaveral (now Kennedy) Space Center.

From the start, the company produced miniaturized electronics, tracking, and pulse-code-modulation technologies, all crucial to aerospace programs. Radiation’s involvement with the aerospace program included equipment for the Telstar and Courier communication satellites and the Nimbus and Tiros weather satellites. Military systems that relied upon Radiation equipment included the Atlas, Polaris, and Minuteman missiles.

Radiation’s initial success was due in part to the high quality of its staff. Many of the highest-level managers held advanced degrees in engineering. John Hartley, the CEO of the firm until 1995, joined Radiation after serving on the faculty of Auburn University. Hartley joined the firm in 1956, the same year that Radiation stock was first sold to the public. Another person who left academia to join the staff at Radiation was Joseph Boyd. In the late 1950s and early 1960s Boyd taught electrical engineering at the University of Michigan. At the same time he was also director of Willow Laboratories, a prestigious science and technology research institute with a staff of more than 1,000 scientists and engineers. Boyd joined Radiation in 1962 and within a year was made president of the firm. His first significant action as president was to set up a microelectronics plant to develop and produce integrated circuits. The following year, Hartley was named as director of this division of Radiation.

EXPANDING THE BUSINESS

During the early 1960s, Radiation devoted itself to improving its market position in the interconnected fields of digital communication, space communication, data management, and computer-based control systems. The company was also successful with satellite tracking systems and alphanumeric data processing. By 1967 the company was one of Florida’s largest employers (at 3,000 employees) and sales passed $50 million a year. The company was well established as a government contractor for both military and nonmilitary projects. Radiation’s management, however, wanted to expand the company’s business activity in the commercial sector. To do this, they decided to merge with a commercial company. At roughly the same time, Harris– Intertype Corporation was seeking to expand its operations into the electronics field.

George Dively, the chairman of Harris-Intertype, had succeeded in building up the company’s business from $10 million in annual sales to almost $200 million. Nonetheless, Harris-Intertype’s printing machines were still mechanical, and Dively realized that future technological developments would require electronics. Radiation seemed a perfect candidate for acquisition. The purchase price of $56 million was considered quite steep. Harris shares were traded for Radiation’s in a ratio that valued Radiation’s earnings at twice those of Harris. Harris’s management wanted Radiation’s electronics talent, however, not just its earning power. The two companies merged in 1967 under the Harris-Intertype name. Dively remained chairman of the company. Homer Denius, one of the founders of Radiation, became vice chairman, and Boyd became an executive vice president for electronics. After the merger, annual sales surpassed the $250 million mark and the combined number of employees exceeded 12,000.

The Harris-Radiation hybrid proved to be a success and innovations began to flow from the company almost immediately. Electronic newsroom technology, for example, was the direct result of a study made by Radiation of how to update Harris’s mechanical presses. Most important, however, the merger gave birth to an essential management strategy known as “technology transfer”: developing commercial applications of technology originally developed for the government.

PURCHASE OF RF COMMUNICATIONS

Two years later, RF Communications, Inc., of Rochester, New York, was purchased through an exchange of shares. By the time of its purchase, RF was well established as a manufacturer of point-to-point radio

equipment. Even after this rapid expansion, the company’s electronics business remained primarily with the government, especially in the aerospace field. Harris- Intertype was responsible for the production and development of the data-handling systems for the preflight check of the Apollo spacecraft and for the digital command-and-control computer of the Gemini spacecraft.

At the beginning of the 1970s, the company made several other major acquisitions. In 1972, Harris- Intertype purchased General Electric’s product line of TV broadcasting cameras, transmitters, studio equipment, and antennas for $5.5 million in cash, adding greatly to its original broadcasting product line. In addition, UCC–Communications Systems, Inc., of Dallas, Texas, was purchased from the University Computing Company for $20 million in cash. This company was a leading producer of computer terminals and communications subsystems for the data processing industry in general. Two years later, in 1974, Harris-Intertype acquired Datacraft Corporation and also divested itself of its corrugated paper machinery business. Datacraft was a producer of superminicomputers. During the same year the company changed its name to Harris Corporation.

These acquisitions, made under the leadership of company President Richard Tullis, were integral to Harris’s evolution from a business that was 84 percent mechanical into one that was 70 percent electronic. The integration of the purchases and the continual introduction of new product lines, however, took its toll on the company’s earnings. From the late 1960s to the late 1970s earnings growth was not outstanding and investors, in large part, ignored the company. By 1976 things began to change for Harris. Over the following three years its stock rose more than 100 percent. Meanwhile, the acquisitions campaign did not slow down even during the fallow period.

Subsequent acquisitions were all in the field of data processing and handling. Purchases were made every year throughout the remainder of the decade and well into the 1980s. By 1977 Harris’s sales were more than $646 million and earnings were greater than $40 million. Boyd was appointed chairman and CEO two years later, in 1979.

That year Harris reached a significant agreement with S.A. Matra, a French state-owned electronics company. Under this agreement, which was to provide the French with a factory to manufacture integrated circuits, all of the $40 million funding was supplied by Matra and the French government. Harris provided only technology and management. The French retained 51 percent of the company, leaving Harris with the remaining 49 percent.

TECHNOLOGY TRANSFER

Since Harris had begun to deal predominantly in electronics, the company found itself in a market with extremely powerful competition. By this time the concept of technology transfer was the central element of the company’s management policies. Although defense contracts accounted for only around 20 percent of Harris’s business, military projects were its most advanced production efforts. In general, government contracts are for custom products instead of standard items, which help push the state of a technological art to its limit. In addition, these projects tend to be motivated more by technology than by cost considerations.

Harris’s challenge was to translate work on customized, ultrahigh-technology products into profitable commercial projects. Harris adopted a more general strategy of competing for government work only in those areas in which the company anticipated the ready development of commercial products. The development of a video terminal for electronic newsrooms, derived from the company’s Vietnam-era work on an army battlefield message sender, was a successful example of this technology-transfer policy.

Throughout Harris’s history its acquisitions program was well planned. In 1980 Harris made another important purchase, of the Farinon Corporation, a manufacturer of microwave transmitters, electronic switchboards, and other sophisticated telephone products. At the time of its purchase, Farinon was a small company, with sales of only $100 million. Outside observers believed that the purchase price of four million Harris shares, worth around $125 million, was much too high. Management at Harris justified the price, however, on the grounds that it had to beat out other bids (GTE, RCA, Siemens, and Loral Corporation had all expressed interest in Farinon) and that Harris was buying technology and market position, not earnings or revenues.

Harris passed the billion-dollar mark in annual revenues in 1981, and went on to weather the recession of the early 1980s quite well. Earnings per share grew roughly 15 percent a year during this period. New plants were in operation 30 miles south of the Kennedy Space Center in Florida and the company had become the largest industrial employer in Florida.

TURNING POINT IN 1983

In 1983 Harris marked another turning point in its history. Harris had risen from the sixth-largest supplier of printing machines to the number one position in the country, but in the spring of that year, Harris sold its printing business to concentrate exclusively on electronics. In the autumn, Lanier Business Products, Inc., was merged into Harris on a $276 million stock purchase. Lanier was involved primarily in office automation and was noted for its business computers, dictating systems, copying machines, and wordprocessing systems. Lanier brought Harris greater strength in the commercial sector since it boasted 350 sales offices throughout the United States and a sales force of more than 2,000 people, 700 of them marketing Lanier’s copying machines (which were manufactured by 3M Company).

Later in the year the Federal Communications Commission (FCC) ordered Harris to stop production and marketing of a system that allowed AM radio stations to broadcast in stereo. The FCC also ordered the stations that had already purchased the units to cease broadcasting using the units. According to the FCC, the unit actually marketed by Harris differed significantly from one that the agency had approved the preceding year. Management at Harris claimed that the order had little effect on the company’s overall business performance since Harris had a backlog of only $2 million for the system, out of a total of $430 million for the communications sector that year.

Massive layoffs and a major reorganization began in the same year and continued for about three years. The company’s government communications systems group was dissolved and employees from that group were reassigned to other divisions in the government systems sector. As other divisions also were consolidated, the workforce at Harris was reduced by several thousand employees. At the end of this period of adjustment, Harris and 3M entered into a joint venture to market and service copiers and facsimile machines as a result of their earlier connection through Lanier. The new company, named Harris/3M Document Products, Inc., was headquartered in Atlanta, Georgia, and owned equally by 3M and Harris.

Harris had a spate of problems with government contracts. In June 1987 the company agreed to settle out of court, for $1.3 million, a claim that Harris had overcharged NASA to upgrade the security system for a ground tracking station. Later in the year the company pleaded guilty to making false claims relating to a contract with the U.S. Army. The settlement in this case came to more than $2 million refunded as excess profits and another $2 million in penalties.

BLOCKED TAKEOVER ATTEMPT

That same year the Pentagon stopped a takeover of Harris by the British communications company Plessey. Plessey, roughly the same size as Harris and one of Britain’s largest electronics manufacturers, was itself acquired by Britain’s General Electric Co. PLC and Germany’s Siemens in 1989. The takeover was apparently blocked because of the sensitive nature of much of Harris’s activities. For instance, the company was the major supplier of electrical components hardened against damage from the electromagnetic pulse generated by nuclear weapons. It was reported that Harris also manufactured top-secret equipment for the National Security Agency.

In addition to being well protected against takeover, Harris was well established in custom electronic systems, office automation, communications, and microelectronic products. Company revenues more than doubled in the 1980s, from $850 million to more than $2 billion. The largest growth in both sales and profits came in the semiconductor and government systems sectors. By 1989 Harris had become the largest U.S. supplier of radio and television broadcasting equipment and dictating equipment and the largest producer of low- and medium-capacity microwave radio equipment. It was the largest supplier of integrated circuits to the U.S. government and the sixth-largest producer of integrated circuits in the country. It was also the largest producer of satellite communications earth stations, a major supplier to NATO armed forces, and sold commercial products in more than 100 countries.

Competition with the Japanese continued to be fierce, growth was slowing in the communications industry, and office automation had been a more competitive field than Harris anticipated. Cutbacks in personnel and the major reorganization of divisions, however, streamlined the company. In late 1988 Harris bought GE Solid State, General Electric’s semiconductor company, for more than $200 million, and in 1989 Harris purchased 3M’s 50 percent interest in Harris/3M and renamed the company Lanier Worldwide, Inc., after adding Lanier Voice Products to that business.

MORE THAN DEFENSE

Harris’s corporate strategy in the 1990s was marked by four emphases: it would continue to transfer the technology expertise of its Electronic Systems Sector to nondefense markets; it would build on the growth of Harris Semiconductor following the purchase of GE Solid State; its Communications Sector would lead the company into international markets; and it would continue to promote the products, services, and globalization of Lanier Worldwide. In January 1991 Harris learned that it had won a $1.7 billion Federal Aviation Administration (FAA) contract to develop the voice switching and control system of the nation’s air traffic control (ATC) communications systems. The contract, the largest in the company’s history, demonstrated that Harris’s strategy of diversification into nondefense work was bearing fruit and led to other major ATC projects in Alaska, Washington, D.C., and Malaysia.

Harris’s push into another nondefense high-tech sector, advanced energy management systems for electric utilities, was strengthened in 1992 when Harris acquired Westronic Inc. of Canada. A year later Harris won a major contract to upgrade the FBI’s National Crime Information Center database records using its specialized information processing technology. By the mid-1990s Harris added two new nondefense markets to its technology transfer strategy: health care and railroads. Harris developed information processing and communication technologies to improve diagnostic capabilities and cost efficiencies in the health care field, and in a joint venture with General Electric, Harris designed and manufactured an advanced electronic system for managing railroad traffic. Although the U.S. defense budget was reduced by two-thirds between 1984 and 1995, Harris continued to win major defense projects, primarily in defense communications and aerospace, most notably the U.S. Air Force’s F-22 Advanced Tactical Fighter and the U.S. Army’s Comanche helicopter.

Because of unexpected problems integrating Harris Semiconductor with General Electric’s much larger semiconductor business following the merger in 1988 as well as a downturn in the semiconductor market in the late 1980s, Hartley reassigned Electronic Systems Director Phil Farmer to Harris’s semiconductor operations in 1991. Farmer immediately began flattening the unit’s management structure, reducing costs and expenses, and rationalizing its plant capacity. By the end of 1992 Harris Semiconductor was profitable again and by 1995 it was introducing more than 200 new products a year, particularly for the automotive, communication, and power-control circuits industries.

Harris’s Communications Sector meanwhile established itself as one of the company’s fastest-growing businesses by moving aggressively to fill the communication infrastructure needs of the world’s developing countries. Between 1990 and 1994, international sales in its communications division grew from one-third to one-half of its total business. It upgraded television stations in Mexico, sold digital microwave radio systems to emerging countries, and supplied telephone equipment to remote regions of China and India. It also moved quickly into the promising new markets of highdefinition television (HDTV) and cell phone–based personal communications services.

Harris’s 1989 formation of Lanier Worldwide also was paying off. By 1995 Lanier’s global sales had climbed to $1 billion and with 1,600 international sales and service centers it had become the largest independent office equipment distributor in the world. Lanier enjoyed two important firsts in 1994: it introduced a line of multifunctional printer/fax/copy machines and began offering facilities management services to major corporations, in which Lanier not only provided clients with all of the office machines and supplies they needed but brought in Lanier employees to perform the copying. In 1995, Farmer, a 13-year veteran with Harris, succeeded Hartley as Harris’s chairman and CEO.

In 1996 Harris acquired the wireless products business of NovAtel Communications, formed a joint venture to provide telecommunications and broadcast equipment to China, demonstrated the first HDTV transmitter, announced the construction of a semiconductor plant in China and a new U.S. facility to make power metal oxide semiconductors, and won a $73 million contract from the FAA for weather and radar processor systems. In 1997, Harris announced the construction of a $5 million new space antenna facility, a $10 million digital television center in Cincinnati, a joint venture with General Electric to develop a new generation of digital information management systems for electric utilities in developing countries, and the acquisition of Northeast Broadcast Lab, a maker of radio broadcast equipment. It also strengthened Lanier’s corporate office services business by acquiring American Legal Copy Services, a copying service for the legal profession; Quorum Group, an information services business for lawyers; Trans-Comp, a provider of medical transcription services; and Agfa-Gevaert, the photocopier business of Bayer.

CONFIGURING FOR A NEW MILLENNIUM

As Harris prepared to enter the new millennium, the company faced challenges brought on by a severe downturn in the semiconductor market. At the same time, weak conditions in Asian economies wreaked havoc on the company’s bottom line. As such, Harris launched a restructuring effort that dramatically reshaped the company. In early 1999, Harris put its semiconductor business up for sale in order to focus on its core communications equipment operations. Intersil Corporation, which was created by investment firm Sterling Holding Co., bought the group in a deal worth approximately $700 million. Harris then spun off its Lanier Worldwide subsidiary. The company planned to use the proceeds from the spin-off to fund its acquisition strategy.

When the dust settled, Harris stood as a leaner, more focused entity. During the early years of the new millennium, the company operated with four main divisions that served the government, RF, microwave, and broadcast communications markets. To strengthen these divisions, the company formed strategic partnerships and made key purchases. Shortly after it sold its semiconductor unit, Harris formed an alliance with Wavtrace Inc. to distribute and manufacture technology related to wireless broadband products that would be marketed to service providers. It also added Exigent International, a satellite command and control software manufacturer, to its fold in 2001.

Harris continued its growth-through-acquisition policy over the next several years. The Orkand Corporation was purchased in 2004 in a deal that added new customers to Harris’s lineup, including the U.S. Postal Service, and the U.S. Departments of State, Energy, Health and Human Services. Encoda Systems became part of Harris’s Broadcast Communications division that same year. Encoda’s operations included automation, media asset management, traffic, and billing software. In 2005, Harris took its Broadcast Communications expansion one step further with the $450 million acquisition of Leitch Technology Corporation, a specialist in digital video broadcast and production. Harris’s share of the global broadcast/video production market grew to 20 percent after the deal.

With both sales and profits on the rise, Harris’s transformation appeared to have paid off. The company enjoyed record results in 2005 as revenue increased by 19 percent over the previous year, reaching $3 billion. Harris’s net income also experienced hefty gains as it rose 52 percent to $202 million. The company’s strategy in the years to come included new product development. It spent $870 million on R&D in 2005 alone. At the same time, Harris continued to position itself as the provider of choice to its customers. New contracts included a $1 billion, 10-year technical services program for the National Reconnaissance Office; a $350 million, 10-year program to provide tactical common data links for U.S. Navy helicopters; a $275 million contract to provide mission support services to the FAA; and a $175 million contract to provide maintenance and engineering services for the Defense Information Systems Agency’s Crisis Management System.

BALANCED APPROACH

Revenues were $3.5 billion in 2006 and growing at a double-digit rate during the War on Terror and U.S. interventions in Iraq and Afghanistan. The RF Communications Division in Rochester, New York, accounted for about one-quarter of total sales, or $809 million. There was activity on the civilian federal side as well. During the year Harris won a $600 million contract to help the U.S. Census Bureau automate its field data collection.

By 2007 Harris’s share price had tripled under the leadership of Howard Lance, who had become CEO four years earlier. Lance effectively sought international business to buffer against the severe ups and downs of federal contracting, while diversifying the company into new areas and hiving off noncore units.

Harris bought government IT specialist Multimax Inc. for $400 million in June 2007. Zandar Technologies, an Irish manufacturer of multi-image display processors used in video production rooms, was added to the Broadcast Communications division late in the year. In November 2009 Harris acquired Patriot Technologies, LLC, an IT provider for the health care industry. Carefx Corporation, a small Arizona-based IT provider that helped hospitals manage disparate systems, was acquired in 2011 for $155 million.

Harris continued work on the FAA Telecommunications Infrastructure contract to upgrade capabilities at more than 4,300 FAA and defense facilities in the United States and abroad. Bolstering its NextGen work for the FAA, Harris bought the ATC business of Canada’s Solacom Technologies in 2009. In 2012 the FAA awarded a team led by Harris a $330 million, seven-year Data Communications Integrated Services contract to upgrade its ATC network. Automation of routine messages was one of the FAA’s aims. Another major contract came from the U.S. State Department, which hired a Harris-led team to update its consular communications network in 2012. The award, shared with nine other companies, was worth $750 million.

FOCUS ON “ASSURED COMMUNICATIONS”

Boosting its low-wage manufacturing capabilities, in 2010 Harris opened a transmitter plant in Brazil to support South America’s transition from analog to digital television broadcasting. Harris introduced its Selenio multimedia platform in 2011. This system was designed to help broadcasters transition to Internet protocol (IP) technology. However, reflecting the company’s changing focus, in May 2012 Harris President and CEO William M. Brown announced plans to divest the broadcast communications operation. The company would henceforth specialize in what it called “assured communications.”

In 2010 Harris paid $525 million for CapRock Communications Inc., a global market leader in managed VSAT communications used in the remote operation of oil rigs. The next year it added Schlumberger’s Global Connectivity Services business for $397.5 million, folding it with CapRock into the new Harris CapRock Communications.

The U.S. Department of Defense bought $1.2 billion of tactical radios from Harris in 2010. The next year, however, this number was halved. Harris, however, continued to receive orders for its Falcon Secure Personal Radio system as allied foreign governments modernized their militaries. By providing broadband data capabilities, such radios allowed soldiers to communicate with UAVs and exchange other digital information. By this time, more than 50 countries were using the system.

There remained a sizable potential RF, or tactical communications, market at home. Fewer than 5 percent of the Department of Defense’s 1.2 million radios had wideband capability. In October 2012 Harris won a $397 million contract to supply Falcon radios to the U.S. Department of Defense. The acquisition of M/A- COM’s wireless business from Tyco Electronics for $675 million three years earlier had brought Harris into competition with Motorola in the public safety radio market.

Another significant award in 2012 was the 15-year, $291 million contact to supply an IP-based communications network for the FAA’s NextGen initiative. After losing a $3.5 billion bid to run the Navy/Marine Corps intranet program in June 2013, Harris became a subcontractor to Hewlett-Packard, the contract winner. Harris was also supplying antennas for the latest iteration of The Boeing Company’s Inmarsat satellites, Global Xpress, a mobile broadband network for ships and airlines.

Harris had 14,000 employees and total revenues of about $5 billion in 2013. There was a sizable backlog. Its FAA Telecommunications Infrastructure contracts extended to 2022, 20 years after first awarded. Harris was also an avionics supplier to the F-35 Joint Strike Fighter program. Throughout its long history, Harris had grown accustomed to introducing revolutionary innovations in communications technology. While it had replaced paper and ink for radio waves and electronics, it remained a trusted supplier at home, and globally.

KEY DATES

1895:

Harris Automatic Press Company is established in Cleveland, Ohio.

1957:

Harris Automatic Press merges with Intertype Corporation.

1967:

Radiation and Harris-Intertype merge.

1972:

General Electric’s product line of TV broadcasting cameras, transmitters, studio equipment, and antennas is purchased.

1983:

Harris sells its printing business to concentrate exclusively on electronics.

1987:

Pentagon stops takeover of Harris by British communications company Plessey.

1999:

Harris sells its semiconductor business; Lanier Worldwide subsidiary is spun off.

2005:

Leitch Technology Corporation is acquired.

2012:

Company announces plans to sell its video production and broadcasting operations.