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LOS ANGELES TIMES INTERVIEW : Michael Armstrong : Pulling Hughes Into the 21st Century

January 16, 1994|Steve Proffitt | Steve Proffitt is a producer for Fox News and contributor to National Public Radio's "Morning Edition." He interviewed Michael C. Armstrong at Hughes headquarters in Westchester.

The Chinese economy is booming. Cost-concious American consumers are snapping up bargain-priced Chinese imports--everything from clothes to toys to electronic goods. That's created a widening trade deficit with Beijing. It's grown from $3.5 billion to more than $20 billion in five years.

All those "Made In China" labels make Mike Armstrong see red. As CEO of Hughes Electronics, Armstrong had a deal to sell communication satellites to China. But last year, after uncovering evidence of Chinese missile sales to Pakistan, Washington imposed sanctions against China that have prevented Hughes from selling those satellites. That's cost Hughes money and jobs. Meanwhile other countries are making deals in Beijing to sell satellites. To Armstrong, it's a classic case of foreign policy gone awry.

But China is only one of Armstrong's problems. Since taking charge of Hughes almost two years ago, he's had to refocus and recharge a company that had a long history of scientific innovation, but a less-than-compelling financial record. It's a huge undertaking. Even after a massive restructuring and thousands of layoffs, Hughes still employs more than 50,000 people, making everything from missiles to radar systems to auto parts.

Armstrong is determined to counter cutbacks from Hughes' largest customer, the Defense Department, by developing new ways to use the company's technologies. The most dramatic example is DirecTV, a direct-to-home satellite system that will offer 150 channels of digitally transmitted television. DirecTV has required an investment of some $600 million, and though some are skeptical, Armstrong sees it as a major profit-center for Hughes in the next decade.

Armstrong, 55, came to Hughes after a 31-year career at IBM. The father of three daughters and one grandchild, he's earned a reputation as a good communicator--he even writes a bi-weekly column for the Hughes newspaper--and a shrewd political operator. He's employed both skills in turning Hughes fortunes around--the company recently reported strong increases in both revenues and profit margins. An expansive and expressive man, he likes to joke about his spacious office at Hughes opulent Westchester headquarters, "I can either work--or I can play basketball."

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Question: When you came to Hughes, what problems did you identify and how did you try to remold the company?

Answer: The biggest problem was that our financial returns were in precipitous decline. Although we were a high-tech company, we were out of balance with being customer-driven and market focused. We were more like a laboratory in that we pursued excellence and achieved innovation for the satisfaction, accomplishment and esteem of it--but not necessarily to apply it and make money on it. So we reorganized the whole place toward a market-driven company.

Another great problem was the surplus in our defense business. We had to rid ourselves of the surplus in facilities, people, structure, executives and expenses. We also had to become cost-competitive. So we imposed on ourselves a 30%-cost-reduction program across the company, to get the base of our business competitive. That's what we've been doing; those are the fundamentals.

But probably more important than anything in changing a corporate culture is communication. People have to understand where the business is going, they have to believe that's the right place for it to be going, and then it has to be continually reinforced with change--and with some results. And we're fortunate to have that; much of the hard work and change has resulted in a financially stronger and improved company.

Q: Your company has a special problem with China. Are you going to be able to launch satellites there?

A: It's still under review. I had the opportunity (recently) to directly and personally communicate our problem to the President. He replied that he better understood the situation and would look into it further. We disagree strongly that the sanctions against China were ever meant to include commercial communicating satellites. Secondly, there is absolutely no risk of technology transfer. There's more technology in a Boeing airplane, or even in an Atari computer, that could be applied to missiles than there is in our satellite. Finally, when we build a satellite to be launched in China, it's a completely enclosed system. The satellite is crated, it's accompanied by armed U.S. Air Force personnel, who guard it under lock and key in a warehouse in China until it is launched. There is no risk.

So what's happened? The Chinese had given us a letter of intent for two data-communication satellites. They have since, because of the sanctions, given that order to Germany, and we have lost a $100-million order and several hundred jobs in Southern California.

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