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Engineering a Change : Industry: Rockwell's new focus on commercial products takes off in record profit. Newport Beach semiconductor unit plays a big part.

November 02, 1995|JOHN O'DELL | TIMES STAFF WRITER

SEAL BEACH — Underscoring its successful shift of emphasis from defense contracts to commercial products, Rockwell International Corp. said Wednesday that profits and sales surged to record levels in fiscal 1995.

One of the stars has been Rockwell's Semiconductor Systems division in Newport Beach, which posted a 31% increase in sales to $760 million and is expected to top $1 billion in sales in fiscal 1996.

Rockwell recently announced a $400-million expansion of the Newport Beach facility. It is the largest capital investment for an industrial project in the county in recent years and will create about 1,300 new high-technology research and manufacturing jobs over the next five years.

"This has been a terrific year and [Semiconductor Systems] is one of the units driving our performance," Rockwell Chairman Donald R. Beall said Wednesday.

Rockwell's net profit for the year ended Sept. 30 rose 17% to $742 million. Sales increased 17% to $13 billion in 1995. In the fourth quarter, Rockwell's earnings rose 14.6% to $189 million as sales climbed 23% to $3.5 billion.

Buoyed by the year's performance, company directors Wednesday boosted the quarterly dividend on Rockwell common stock by 7.4% to 29 cents a share, making this the 20th consecutive year of higher dividends.

In the past decade, the company has engineered what industry analysts say is a remarkable turnabout, shifting its emphasis from government and defense work to commercial businesses like semiconductors, printing presses and factory automation systems.

Government and defense work, which accounted for 66% of Rockwell's revenue in 1986, brought in only about 25% of the revenue in fiscal 1995, Beall said. Defense contracts alone now represent about 16% of Rockwell's sales, down from 55% in 1986, he said.

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Rockwell's commercial and international sales climbed 30% during the past fiscal year and now account for 72% of total sales, compared with just 39% a decade ago, Beall said. Foreign sales alone accounted for $4.34 billion, or 33.4%, of total revenue in fiscal 1995--the highest level in the company's history, he said.

Rockwell does not report individual divisions' contributions to corporate profit, but Dwight Decker, president of the Semiconductor Systems unit, said the high-margin business contributed significantly to Rockwell's overall earnings increase.

Sales for the division, which specializes in the chip systems for high-speed modems, facsimile devices and wireless communications products, have grown at 25% a year for the past five years, making it the company's fastest-growing business unit, Decker said. It controls almost 75% of the worldwide market for fax and modem chips.

Decker said he expects to add 1,000 new engineering positions at the unit's Newport Beach headquarters over the next five years to keep up with the blistering growth pace. He said he also plans to add about 350 manufacturing jobs at the Newport Beach facility in the next 18 months.

The success of the semiconductor business didn't follow a well-laid plan, Decker said. The unit's original name was Rockwell Telecommunications and its principal business was manufacturing communication equipment for government and civilian customers.

Chips were a small sideline until the late 1980s, when the demand for semiconductors for miniaturized, digital telecommunications products--especially for personal computer modems and faxes--exploded.

The telecommunications segment of the semiconductor industry is expected to more than triple by the end of the decade, when worldwide sales will hit $350 billion, according to Dataquest Inc., a San Jose high-tech industry research company.

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Decker's unit began peeling off its other businesses to concentrate on the design and manufacture of semiconductor systems--groups of chips that work together to perform a number of related functions. One Rockwell chip set--less than an inch square and an eighth of an inch thick--serves as the operating core of a personal computer's high-speed modem, fax, and external speaker phone with simultaneous data and voice transmission capabilities.

Today, Rockwell Semiconductor Systems has no government contracts, and its commercial business has made it the second-largest telecommunications chip maker in the world, trailing only Motorola Inc., according to Dataquest.

The shift away from government work also shows in the performance of the company's individual operating units. Seven of the nine reported increased profits for fiscal 1995, Beall said, with only the defense electronics and space systems units posting earnings declines. Beall attributed the drops to planned cost-cutting and efforts to further diminish the company's exposure to volatile government defense contracting.

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