Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, February 7, 1993 TAG: 9302060096
SECTION: BUSINESS PAGE: D-1 EDITION: METRO
SOURCE: GEORGE KEGLEY STAFF WRITER
DATELINE: LENGTH: Long
NEW VISION FOR ITT
Two years ago, workers at ITT's night-vision goggles plant in Roanoke County heard Desert Storm generals praise their products for helping win the Persian Gulf War.Now, ITT is out looking for someone to buy goggles to keep the plant operating.
Peace has brought dividends to the country. But they are not so readily apparent at ITT's Electro-Optical Products Division, where last week 30 workers received layoff notices.
Neil Gallagher, division president, and his staff are turning in a new direction as they search for commercial sales to replace their declining military market.
"We are really looking at diversifying into peaceful pursuits, using the technology" that produced a product prized by military forces, Gallagher said. That's not an easy or a quick job.
Army contracts take months to negotiate, but once signed they guarantee production for years. And what the Pentagon was willing to pay for now appears expensive on the civilian marketplace.
After years of talking with Army generals, the ITT staff is traveling to boat shows, exploring sales to security companies and looking for other non-military uses of the goggles to supplement the dwindling defense market.
For example, Night Mariner is ITT's new $2,400 night-vision device for boaters who sail after dark. It is one bright spot in the company's plans, and ITT will show 20 prototype systems at a Miami boat show - as well as marketing military products at an Army show in Orlando - this week.
The boating device will enable commercial fishermen, tugboat operators and other sailors to see at night, detecting water obstacles, Gallagher said.
Non-military sales at ITT are expected to grow from 5 percent of the plant's total revenue this year to 10 percent by 1994, according to Gallagher. His marketing group is expanding to meet the challenge of selling diversified products.
The long-term survival of the Plantation Road plant and its 700 employees clearly is at stake.
The factory's work force has been reduced by 400 jobs in less than three years. Last week, the company said 30 salaried personnel, engineers and clerical workers will lose their jobs in March as the company tightens its cost-reduction procedures to deal with lower defense spending.
Gallagher has warned that more layoffs could follow if more commercial business isn't found by next year.
Clouding the severity of such predictions is the fact that in November the Roanoke County plant won 60 percent of a five-year Army contract to make goggles for helicopter pilots and infantrymen. The remaining 40 percent of the work went to Litton Industries, a California company that has been ITT's chief competitor for supplying the devices to the Pentagon.
The first-year of ITT's contract is for $44 million, but the overall award will be for a smaller amount than earlier military orders. Although the defense plans of the Clinton administration are not yet known, Gallagher believes Army contracts for night-vision goggles will keep business moving until the late 1990s.
"A lot depends on the world military," he added.
The Clinton administration has ambitious goals for domestic programs, Gallagher said, "but the president has to maintain a strong force. There are a lot of bad guys out there," he said.
ITT and Litton "will have to develop new markets somewhere because the Army is drying up" as a customer, said Jack Cove, executive vice president of the Association of Night Vision Manufacturers in Rockville, Md. The two companies' present contracts "will fill out the Army's requirements," he said. But after five years, when these contracts expire, Cove said, "who knows what will happen?"
Gallagher won't reveal exact numbers but he said the plant's $100-million-plus sales projected for 1993 could fall by as much as 20 percent by 1994.
The volume of business on hand for the immediate future will not sustain the plant's work force, the company said, and that has led to the initiative to find civilian customers.
ITT engineers and planners continue, for example, to study the police market and to promote international military sales of night goggles. The company sells a small number of the goggles to police forces, the Federal Bureau of Investigation, drug enforcement agencies and the Coast Guard.
There are limits on international sales, however. U.S. military leaders have been jealous of the use of the goggles by other countries because "they don't want the bad guys to have it," Gallagher said. The company has State Department clearance to sell to Israel, Korea, Japan and Australia, as well as to all NATO countries in Europe.
As ITT looks toward more commercial business, it will need a system to distribute the goggles. This will be a major shift from the heavily regulated, rigid process of shipment to military customers.
In the civilian market, ITT must decide whether it will sell to dealers, through manufacturers' representatives or directly to customers. Each has a different profit margin.
Another variable is the uncertain status of a defense budget amendment by U.S. Sen. John Warner, R-Va., that could bring millions of dollars in additional orders for goggles through the Army for the National Guard, Army and Marine Reserves. Congress approved the amendment, but Gallagher said he doesn't know how it will fit in the new administration's plans. Although Warner favors ITT, any additional contract is expected to be shared by several goggles manufacturers.
Cove, of the night-vision trade association, said money has been appropriated by Congress "and there shouldn't be any problem with it."
Although ITT and Litton are at the top of the night-vision devices industry, there are two other major U.S. manufacturers, Intevac and Imo Industries, and other manufacturers in England and Holland.
As the Army has outfitted troops with the goggles, it has followed a long-range plan to narrow the suppliers to two companies; and that has been virtually accomplished with the five-year contract, Cove said. Intevac and Imo are finishing government contracts.
Facing excess goggles capacity and falling military orders, the companies have been forced to lower their prices; and Gallagher talks of "cutthroat competition" in the industry.
Prices have come down by almost 50 percent in less than 10 years to $8,500 for aviator's goggles and $4,000 for a single-tube goggle for an infantry soldier.
Bob Weafer, marketing manager for Intevac at Palo Alto, Calif., said users of the night-vision goggles are benefiting. "They're getting high-performance products at low prices," he said in a telephone interview.
ITT and Litton are in a more secure position with their five-year Army contract, Weafer said, and ITT "has taken the lead in commercialization of products." Intevac "is thinking about it [commercialization] but I wouldn't tell anybody from Roanoke," he added.
This scramble for business is a new experience for the goggle manufacturers. "We never had to really worry about this before. The '80s were great but the '90s are difficult," Weafer said.
From 1985 to 1990, "we couldn't make them fast enough," Gallagher said.
Sam Stratton, human resources manager for Litton Electron Devices at Tempe, Ariz., said his company has been looking at the commercial market for a longer period of time than ITT. "It's tough. . . . It's like starting a new company. It's hard to retrain a marketing department" which deals with Army contracts, he said.
Night-vision goggles were developed toward the end of the fighting in Vietnam. They evolved through three generations of development. Generation III now is in production.
The goggles' main component is an image-intensifier tube which multiplies light thousands of times to create an image seen as in daylight. The image is not magnified as seen through binoculars.
The goggles were praised for their effectiveness in the Panama invasion and later in Operation Desert Storm in the Persian Gulf. With the devices, Army generals claimed, "We own the night" and that became a slogan for the manufacturers.
Gallagher, who became division president in September, faces a full plate of worries as he settles into his new job. An industrial engineer, he worked in commercial business for Burroughs, IBM, Ingersoll-Rand and Worthington Pump Co. before he joined ITT 12 years ago.
Gallagher, as director of operations at the plant in the mid-1980s and an advocate of improved quality and productivity, led the plant to higher performance. The plant's yield of electronic tubes, the heart of the goggles, increased from 30 percent to 80 percent, an improvement from 30 good tubes out of 100 to 80 tubes without flaws in less than a decade.
But quality "just gets you to the stadium," Gallagher said. ". . . The game is played in price competition. . . . Quality and cost set the tone of the market."