CalComp Inc. - Company Profile, Information, Business Description, History, Background Information on CalComp Inc.

2411 W. La Palma Avenue
Anaheim, California 92803

History of CalComp Inc.

CalComp Inc. designs, manufacturers, and markets a broad line of computer graphics equipment used by architects, engineers, graphic designers, mapmakers, and electronic publishers. Known for its invention in 1959 of the digital plotter (a device that translates mathematical data from a computer into maps, architectural renderings, and engineering mock-ups), CalComp has grown to offer equipment for virtually all computer graphics applications. Its Plotter Division designs and manufactures over ten models of pen and electrostatic plotters, while the company's Printer Division produces laser and color printers, color thermal transfer printers, and large-format film imaging systems. Its Digitizer Division manufactures small- and large-format graphic tablets, large-format scanners, and components supplied to manufacturers of pen-based computers. With annual revenues of over $230 million, CalComp has 50 sales and service offices through North America. It also maintains 11 offices in Europe, one in Hong Kong, one in Australia, and a distribution network that covers Africa and the Middle East. It is a wholly owned subsidiary of Lockheed Corp., a major supplier of military, aeronautical, missile, and satellite systems.

When CalComp was incorporated in 1958, it was one of the first companies in the United States to market peripheral products designed specifically to work with digital computers. Prior to that time, computers were utilized for high-tech, military applications. CalComp's appearance, however, coincided with the first wave of acceptance of computers by such mainstream businesses as banks and insurance companies. The military industry remained a major player in the development and use of computer systems, however, and CalComp survived in its early years as a result of this military research.

Incorporated as California Computer Products, Inc., the company's origins can be traced as far back as 1953 when Gene Seid and Robert Morton, two engineers who were involved in the burgeoning field of digital computers, created a prototype of one of the world's first digital plotters. Working out of a converted Firestone tire store in Los Angeles, the two attempted to form a company to manufacture and market the plotter. When they failed to secure the initial contract that would have launched the company, Seid took a job with the Autonetics Division at the North American Aviation Company and, according to company documents, Morton "kept plugging away alone in a tiny Los Angeles shop."

At North American Aviation, Seid met engineers Lester L. Kilpatrick and Ron Cone, and a lawyer named Gene Beckman. The four discussed the prospects of joining Morton and devised a strong marketing plan for the plotter. In 1958 they resigned from their jobs and incorporated California Computer Products. Kilpatrick was named president and chairman of the company. With only a lathe, a mill, some machine tools, and $20,000 in financing, the five set up shop in a garage in Downey, California. They were able to secure a number of small military research and development contracts. In its first year, the company posted earnings of $27,000 on sales of $370,000. CalComp never posted a loss at any time during its first decade of operation. At the same time, though, it barely posted profits sufficient to support its growth. According to company documents, "every time the company needed more help, it would pay employees in shares of stock in order to overcome the constant, nagging lack of capital."

In its early years, CalComp devoted most of its energies to military research. The company expanded slowly, garnering new contracts and adding new personnel to meet the demands. Work on Morton and Seid's plotter was relegated to weekends. In 1959 the company developed the world's first drum plotter, but few expected the instrument to grow into CalComp's strongest product line. As one early employee recalled, "nobody ever thought about making a living selling plotters." By 1961, however, sales of CalComp's Model 565 drum plotter were so promising that the company went public with a $300,000 Regulation A stock issue. The company introduced a complete line of drum plotters a year later, and by 1963, income from sales of CalComp's plotters was beginning to outpace income from military research.

Earnings tripled in 1964 to $459,000 on sales of $5.2 million, and in 1965 the company was listed on the American and Pacific Coast stock exchanges. During the mid-1960s computers continued to advance and become more user-friendly through the addition of peripheral products such as keyboards, monitors, printers, and plotters such as those designed by CalComp. CalComp remained an innovator in the burgeoning computer graphics industry during this period. It introduced new products such as devices to transfer data from the computers to the plotters, interface components, magnetic tape units, and supplies such as spare parts and specially treated printout paper. In 1967 CalComp ventured into the then-young market for proprietary software, hiring a staff of 60 to write programs "oriented to the solutions of problems which, when solved, could be plotted on CalComp equipment," Kilpatrick said in 1968. The programs, which ran on IBM computers, were developed because CalComp's sales force noticed that a number of potential clients often lacked the software programs necessary to run CalComp's plotters. Armed with its own programs and a marketing deal with IBM, CalComp was able to sell an integrated plotter package.

By 1968 between 80 percent and 90 percent of all plotters in existence were manufactured by CalComp. Sales had grown to $16 million, supported by 26 sales and service operations in the United States and 11 in Europe. CalComp's profits were lower than some of its competitors, however. Observers cited the low profit margin of its equipment, which sold at prices between $3,500 and $50,000. Seventy-eight percent of CalComp's equipment was sold directly to end-users; the remaining percentage of equipment was sold to original equipment manufacturers such as IBM and Digital Equipment Corp., who used the plotters as components in larger integrated systems. In 1968 the company purchased a 65 percent interest in Century Data Systems, Inc., a manufacturer of computer memory disc drives, for $1.3 million. The move proved to be a dangerous one for the fledgling company. Century Data Systems' main competitor, IBM, controlled 90 percent of the memory disk drive market and had a much stronger balance sheet than CalComp.

CalComp's sales in 1970 were up 35 percent to $27.5 million, although profits continued to lag as the company sought to refine its marketing operations and strengthen its sales force. CalComp was by then the largest producer of computer graphics equipment in the United States. Century Data Systems, while still a small player in the disk drive market, also experienced strong sales growth. Century and similar small concerns proved adept at chopping away at IBM's share of the $1 billion disk drive market. Fueled by the success of its own plotters and Century Data's disk drives, CalComp announced that it expected to double sales by 1972.

The company underestimated the marketing power of IBM. In 1972 CalComp posted a loss of $12.9 million, although sales had almost doubled to $53.8 million. According to Electronics Business, IBM was "apparently stung by the inroads into its customer base ... and struck back with some faster and cheaper equipment of its own." The move created a price war that threatened to cripple smaller manufacturers like CalComp. For their part, smaller manufacturers banded together under the banner of the Computer Peripheral Manufacturers Association and filed an injunction against IBM with the U.S. Justice Department.

In 1973 Telex Corporation won a landmark suit in which it charged that IBM deliberately cut its prices and designed equipment so it would not easily interface with products made by its competitors. When Telex was awarded $352 million in damages, other peripheral manufacturers began to believe they too had a chance of settling against IBM. Shortly after the Telex announcement (which IBM appealed), CalComp filed a $300 million antitrust suit of its own in 1973, charging IBM with "monopolizing the peripheral business for IBM computers." Primary equipment mentioned in the suit included Century Data's tape drives, tape drive controllers, disk drives, disk drive controllers, and plug-compatible peripherals such as CalComp's plotters. "There is no way in the long run [that] we can compete if an outfit of IBM's size can selectively change their profit margins on those products on which we compete and make up for it in other areas where competition is not so fierce," Kilpatrick told Financial World in 1973. For its part, IBM filed a countersuit in which it charged CalComp with monopolizing the plotter market. The two companies thus entered into a long, protracted, legal battle.

Alarmed that its was losing market share to IBM, and virtually certain that conditions would not change quickly, CalComp enlarged its peripherals business through a series of acquisitions. In 1973 CalComp purchased Signal Galaxies, Xytek Corp., and Braegen Corp., three companies that manufactured equipment that "goes with and extends sales of disc and tape drives." Signal and Braegen were merged into Century Data and Xytek, a manufacturer of automated tape libraries, became a wholly-owned subsidiary of CalComp under the name XTX Corp. But while CalComp registered increased sales in 1975, the company posted a $12.4 million loss.

Discovery proceedings for the IBM suit lasted three years. CalComp combined its suit with six other West Coast companies for this initial phase. In 1976 CalComp's suit entered the trial phase before a standing-room-only crowd in the U.S. Circuit Court in Los Angeles. The trial lasted one year and produced a verdict against CalComp. CalComp immediately appealed the decision, but in 1979 the Circuit Court of Appeals upheld the earlier ruling , saying IBM "was under no obligation to help CalComp or other peripheral equipment manufacturers to survive or expand." That year, the perhaps battle-weary company sold Century Data Systems to Xerox Corp. and entered into talks to be purchased by Sanders Associates, Inc., a military electronics company that also designed and manufactured graphics terminals.

In February 1980 Sanders offered to buy CalComp. Kilpatrick was against the merger and had attempted an earlier proxy battle to take control of the board, but Sanders managed to obtain the majority share of voting stock and thus secured the deal. Shortly after the merger Kilpatrick resigned from his post as president and chairman.

Throughout the 1970s, CalComp's growth was erratic. In 1978 the company reported a profit of $1.5 million on sales of $120 million, but by the time Sanders offered to purchase the company in 1980, CalComp was suffering from a six-month deficit of $2.7 million as a result of the divestment of Century Data and the ensuing loss of sales. During the merger negotiations, Sanders gave the company a $7.6 million loan, half of which CalComp used to purchase a successful line of electrostatic plotter and interfaces from Gould Inc. The other half was used to develop CalComp's marketing for the new product line. (Gould held 27 percent of the electrostatic plotter market, which was expected to grow by 30 percent annually.)

According to Jack Bowers, the president and chief executive officer of Sanders at the time, the company's objective in purchasing CalComp was to improve its footing in the computer graphics market. CalComp had several product lines that served this objective well. The company had quietly founded a division in the early 1970s to manufacture interactive graphics systems; by 1979 sales of these systems had grown to account for a significant percentage of CalComp's $44 million in revenues. In 1978 the company introduced a line of pen plotters capable of producing line drawings of such intricate things as circuit boards. This product line, coupled with its recent electrostatic plotter purchase, positioned CalComp as one of three companies to offer both electrostatic and pen plotters under the same brand name.

M. Joel Kosheff was appointed president of CalComp after the Sanders purchase. The company was then reorganized into four divisions (plotters, digitizers, displays, and computer-aided design and computer-aided manufacturing (CAD/CAM) systems), each of which gave CalComp a strong foothold in the computer graphics market. In 1983 Kosheff was replaced by William P. Conlin, a former executive at Burroughs Corp. Conlin reorganized CalComp from top to bottom, restructuring the manufacturing process in each division and implementing the innovative techniques of just-in-time manufacturing and inventory management. Conlin also instructed virtually every employee in the company to read Richard Schonberger's World Class Manufacturing: The Lessons of Simplicity Applied.

Conlin's changes proved fruitful. By 1988 CalComp's plotter division had reduced inventory by 65 percent, shortened cycle times, and cut the number of suppliers by 40 percent. These improvements contributed to a 62 percent increase in revenues. Similarly, CalComp's display division was able to reduce the time necessary to assemble a circuit board from 12 weeks to three weeks. When the process was transferred to CalComp's digitizer division, it reduced costs to such an extent that the company was able to move its assembly facilities in Singapore back to the United States.

Under Conlin, CalComp also revamped its marketing strategy. In 1983 the company began selling through Entre Computer centers, a value-added reseller of computer components. By 1988 sales through Entre accounted for 40 percent of total revenues. CalComp's distribution channels also became better balanced during this time. In the company's early years, 55 percent of CalComp's sales went directly to end-users, while 45 percent went to original equipment manufacturers. By 1988 this ratio had changed. Twenty percent of CalComp's sales went directly to end-users; the other 80 percent were sold to original equipment manufacturers, distributors, and other alternative channels. The company also sought to capture a segment of the growing personal computer market, cutting prices by as much as 38 percent on products such as its new 5800 series of electrostatic plotters. These maneuvers resulted in a doubling of all plotter sales within six months.

In 1986 Sanders Associates was purchased by Lockheed Corporation, and CalComp was merged into Lockheed's Information Systems Group. Lockheed took a hands-off management approach, however. It allowed Conlin to continue his transformation of the company. His new manufacturing and management strategy enabled CalComp to seriously challenge Hewlett Packard Co.'s number one ranking in the worldwide pen plotter market and Versatec Inc.'s leadership of the electrostatic plotter market. In 1988 CalComp edged out Hewlett Packard and Versatec for a $3 million contract to supply Mentor Graphics Corp. with electrostatic, pen, and thermal-transfer plotters. Mentor president Gerard Langeler told Electronics Business that the company desired "quality and breadth of product line, so we could deal with one supplier. CalComp not only won the evaluation but it was a reasonably clear win. It was not a nail biter." He cited CalComp's new focus on producing high-quality products as an important factor in the decision. "Their quality approach to manufacturing is particularly important in electromagnetic type devices.... CalComp appears to have done a very good job."

CalComp did have some failures during the 1980s, though. In 1984 the company established a separate division to sell peripheral products in the burgeoning personal computers market. Amid much fanfare, the company predicted the division would boost company sales to $1 billion by 1990. Although the division successfully established a presence for CalComp in the personal computers market, sales never really took off. The division was merged back into CalComp's other divisions by 1988.

By 1990 CalComp was firmly established as an international computer graphics peripheral company. It had manufacturing operations in the United States and sales and distribution subsidiaries in over 50 U.S. cities, Canada, Mexico, South America, Europe, Africa, the Middle East, Asia, Southeast Asia, New Zealand, and Australia. The company produced over 100 different versions of plotters, display systems, and digitizers and posted sales of $450 million.

Due to the growing complexity of CalComp's operations, Conlin reorganized the company once more in 1990. Each division was established as a separate company, with a separate president given sole responsibility for operations. These executives were given the autonomy to alter marketing or manufacturing as needed to respond to changes in the marketplace. Larry Sanders was named president of CalComp Plotter Co., Gary Long was named president of CalComp Digitizer Co., and Roger Damphousse was appointed president of CalComp Display Co. In addition, two sales and service companies were formed: CalComp Europe, with Theo Eering as president, and CalComp Asia/Pacific, with Doug May as president.

CalComp grew steadily in the early 1990s as the company introduced major new products in each of its divisions at a rate of about five products per year. In 1991 the company strengthened its presence in the CAD/CAM market with the purchase of Access Graphics Technology Inc., a leading distributor of computer aided design equipment. The company also entered into a number of strategic alliances. It signed a distribution agreement with Microsoft Corporation to bundle Microsoft Pen Extensions with CalComp digitizer tablets for use with Microsoft's Windows 3.1 software, and joined with Canon Corp. to enter the ink jet plotter market in 1993. In addition, CalComp broadened its distribution network, signing distribution agreements with Merisel and Tech Data in 1990 and another with Budde International in 1993. These agreements made CalComp's products available in over 120 countries. Gary Long was named president of CalComp in 1994, a year marked by continuing company efforts to refine its manufacturing techniques and revamp its cost structure.

As it nears its 30th anniversary of existence, CalComp seems to be on stronger financial ground than it has been during most of its history. Although sales continued to fluctuate (dipping to $230 million in 1993), the company is better equipped to ride out these downturns because of the relatively strong financial status of its parent company. The early years of the computer industry were difficult for small manufacturers like CalComp, and many similar operations failed to survive. CalComp's strong position today is testimony to its solid product line and tenacious management. These characteristics, combined with Lockheed's support, should keep the company financially healthy for years to come.

Principal Subsidiaries: Access Graphics Technology Inc.; CalComp Inc. Display Products Division; CalComp Inc. Plotter Products Division; CalComp Inc. Computer Graphics Group; CalComp Europe; CalComp Asia/Pacific.

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Further Reference

"CalComp's Bet on Smart Plotters," Business Week, May 19, 1980, p. 124B."The IBM-Telex Fallout," Financial World, October 31, 1973, p. 54.Moad, Jeff, "Appeals Court Upholds IBM in CalComp Suit," Electronic News, June 25, 1979, p. 1.Rayner, Bruce C.P., "Made in America: CalComp Plots a World-Class Future," Electronic Business, August 1, 1988, p. 29.

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