One last rescue for Zenith

Electronic News, Feb 16, 1998 by Carol Haber, Chad Fasca

Can a new management end the consumer electronics company's long losing streak? Promising technology, but when...

Glenview, Ill.--Zenith Electronics has been on a long losing streak. During the past 13 years, the company has had only one profitable quarter. The company that used to boast of its "hand-wired" television sets lost its share of the TV market to lower cost Asian companies that had automated television manufacturing. Its efforts in the notebook computer business also became a cropper and it was finally sold to Europe's Bull Computer.

Now Zenith is making still another effort to turn itself around. This one is based on Zenith's technology in high-definition television (HDTV). To facilitate what may be a last ditch effort to save the company, its board has brought in a new CEO and a new CFO.

The new president/CEO is Jeffrey P. Gannon, from General Electric where he had been corporate VP for international business development. He replaces former Zenith CEO Peter Willmott, who said in September he would retire as soon as a successor could be named. Hired only 14 months earlier, Mr. Willmott had intended to stay until the end of 1998.

Robert N. Dangremond, a principal in Jay Alix & Associates, a New York-based firm that specializes in corporate restructurings, comes to Zenith as acting CFO after having steered the last two companies he headed through bankruptcy reorganizations. He replaces Roger A. Cregg, who has resigned to take a position with another company.

To buttress the turnaround effort of the new executive team, Zenith recently secured a one-year $30 million credit line from Credit Agricole Indosuez, after having received $80 million of new financing in late 1997. Still the company needs even more financing to support its turnaround plans.

In 1996, South Korean electronics company LG Electronics bought 55 percent of Zenith's outstanding shares. Now LG is having problems of its own in its home market where the consumer electronics business has hit the skids. "Despite what you read, LG is strong," said a Zenith spokesperson answering questions about how the current Asian financial crisis might impact Zenith.

'Reinventing Ourselves'

Clearly the new team faces an awesome task. For the first nine months of 1997, Zenith reported a loss of $143.7 million, or $2.16 per share, a deterioration from a loss of $108.7 million, or $1.67 per share, a year earlier. Revenue fell 4 percent, to $825.4 million from $860.3 million.

Mr. Gannon brings to Zenith the experience of a 24-year GE career that includes a three-year stint as the president/CEO of GE Lighting's Asia Pacific operations as well as five years leading the company's expansion into China, Mexico, Central America and Russia.

"Jeff's extensive experience in the consumer products industry and proven track record of strong leadership will transfer perfectly to his new role at Zenith," said H.J. Lee, Zenith's chairman, who pledged the full support of the board.

Zenith has pinned its hopes of recovery on investments in markets for HDTV and digital set-top boxes for cable TV subscribers. In HDTV, "our entire industry has another chance to reinvent ourselves," said the Zenith spokesperson.

Rich On Royalties

Although the new management has yet to publicize its strategies--they are due at the time of the quarterly report sometime near March--one thing is sure. High on the agenda will be HDTV and leading-edge cable products. Zenith's products are an element in the HDTV standard and royalties promise to be rich.

The key word here is "promise." As of now, HDTV--despite an "official launch" this coming fall--is still in limbo (EN, Feb.9, 1998). Semiconductor vendors, including Zenith, say that over the next nine months they will have volume DTV chips available for TV sets and set-top box TV decoders. TV set makers say they are ready. The question remains: Are the broadcasters ready for DTV content and all the investment needed for new equipment?

Meanwhile, Zenith has informed its set-top box cable customers of the phase-out of the analog portion of its set-top line to focus on digital. That transition should take place from the second quarter as production of the analog product winds down.

Judging from the remarks of the very few financial analysts still tracking the company, Zenith has a tough road to hoe.

Zenith is mired in commodity pricing for its mainstay TV sets, with a major competitor (RCA-GE) owned by a sovereign government that "doesn't know the concept of profit," said Jim Magid of Needham & Co. This, despite an immaculate reputation for quality among consumers. France owns Thomson CSF which manufactures the RCA-GE TV brand.

Management problems also plague the company. "We invested $100 million in the last year at the Melrose Park picture tube plant for new automated production processes," said Zenith's John Taylor. "Unfortunately, the plant was not prepared from a management standpoint to make the transition, so we had startup problems with the new equipment which affected volumes and yields. At the same time we had anticipated significant productivity gains from the new processes and did not realize those benefits. It was a double whammy."