By John Keller, Chief Editor Military & Aerospace Electronics
Curtiss-Wright's pending acquisition of board maker Dy 4 Systems solidifies a major defense electronics industry trend that many of us have seen before, and most likely will see again before we're all finished.
The current trend saw its beginnings even before former Defense Secretary William Perry ushered in the COTS era a decade ago with the emergence of companies such as Dy 4, Radstone Technology, and Vista Controls as commercial off-the-shelf (COTS) printed-circuit-card suppliers.
Those companies — or what's left of them — are evolving, through industry consolidations, into far more than board suppliers. Today, and ever more so in the future, these companies are moving up the military electronics supplier food chain and transforming themselves into major turnkey subsystems integrators. Some of them — most notably Curtiss-Wright — are even pushing toward the boundaries of what defines a prime defense and aerospace contractor.
We all saw what happened over the past decade or so. Companies like Radstone, Vista, SBS, Dy 4, and many others carved out important niches by supplying electronic components off the shelf. This helped prime systems integrators cut costs because in many cases they no longer had
to develop commodity bits and pieces in-house. COTS suppliers also helped the integrators concentrate on intellectual properties like applications software, without the need to roll their own electronic building blocks.
Granted, the prime systems integrators such as Boeing, Lockheed Martin, Raytheon, and Northrop Grumman still produce substantial numbers of circuit boards and other components in-house, but they have been able to offload much of that task to the COTS suppliers.
Now those COTS suppliers want a bigger share of the pie, and no one can blame them. Smart businessmen know that even trains on the right track get run over if they are not moving forward. Hence, board makers are evolving into systems integrators. We've seen hints of this over the past several years, but Curtiss-Wright's takeover of Dy 4 drove it all home: the most progressive board makers need to be more than they have been.
Look at the latest incarnation of Curtiss-Wright. Leaders of the onetime aircraft engine manufacturer have acquired Vista Controls, Novatronics, Systran Corp., and now Dy 4, to position their company as one of the world's leading mission-critical embedded-computer designers for military and aerospace applications.
Similar moves have been in progress at companies such as SBS Technologies in Albuquerque, N.M., and GE Fanuc in Charlottesville, Va.
SBS, a board and embedded computer manufacturer, acquired Avvida Systems Inc. last June, which helped round out SBS capability in imaging and field-programmable gate arrays — two important areas of expertise necessary to compete on the turnkey subsystems level.
What we are seeing is a familiar industrial transformation that has taken place many times in the past in different manifestations. It happens when many small scrappy companies, like the COTS board suppliers, start consolidating to gain advantage in the market. The cycle most often starts in times of substantial upheaval; the latest cycle rode the wave of the COTS movement and is maturing now.
Those who have been around the defense business for a while may look at the latest evolution with feelings of deja vu. Think of Curtiss-Wright, SBS, and GE Fanuc and remember companies of yesteryear: Control Data, Sperry, TRW, E-Systems, and Consolidated Systems.
Those companies were the mid-level proprietary subsystems integrators of the pre-COTS era, and sought to supply the prime defense contractors with their own brands of turnkey computers and subsystems.
Today Sperry, Control Data, E-Systems, and TRW are gone; large prime contractors swallowed them up to bolster their own in-house systems-integration capabilities after the COTS paradigm swept away many of the old business models. Some survivors of that cycle, like Unisys Corp., are struggling to redefine themselves in today's COTS world.
Today's emerging subsystems integrators such as Curtiss-Wright, SBS, and GE Fanuc should remember that and watch their backs when any of the big primes go into acquisition mode.
Today's subsystems integrators also must learn from the lessons of their predecessors when they chart their courses for the future. They will always be under pressure to grow.
Dick Holm has been retired from the defense industry for more than 10 years, but at one time was director of communications for the Control Data Corp. Government Systems group in Minneapolis. He saw close-up the last cycle when small innovative companies had to grow, be acquired, or die. He remembers some of the lessons they learned.
"Everybody started off thinking we could sell boxes, but we found that's not where the money was," Holm says. "The money was actually gluing the boxes together, and providing the glue between the boxes."
Companies like Curtiss-Wright realize that. For companies that simply remain COTS board suppliers, I fear they have something to learn that Curtiss-Wright, SBS, and GE Fanuc already know.
