Microdyne's Mr. Fix-it Looks Forward
Microdyne's Mr. Fix-it Looks Forward
By Bob Starzynski
Michael Jalbert received a mandate from the board of directors when he started his job as chief executive officer of Microdyne Corp. on March 10. Fix the company, grow its business and make it profitable.
Three months into the job, Jalbert made a gutsy call - he closed the Alexandria, Va.-based company's networking products division. That unit accounted for more than half of Microdyne's revenue and made the products for which Microdyne was best known - computer adapter cards.
"I said that we would give it 90 days to decide if we wanted to be in this business or not," said Jalbert, a self-proclaimed Mr. Fix-it.
| "I said that we would give it 90 days to decide if we wanted to be in this business or not."|
Since then, Jalbert has honed in on two profitable and growing business units - aerospace telemetry and technical outsourcing. Aerospace telemetry, or manufacturing high-frequency radios used in the aerospace and satellite communications businesses, now accounts for 60 percent of Microdyne's business. Since most of that market is in government contracts, government work is almost half of the company's $56 million revenue.
Employees who wondered whether the company was "going to make it" have seen its downward momentum reversed, said Jalbert (pronounced jal-bear). The 52-year-old native of Montreal, who fancies Harley Davidson motorcycles and considers himself a prudent risk taker, speaks of his company as the "new" Microdyne.
Jalbert, who previously ran IDB Mobile Communications, a Bethesda, Md.-based joint venture between WorldCom and Teleglobe, regards the telemetry division as a world leader that owns 80 percent of the receiver market. In the next five years, he estimates that division will grow from $26 million to $50 million.
But the real bread winner for Microdyne will be its technical outsourcing, including staffing and operating telephone technical support centers and product repair centers. In the past five years, the company's outsourcing revenue has grown from $250,000 to $17 million.
According to Jalbert, that division will continue to grow 50 percent a year for at least the next five years. Growth in the outsourcing division has counterbalanced layoffs in networking products, he said. The company has 800 employees, just 5 percent less than a year ago.
"We will be between $200 million and $300 million [in revenue] five years from now," Jalbert estimated. Microdyne is not a "fix it and flip it" job for Jalbert, who intends to stay on and grow the company substantially.
"The networking business just got too competitive," said Randall Szedbeck, an analyst with J.W. Charles Securities Inc. in Boca Raton, Fla., who initiated coverage of Microdyne with a "buy" rating in October. "However, they have good growth in their retained businesses."
Szedbeck is the only analyst currently following the company; all other financial analysts who followed the company in its networking products days ceased coverage when the division closed.
"They can showcase the work they have done in outsourcing to land new contracts," Szedbeck said. Szedbeck expects the company's overall revenue to be over $70 million in two years.
Although computer adapter cards are a hot item now, Microdyne had to exit that market after suffering from two serious problems.
First, it overestimated the number of adapter cards it could sell last year. The company flooded its inventory channel in anticipation of big sales and was left swamped with merchandise. Revenue in fiscal 1996 fell from $170 million to $99 million, and a profit of $12.6 million turned to a loss of $2.9 million.
When restructuring plans were put in place when Jalbert came aboard in March of this year, the second and more crushing blow came. Intel Corp. and 3Com Corp., the two Santa Clara, Calif.-based giants that control the adapter card market, launched a pricing war that saw product prices drop 40 percent overnight.
Networking products became a lost cause for Microdyne. The damage: a stock price that fell to less than $5 a share from a fiscal 1996 high of $30, revenue that fell 67 percent over a two-year period, and a bottom-line loss of $28.5 million last year after writing off the restructuring attempt. The company's stock closed at $6.25 on the Nasdaq National Market on Dec. 9.
Meanwhile, because outsourcing will grow faster than telemetry, Microdyne will have proportionately less government work in the future. But that too could change.
"I don't want to give the impression that the new Microdyne will be a Beltway bandit," Jalbert said. "But we are looking at outsourcing opportunities inside the [Washington] Beltway, including government. ... We understand the government."
Microdyne's founder and chairman, Philip Cunningham, originally started the company as a systems integrator. Much of the company's networking products work involved government clients.
|Fiscal year ||Revenue ||Earnings |
|1994 ||$101 million ||$4.6 million |
|1995 ||$170 million ||$12.6 million |
|1996 ||$99 million ||($2.9 million) |
|1997 ||$56 million ||($28.5 million*) |
|* includes restructuring charges Microdyne's fiscal year ends Sept. 30.|
|Source: Company information and Securities and Exchange Commission documents|
Cunningham, who stepped aside to let Jalbert lead Microdyne, still owns almost half of the company's stock, currently valued at more than $40 million.
For Jalbert, one of the top priorities now is to select a new site for an additional outsourcing service center. The company opened one in California three months ago and has an existing center in Indiana.
Jalbert plans to add one center a year to that list for each of the next five years. Although he would not comment specifically on a location for the next center, he said that the Washington area could be a consideration.