How Henry Singleton Stitched Together a Technology Conglomerate
Teledyne Inc. 1963 Annual Report
“Teledyne is like a living plant, with our companies the different branches and each putting out new branches and growing so that no one business is too significant.” Distant Force, George Roberts. pg. 22.
“Teledyne Optics was formed by acquiring and combining three companies with complementary capabilities in development, design, and fabrication of optical components and systems.” 1963 Teledyne Annual Report, pg 22. (italics & boldface were added for emphasis, in this essay).
“To fulfil the stringent requirements imposed by our national space program, we have designed, constructed, and tested a precision tube-flaring machine which furnishes consistent flares in all types of tubes, within the precision tolerances necessary to assure leak-tight joints. Our machine uses a completely new technique in flaring.” 1963 Teledyne Annual Report, pp. 21-22.
1963 was an incredible year for Henry Singleton and Teledyne Inc. The branches of the Teledyne tree proliferated in many directions whilst combinatorial acquisitions fructified new products of superior capability in many market segments.
1963 Henry Singleton Summary Stats:
1963 Sales: $31,924,685
1962 Sales: $10,438,367
1963 Net Income: 1,280,296
1962 Net Income: 331,518
1963 Working Capital: $9,262,796
1962 Working Capital: $2,545,723
1963 Total Assets: $23,901,085
1962 Total Assets: $10,843,760
1963 Shareholder’s Equity: $8,628,957
1962 Shareholder’s Equity: 3,527,448
1963 Average Common Shares Out: 849,461
1962 Average Common Shares Out: 654,857
1963 Number of Employees: 1,900
1962 Number of Employees: 950
Typically, when one thinks of technology, they visualise the end product. Perhaps your new Macbook has a sleeker design, your instagram homepage has a new button, or Canva has added a generative AI feature. The product, though, is only one half of technology; the other side, the process, is often disregarded due to its lack of visibility from the outside.
In the same way that humanity is propelled forward symbiotically by technology and capital, technology is symbiotically pushed forward by new products and new processes. Both relationships operate with a virtuous cycle of increasing returns.
Henry’s March Inside Technology
“Teledyne’s interest in electronic and control systems extends beyond the system itself and its major elements discussed above, to include the basic components of the systems.”1
1963 was the first year where Henry gave more detail about Teledyne’s operations. Singleton not only broadened the products offered by Teledyne but also began the crusade into deeper levels within the electronic and control systems.
“During the three years since its formation, Teledyne has achieved a significant position in the general field of electronic control systems and equipment. In addition to complete systems, we also manufacture and sell separately various subsystems used in automatic control applications. These basic elements include sensors, controllers, actuators and displays.”
1963 also saw the formation of Teledyne Optics. “Teledyne Optics has wide experience in silicon, sapphire, germanium, arsenic trisulfide, fused silica and strontium titanate.” Again, the pattern of pulling apart something into its constituent parts is present: this time, Henry literally reduces the technology to its periodic elements.
People, First:
As we touched on in the 1962 Teledyne Annual Report article, there exists a mythology of Henry. An element of the mainstream view is that Singleton is the rugged individualist to end all rugged individualists.
No doubt, Henry was an innovative scientist who programmed one of the first computers at MIT and made a contribution to the degaussing technique that enabled ships to travel unnoticed by almost eliminating their electromagnetic field. But none of the Teledyne tree would have been possible without the incredible minds, and, importantly, the incredibly different minds he had around him.
Part of the allure of Henry is his quiet confidence. You can’t fake that. How could he be so sure about the future strength of Teledyne?
“We are broadly diversified within our area of interest - a field with an unlimited future. We have a strong and dedicated management group, and highly skilled employees. From the base of these advantages, we look to the future with confidence and anticipation.”2
Look at why he is so confident. It's not the technology, not his rugged individualist genius, or even proprietary technology, that matters; it is Teledyne’s exceptional people. One might interpret that to mean Henry was not the standalone genius that the popular narrative often conveys him to be, as his performance was built upon other excellent individuals. I’d invert that argument and conclude Henry’s ability to motivate and retain people like Claude Shannon, Arthur Rock, and Jay Last demonstrates he was not just a genius technologist, scientist, and mathematician but a genius relationship cultivator and manager too.
The terminology used by George Roberts in Distant Force is revealing as to how Teledyne, and thus Singleton, thought about the company and the importance of people. The two terms “profit centers” and “finders” were used incessantly.
“Jay was a significant investor in Teledyne, and he remained with the company for many years. With his assistance they acquired a number of other semiconductor component manufacturing companies, and he helped establish Teledyne as an important developer and manufacturer of these products.”3
“One of the most important early acquisitions was American Systems Inc., acquired in 1962. It became part of Teledyne Systems Company, which was the centrepiece of the company’s aerospace systems business, and one of the company’s most important profit centers.”4
“In making these acquisitions, Henry depended on several very talented management people to survey the field for possible acquisitions and evaluate them as to their technology, management, history, and markets and desirability as Teledyne properties…
One of these men was Claude Shannon, who was a good friend of Henry’s from his days at MIT and was a director of the company for many years. He also played a valuable part in helping Henry evaluate many of Teledyne’s important acquisitions…
Russ Kiernan… brought optical expertise and helped Teledyne expand into this related field with various other acquisitions.”5
So whilst the popular, and easier-to-understand, narrative of Henry as a singular genius (singleton is a set of one in mathematics), Teledyne, the proliferating tree, was the product of exceptional specialists sourcing great ideas in their own areas of expertise. This is not to downplay the intelligence of Singleton but rather to frame the context of his decision-making more accurately and challenge the easy, more appealing narrative.
Claude in Communication:
Claude clearly was an expert in communications systems so one can assume (though the author does not know for certain whether this was the case) that he was the driving force behind the expansion into the communications markets:
“We are devoting substantial effort to our work on communications equipment to link together the elements of control systems, for applications in which the control system elements are separated by considerable distance.”
As with almost every industry Teledyne is entering at this stage, there is a blend of both commercial activity and theoretical research:
“experimental work is being carried out, directed toward the use of parametric converters in various types of communication equipment.”6
As Henry plainly laid out in the first year “Your company’s objective has been from the beginning to become a major developer and manufacturer of a broad line of electronic systems and equipments, and of the electronic instruments and components that go into such systems.”7
Two years later, Henry has kept to his word, with the help of Claude, to gain exposure to the communication devices that are integral to the broad-based theme of an exposure to the physical components underlying the transition from analog to digital that was the primary motivation behind Teledyne’s founding. The lesson… pick one broad technological theme and bet heavily on it.
All Hail Amelco
“During the year Amelco Semiconductor has continued to cooperate closely with Teledyne Systems on a variety of projects. Among these is circuit design work on the IHAS program, development and microelectronic circuits for the Microeye miniature vidicon, and the development of very low power integrated logic elements aimed at high component density systems for space applications.”
“The business of our Amelco Semiconductor Division may be seperated into four specialized categories of proprietary products: advanced silicon planar transistors; differential amplifiers, and other special assemblies of discrete devices; integrated circuits; and field effect transistors.”
“These products were selected because the high degree of technology currently required for their production allows us to compete effectively with other larger suppliers, and because we believe these products will eventually account for the majority of semiconductor production.”8
Dr Jay Last and his colleague Jean Hoerni discovered and patented the planar process in 1959 while working at Fairchild Semiconductor. Hoerni applied the principle of passivation to semiconductors by using a layer of silicon dioxide to surround the transistor. This made the component less susceptible to corrosion. This served to make the semiconductor flat and enabled Bob Noyce’s later idea to connect various integrated circuits on the same silicon wafer using aluminium wires.
Singleton convinced Last and Hoerni to move away from Fairchild by giving them the opportunity to produce new integrated circuits in an entrepreneurial environment at Amelco.
Henry shows broad themes in technology are predictable. But that’s not enough: Exceptional management is required to retain dominant market positions in growing markets.
“Jay and John Hoerni did join Teledyne and started the company’s first semiconductor operation at Mountain View in the San Francisco Bay area, in what is now known as Silicon Valley. John spent most of his time managing the operation and Jay concentrated on the technical side.”9
“Henry expected each operation to be self-supporting but it was difficult for [the Amelco operation],”10
“Starting with a bare building, they had to build almost all the production equipment themselves since there was nothing commercially available for these processes.”11
“we expect the use of field effect devices to increase very rapidly as they become better known and more generally available to the electronic circuit designer…
“Now utilized principally in military applications, large industrial markets should open up as the production cost of these devices is brought into line with those of conventional transistors.”12
Teledyne’s correct identification of the long-term importance of semiconductor components and integrated circuits was the cornerstone of the company’s success in its diversified interests in systems, communications equipment, and military contracts (more on that below). This was Singleton’s area of expertise but he wasn’t operating or researching this area himself.
Obviously, theory often comes before empirical breakthroughs in science and technology. Investors and entrepreneurs frequently argue that it takes a long time to bring novel technology into the world. Such a perspective tends to treat innovation and economic profits as mutually exclusive concepts… or at least for a few years anyway.
Singleton’s use of Amelco provides an alternative thesis.
Combinatorial Fructification
Henry’s core competency was in electronic systems and components. By stitching together acquired businesses in different technological domains and exposing them to his specialism in semiconductors and electronics components, newly acquired businesses produced higher quality, and innovative holistic technologies. Here we have the 1 + 1 = 3.
At the heart of the broad strategy was Amelco, the first company acquired by Teledyne. It represented the roots and trunk of the tree that supported almost every single other branch that grew in the early 1960s.
Henry replaced the fundamental electronic components inside different technology systems of acquired companies with the cutting-edge products and processes at Amelco. This resulted in second-order effects of increased efficiencies, more precise design, and higher quality products:
This pattern was visible in the computer and data systems 1963 operational review:
“preliminary design was completed this year on a digital computer that is triply redundant, modularized by function, and designed such that, in the event of a failure in a critical area, the hardware associated with some lesser function automatically replaces that used in the critical area. The logical organization and mechanization of this machine are entirely novel, and result in a great simplification of the programming burden normally associated with digital machinery…
Such a computer is made practicable by utilizing special microelectronic integrated circuits produced by our Amelco Semiconductor division to provide dramatic increases in piece-part reliability, coupled with great reductions in size, weight, and cost.”13
See how this pattern was repeated again with the new Microeye television project launched in 1963:
“the first design effort ever attempted in developing a complete camera system specifically for space application…
The system is capable of accommodating a variety of types of spacecraft telemetry systems, and makes extensive use of microelectronic elements supplied by Teledyne’s semiconductor division.”14
Guess what, the same occurred for the Integrated Systems segment:
In 1963, Teledyne began a study for the Navy on the Integrated Helicopter Avionics System (IHAS). “This study makes use of the complete spectrum of our systems capabilities, and further draws heavily on the microelectronics capability of our semiconductor division.”15
Would you look at that… the same pattern appears again in the communications devices segment. The interlacing of existing technologies with Amelco’s innovative integrated circuits and semiconductors begot new technologies superior to other market offerings:
“during the year we introduced a line of static frequency converters. The static converter eliminates wear, since it has no moving parts; it is free from noise and mechanical vibration; it gives high performance combined with high reliability and long life; and it permits electronic frequency control.
“Utilizing the latest semiconductor developments in such areas as higher power silicon controlled rectifiers, our design technique has resulted in static converters superior to those previously available.”16
The first pattern then was the substitution of internal electronic components of acquired companies’ technology with Teledyne’s superior components. Henry also stitched different operating units from acquired companies together, like he did in 1962, to produce new groups such as the Optical Systems and Components Group.
“A cooperative program, involving the joint efforts of Teledyne Optics and Teledyne Systems, is planned for the application of their combined know-how to advanced electro-optical systems.”17
Another pattern, best exemplified by the Microwave Components operation, was the classic bolt-on acquisition that most of our intelligent investors are familiar with. This is simply the addition of a similar business unit with an existing Teledyne operation.
The acquisition of Quantatron broadened the proprietary position in precision microwave components, which were used in the Hawk and Talos missile system.
The acquisition of Control Dynamics Corporation complemented Teledyne Precision Instrument’s sub-miniature electro-mechanical relay business by adding a line of full and half-size crystal can relays.
Theory vs Practice: but John Galt was anti-Government?
As alluded to in the 1962 Teledyne Inc Annual Report introduction, the popular narrative of Singleton as the genius in the corner office presents him as a rugged individualist. Such an allegory might imply no relationship or financial interdependence with government bodies. In fact, the opposite was true.
When technological development is supported by governmental actions, technology can be rapidly brought to market with exceptional economics for the firm. The exclusivity of contracts is a wonderful advantage for the chosen company because it enables the development of proprietary processes and products required to produce the desired governmental outcome without any threats of substitution (in the short term, at least).
Government contracts provide economic exclusivity, a monopoly on supply, and a knowledge advantage. By working for years at a time on unique and highly specialized programmes, Teledyne knew in real time which elite technologies were demanded in digital and control systems before most of their competitors.
The microelectronic space camera project was supported by two German contracts. The armed forces heavily supported Teledyne’s electromagnetic sensor systems and communication devices:
“several antenna programs requiring significant advances over existing technology have been undertaken this year for the Navy and Air Force. An example representative of the advanced techniques being employed in antenna systems design is a program for the development of a combination radar and directional IFF antenna for the Navy.”18
“We are continuing production of FADAC fire direction computers, and of ARC-73 transmitter-receivers for the Army. With a total of over 7,000 R-390 communications receivers now on order, Teledyne has become the nation’s largest manufacturer of these equipments. The R-390 is utilized by all three branches of the Armed Services.”19
This top-down government-induced innovation resulted in new processes, as well as products, in the Fluid System segment too:
“Afco Linair qualified this year as one of the only two sources approved for the production of MC precision fittings for NASA procurement requirements.”
“To fulfill the stringent requirements imposed by our national space program, we have designed, constructed, and tested a precision tube-flaring machine which furnishes consistent flares in all types of tubes, within the precision tolerances necessary to assure leak-tight joints. Our machine uses a completely new technique in flaring.”20
In the same way that premium or luxury brands can incite mimetic desire by infiltrating the elites with their products, Teledyne first supplied top-down institutions like the military or government-funded research programmes before the technology was disseminated to the broader market. Teledyne benefitted not only from this elite positioning in terms of brand placement but also through time arbitrage; when chosen as a sole supplier on a contract, there is room to experiment until the product fits the exact requirements of the market whilst the company’s experiments are incubated from competitive dynamics typically present in markets.
Fiscal Conservatism includes Financial Leverage?
Two types of bank instalment notes were used in 1963:
5.75% interest rate, due 1966, defense contracts put up as collateral, $3mm capital raised
Others, 5 to 6.5% interest rates, due from 1965 to 1969, Land & Buildings as collateral, $491,854 and $350,000 of capital raised
Subordinated debt
5.75% Convertible Subordinated Notes, annual instalments $83,333 1966 to 1977 due 1978, redeemable at 105.75% of face value, convertible to common at $27.50 per share until 1968 or $35 thereafter. $2mm of capital raised.
6.5% Convertible Subordinated Debentures, annual instalments $100,000, with interest payments starting in February 1966, redeemable at face amount, and convertible to common at $27.50 per share, $500,000 of capital raised.
Singleton’s strategic use of debt and capital raising from the public markets is exceptional but that is pretty well covered by other authors already.
Stock options October 31st 1963 129,812 shares of common stock were reserved for issuance to key employees under the restricted stock units (RSU) plan. 67,110 options to purchase shares between $1 and $25, 19,843 were exercisable at that date.
Series A Preferreds were entitled to voting rights with cumulative annual dividends of $1 per share and a preference of $30 per share in the event of liquidation. They were redeemable in whole but not part at $33.33 per share at the company’s option at any time after June 1 1965, convertible at the holder’s option into common. No cash dividends may be paid on common stock until all accumulated dividends on preferred stock are paid or provided for.
Acquisitions:
“Now operating in twelve plant locations. Teledyne utilizes more than a half-million square feet of engineering and manufacturing floor space.”21
Sprague Engineering
Quantatron
Control Dynamics Corporation
Electro Development Company
In 1963, the roots of the Teledyne tree formed firm foundations for the future. Amelco Inc. was the crown jewel that improved, produced, and refined the underlying components upon which many of the Teledyne segments depended. It wasn’t clear exactly in what directions the next branches would grow. What is certain is that Teledyne was operating in the infancy of many markets with favourable long-term tailwinds.
Intelligent Investor, thank you for reading!
Henry Singleton, 1963 Teledyne Annual Report, pg. 6.
Singleton, 1963…, pg. 6.
George Roberts, Distant Force (2007), pg 16.
Roberts, Distant…, pg 20.
Roberts, Distant…, pg. 26.
Singleton, 1963…, pg. 10.
Henry Singleton, 1961 Teledyne Annual Report, pg. 3.
Singleton, 1963.., pg 24.
Roberts, Distant.., pg. 16.
Roberts, Distant…, pg. 15.
Roberts, Distant…, pg 15.
Singleton, 1963…, pg. 24.
Singleton, 1963…, pg. 9.
Singleton, 1963…, pp. 12-15.
Singleton, 1963…, pg. 15.
Singleton, 1963…, pg. 19.
Singleton, 1963…, pg. 22.
Singleton, 1963…, pg. 10.
Singleton, 1963…, pg. 15.
Singleton, 1963…, pp. 21-22.
Singleton, 1963…, pg. 6.