Weaving The Plant

Teledyne Inc., Annual Report 1963.

“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.”

“Teledyne Optics was formed by acquiring and combining three companies with complementary capabilities in development, design, and fabrication of optical components and systems.”

Teledyne’s concentrated board had a unique background in cutting-edge science. Though, both of the company’s founders had well-established business careers in corporate America, their unconventional approach was rational iconoclasm.

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

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

What was Henry’s objective when he founded Teledyne?

“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.”²

Singleton not only broadened the products offered by Teledyne but also crusaded into deeper levels within electronics 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.”

This point is well-illustrated by Teledyne’s formation of Teledyne Optics in 1963. “Teledyne Optics has wide experience in silicon, sapphire, germanium, arsenic trisulfide, fused silica and strontium titanate.” Notice how Henry and his team pulled apart something into its constituent parts and reduced complex technological systems to periodic elements.

That was optics. Teledyne repeated this strategy in almost every domain it operated in: another industry this occurred in was communications devices…

“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.”

Perhaps Claude Shannon, the pioneering mind who invented the field of communication science was the driving force behind Teledyne’s expansion into communications.

People, First:

“Singleton also believed and often said that the key to his success was people. Talented people who were creative, good managers, and doers. From the start, he surrounded himself with that kind of person.”³

“Henry’s search for talented people went down even to the individual managers of his smallest companies.”

The conventional view is that Singleton was the rugged individualist to end all rugged individualists: he dreamed up a cornucopia of innovative ideas from his corner office. 

Granted, Henry was an exceptional scientist and mathematician: he programmed one of the first computers at MIT and formulated a degaussing technique that enabled ships to travel unnoticed (by almost eliminating their electromagnetic field). But the flowering Teledyne plant would not have grown as it did without the incredible and diverse minds around Singleton. 

Part of the allure of Henry is his quiet confidence. Why was he so sure about Teledyne’s strong future?

“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.”⁴

Look at why he is so confident: it is Teledyne’s exceptional people and long growth runway. Can we classify Singleton as the standalone genius dreaming up ideas from the corner office if the reason behind his belief in Teledyne’s future prosperity was other people? Invert, always invert. 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.

The notion of Henry’s self-sufficient genius is challenged by the terminology of George Robert’s memoir. Many times the phrase “finder” is used to describe the managers sourcing new acquisition targets for Singleton.

“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.”⁵

“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.”⁶

So whilst the popular, easier-to-understand narrative of Henry as a singular genius (singleton is a set of one in mathematics), Teledyne, the proliferating plant, was the product of exceptional specialists sourcing great ideas in their own areas of expertise.

All Hail Amelco

“Despite its advanced technical capabilities, Amelco lost money in 1963”⁷

Even in light of the centrality of semiconductor technology to Teledyne’s various technological systems, the founders’ obsession with low cost, and Henry’s conviction that each business unit must be self-sustainable, Amelco Inc. operated at a loss in 1963. This was due to poor coordination of sales and manufacturing.⁸ Jean Hoerni was the General Manager of that division.

“Henry expected each operation to be self-supporting but it was difficult for [the Amelco operation]”⁹

“Starting with a bare building, they had to build almost all the production equipment themselves since there was nothing commercially available for these processes.”¹⁰

“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.”¹¹ 

Teledyne’s correct identification of the long-term importance of semiconductor components and integrated circuits was the cornerstone of its success in its diversified interests in systems, communications equipment, and military contracts. That was Singleton’s area of expertise. 

“The business of our Amelco Semiconductor Division may be separated 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.”

Investors and entrepreneurs often believe that it takes years to bring novel technology into the world. Such a perspective treats innovation and economic profits as mutually exclusive concepts… or at least for a few years. 

Singleton’s use of Amelco provides an alternative thesis. Though Amelco as an isolated unit was money-losing during the year it still supported all other categories of Teledyne’s Systems and Components businesses that were taking in economic profits.

“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.”

“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.”

Combinatorial Fructification 

“Other veterans of Fairchild Semiconductor soon joined Last and Hoerni at Teledyne’s Amelco operation, and Amelco emerged as a major semiconductor manufacturer that also designed a variety of microelectronic components for other Teledyne divisions. That work gave Teledyne the technological capabilities that enabled it to compete for a host of military and NASA contracts.”¹²

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.

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.

Here is Teledyne’s commentary on its computer and data systems operations in 1963:

“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 

Look what underpinned the 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 lay at the heart of the Integrated Systems segment’s success: 

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

In communications devices, 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

Teledyne substituted its superior electronic components for the internal electronic components of acquired companies’ technology.

Another form of the essence of combinatorial fructification is Henry’s re-reposition of business units to form new groups. An example of this is 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

While these combinations often started as experiments for new products sometimes entire business operating units merged.

There are several types of acquisitions. Some added to Teledyne’s existing divisions that could be described as classic bolt-on acquisitions. There were three examples of this in 1963:

1. Microwave Components was a classic bolt-on acquisition.

2. Quantatron broadened its proprietary position in precision microwave components (used in the Hawk and Talos missile systems).  

3. 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.

The Outsider’s Risk?

Teledyne’s dependence on outside capital and shifting the weight of financial risk onto other parties also challenges the myth of Henry Singleton as the rugged individualist to end all rugged individualists.

When governments support the development of new technology, a private firm can bring new products to market and enjoy monopoly-like economics. 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. 

Two German contracts supported the microelectronic space camera project. 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. 

The Sweet Spot

Everyone understands the beauty of clean balance sheets. In more ways than one, this makes the corporation, viewed as both a going concern and asset conversion, safer to an outside investor.

However, leverage increases returns. Even Graham and Dodd, who epitomize fiscal conservatism, argue an optimum capital structure contains some senior securities.

Two types of bank instalment notes were used in 1963:

1. 5.75% interest rate, due 1966, defense contracts put up as collateral, $3mm capital raised

2. 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:

1. 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.

2. 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 intelligent use of Teledyne’s overvalued stock as tender to acquire lower-priced companies is well known. Less is said about his strategic use of senior obligations to propel the company forward. Later in the story, Teledyne’s ability to raise senior obligations with favourable interest rates underpins one of the largest acquisitions in its history.

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

Teledyne’s fiscal conservatism mirrored its concentrated board: do more with less. In 1963, the directors did something extraordinary by adding someone. That person was Robert B. Sprague.

In 1963, Teledyne’s roots provided firm foundations for its future growth. Amelco Inc. was the crown jewel that improved, produced, and refined the underlying components upon which many of Teledyne’s segments depended.

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1. Henry Singleton, 1963 Teledyne Annual Report, pg. 6.

2. Henry Singleton, 1961 Teledyne Annual Report, pg. 3.

3. George Roberts, Distant Force (2007), pg,

4. Singleton, 1963…, pg. 6.

5. George Roberts, Distant Force (2007), pg, 16.

6. Roberts, Distant…, pg. 26.

7. Monty Jones, A Civic Entrepreneur: The Life of Technology Visionary George Kozmetsky (2018), pg. 119.

8. Jones, A Civic Entrepreneur…, pg. 119.

9. Roberts, Distant…, pg. 15.

10. Roberts, Distant…, pg 15.

11. Singleton, 1963…, pg. 24.

12. Jones, A Civic Entrepreneur…, pg. 119.

13. Singleton, 1963…, pg. 9.

14. Singleton, 1963…, pp. 12-15.

15. Singleton, 1963…, pg. 15.

16. Singleton, 1963…, pg. 19.

17. Singleton, 1963…, pg. 22.

18. Singleton, 1963…, pg. 10.

19. Singleton, 1963…, pg. 15.

20. Singleton, 1963…, pp. 21-22.

21. Singleton, 1963…, pg. 6.