The Flowers Flow...

Teledyne Inc., Annual Report 1964.

“Even more important than the gain in operating results was the progress made during the year in broadening and strengthening the company’s foundation for future growth.” 

“If properly developed and wisely employed, machines have the ultimate capability to free man from labor, and to extend indefinitely the range of his intellect. It is our privilege at Teledyne to have achieved a strong position in this field of limitless opportunity.”

The typical narrative on Teledyne splits the company’s history into three stages. 

1. The Acquisitive 1960s

2. The Buyback Maelstrom 1972-1984

3. The Corporate Simplification post-1986

That is not enough: the 1960s should be split into two subsets. 

First, the foundational acquisitions in the founder’s specialisms (electronics, integrated circuits, semiconductors, and complex systems) occur between 1960 and 1964. Then, a massive military contract in 1965 catalyzed the company’s prosperity: Teledyne’s share price skyrocketed. Singleton had the newfound ability to be bolder and make more acquisitions using his expensive stock as tender. Then the second half of the 60s was characterized by rampant acquisitions in diversified markets.

In the words of George Roberts:

“Even as he diversified his company, Henry didn’t forget his original direction, and there was continued expansion into both electronic systems and system components for control applications and related activities.”

Summary Stats:

1964 Sales $38,187,127

1963 Sales $31,924,685

1964 Net Income $2,545,388

1963 Net Income $1,280,296

1964 Working Capital $14,220,320

1963 Working Capital $9,262,796

1964 Total Assets $35,039,515

1963 Total Assets $23,901,085

1964 Shareholder’s Equity $13,672,200

1963 Shareholder’s Equity $8,628,957

1964 Average Common Shares Out: 1,050,996

1963 Average Common Shares Out: 849,461

1964 Employees: 2,400

1963 Employees: 1,900

Organized Chaos, Thematic Directions

“During those early to mid-60s days there was really no formal organizational structure even though a considerable number of new acquisitions were being made each month.”¹

Often, investors cite Henry’s flexible strategy, which was unconventional at the time, to explain Teledyne’s exceptional track record. Henry told Business Week this in 1982:

“I like to steer the boat each day rather than plan ahead way into the future. My only plan, is to keep coming to work every day.”²

It’s important not to misinterpret that. Singleton communicated in a few words: over-extrapolating the semantics can be dangerous. A little like Ludwig Wittgenstein, Henry can come across as a sphynx because he was ambivalent about the opinions of others.

If Henry didn’t plan his days and the company had little structure, how organized was Teledyne?

As a new company in a nascent, high-technology market it would be reasonable to conclude it was a start-up moving fast and breaking things. Maybe Teledyne was not meticulous, disciplined, or consistent in its operations at the beginning because the founders pursued growth?

Daniel Kahneman mentions the Planning Fallacy in Thinking Fast and Slow: when thinking about the future, we see what will go right and rarely what may go wrong. In some ways, it's an extension of the egocentric bias. Singleton understood the futility of trying to control outcomes without knowing the exogenous vicissitudes of the future. That doesn’t mean that Teledyne was messy behind the scenes with underdeveloped business systems, though.

“Whenever a high-level management position had to be filled, that company’s group executive would usually take over company management until a qualified replacement could be found. In many cases, a corporate accounting person would immediately be assigned to new acquisitions in order to maintain continuity and quickly establish uniform corporate financial guidelines.”

Managers operated their businesses however they saw fit, whilst the financial systems had to be adhered to by all:

“During the 1960s, when Teledyne was acquiring small to medium-size companies at a fairly rapid pace, it was imperative that we instil the Teledyne disciplines as quickly as possible. These ranged from our cash transfer policies to our organizational control system.”³

This management system was so by design. The “free-form management” joined centralized planning and research with decentralized administration of the seperate business units. Litton Industries was a model for Teledyne and many other new companies that departed from the narrow focus and tightly strucutured industrial corporations."⁴

Aerospace Annihilation 

What’s remarkable about Teledyne is its long-term marriage of economic profits, technological innovation, and fiscal conservatism over decades. As Singleton’s acquired businesses brought novel technology to markets, Teledyne consistently increased earnings. Most business people frame these concepts as opposing each other. Investors champion numbers and profit whereas entrepreneurs drive new revenue growth through innovation: Henry demonstrated these influences can be combined.

Teledyne’s acquisition of UED, McCormick Selph, SMI, and Radar Relays expressed Henry’s interest in aerospace. The Aerospace branch of the Teledyne plant grew in 1964 due to additions in manufactured instruments, explosives, airborne data systems, and relay switches.

“Because of our conviction that air data instruments will be of growing importance as our airways become more crowded, we place a high valuation on the long-term importance of the SMI acquisition.”

Singleton was a keen student of history. He cited that UED made the first application of solid-state circuitry to airborne telemetry in the Sergeant missile program in 1956 and was a leader in advancing the technology since then.

“in 1964 UED designed, qualified, and delivered the pulse code modulation telemetry systems for use in NASA’s micro-meteoroid satellite (Pegasus). This program was followed by the design of an extremely flexible 80-800 channel high and low-level PCM system for use in the NASA Flight Research Center Lunar Landing Research Vehicle, and UED continued to supply a unique d-c amplifier for each Agena missile.”⁵

On Contracts

The pattern of institutions incubating Teledyne from market dynamics of supply and demand enabled Teledyne to test its novel products using other peoples’ resources. Institutions (public and private) often bore Teledyne’s financial risk.

“We have recently gone through the first successful firing of a new telemetry system for the Army’s medium anti-tank weapon, and follow-on production is anticipated.”

“Also, 1965 will see production of an advanced state-of-the-art pulsed RF amplifier system for use by the AEC on a classified test program requiring substantial follow-on production.”⁶

But Teledyne was not confined to sponsorship from the government only. 

“In support of the manned space flight program we were selected by the Boeing Airplane Company to supply the remote control pumping system for testing the servoactuators on the Saturn V rocket engine.”

“Our ordinance system research and development capability is reflected in a product improvement contract received from The Martin Company. The contract calls for major improvements in the Pershing missile ordinance system hardware. Through the introduction of heliarc welding techniques and the use of stainless steel a new and greatly improved hermetic design was evolved.”⁷

Some contracts provide stable cashflows for several years in advance. So defense and aerospace industries can be more predictable than others wherein supply and demand are dictated to individual economic agents rather than a few large procurement departments. 

In a previous post, we alluded to the exclusivity of contracts. Not all contracts are born equal, however. Sometimes a corporation may be the only one chosen. This is often the case for cutting-edge technology. At other times, the military may procure two or three suppliers to produce certain products where the company has already developed the technology and processes (so nothing novel is produced). 1964 presented an example of the most lucrative type of contract:

“We were recently awarded a large contract for a new type fitting designed for use in ground support equipment on the Saturn space vehicle. Selection of Teledyne for this program was significant, since it may well become the only fitting to be used in this application.”⁸

Lower Levels

Not only do we see the important role that private and public contractors play in the Teledyne story but Singleton climbing inside technology. There are two forms of this idea exemplified in 1964.

The first is in terms of the elements underlying components. Before this year, the most fundamental technology was the transistors and integrated circuits. In 1964 Teledyne went level below by reviewing the structure and quality of the metals underlying the microelectronics:

“Our phasolver discs, utilizing a complex evaporated metal pattern on a close tolerance glass disc to form a high-resolution angular transducer, are in production at Teledyne Optics. Telescopes for NASA’s Orbiting Astronomical Observatory will be pointed and programmed in angle by the phasolvers.”⁹

Transducers convert energy from an input into a different form of output. A simple example is a microphone absorbing sound waves that are passed through an amplifier (the transducer) before being released back into the world by the speaker.

Teledyne produced NASA’s explosive actuators: 

“An unusual company that produced products used in many aircraft and space applications was McCormick Selph, run by Frank LaHaye, acquired in 1964. Their primary products were controlled explosive devices used to perform various actions in aircraft, spacecraft, missile and other systems.”¹⁰

One might think of technology as a better user experience, sleeker design, or improved size-to-weight ratio. Another central theme in Teledyne’s manufacturing is extreme reliability in mission-critical technology.

“To date, there has not been one failure in the 30,000 parts fired [for NASA].”

This isn’t technology where if there is a bug in the coding, the customer has a poor experience: people could die, if mistakes happened.

“This operation is highly critical and must be effected without damage to the pod, which remains sealed for the protection of the two-man crew inside. This is the first such explosive system intended for use in tactical aircraft.”¹¹

The second form of Henry climbing inside technology is the new products within the complex systems. The components underlying aerospace computers are a good example of this. Whilst 1963 saw Teledyne make strides in their commercial computer offerings for people and businesses, 1964 saw the combination of that offering with aerospace.

Servomechanisms, Inc. (SMI) produced air data systems and pressure transducers which provided the basic inputs for air data computers. The onboard computers were essential to NASA’s space programs. Air data information, a basic requirement for precision flight control of airborne vehicles, was of growing importance as the number of aircraft increased in 1964:

“lightweight central air data computer for the Douglas A4E Skyhawk attack aircraft. The initial production order for this Navy aircraft is currently nearing completion, and a follow-up order has been received. An additional production order is expected in fiscal 1966 and should extend the program over several years.”¹² 

Teledyne Relays combined a couple of Relay businesses. The engineers for this company produced electromechanical relays small enough to be sealed hermetically in a standard TO-5 transistor package.

“Relays are electrically operated switches. These new products were precision components designed to operate reliably under conditions of shock and vibration and came to be used in virtually every major military and aerospace program, as well as in high-end commercial applications. This development made Teledyne Relays one of the most profitable companies.”¹³

Relays are tools to control high-power electronic systems with low-power signals.

“During 1964 Teledyne entered the field of visual information display equipment, through the acquisition of Rader Relay, Inc.”

The Government’s Gale

When Teledyne manufactured specific cutting-edge technology for government contracts, new technology was required to connect the new to the old.

In the 1964 report, Singleton described a feed subsystem for a 60-foot Casegrain reflector antenna which was built for the Navy and NASA to track satellites. The feed subsystem is all of the components between the antenna and the receiver’s input terminal. 

“The same NASA/Navy system has led to a development program for a complete receiving subsystem to provide compatible operation with the feed subsystem. The receiving subsystem utilizes Teledyne’s monopulse tracking receiver in conjunction with a specially designed down-conversion unit to achieve high stability operation at UHF, L-band, and X-band frequencies. As a part of this unit, Teledyne is developing a step-recovery diode multiplier, the completion of which will materially strengthen our integrated systems capability.”¹⁴

In producing a new receiving subsystem, Teledyne developed a new multiplier which enhanced their integrated antenna systems offering. Performing well in one area of the antenna subsystem wasn’t good enough, though. 

In 1964, Singleton developed “parametric amplifiers and broadband mixers” that were based on “proprietary design techniques which permit achievement of large gain-bandwidth products and extremely low noise figures.” In other words, Teledyne offered complete receiving systems in “telemetry tracking, satellite communications, and radar target location.”¹⁵

In the communications segment, process refinement occurred alongside research and development. Here we see the theoretical specialism of Teledyne brought to fruition by institutional sponsorship.

“For several years Teledyne has pioneered in exploring techniques for microwave passive ranging utilizing a proprietary design concept. Recent studies performed for the Navy have culminated in the completion of an experimental system to verify the operational feasibility of the approach. The experimental equipment is currently undergoing flight test under Navy sponsorship. Completion of this phase of the program is expected to lead to the development of service test models and subsequent production.”¹⁶

In the process of providing this extra system that needed to be compatible with Teledyne’s technology, the possibility of a new component was discovered which strengthened Teledyne’s overall offering. Call it the virtuous cycle of increasing returns in government contracts. In the same way, technology begets technology, government contracts beget government contracts:

“as an outgrowth of experience gained on the IHAS program, Teledyne has been awarded a contract to study the avionics system requirements for the Army’s Advanced Aerial Fire Support System (AAFSS).”

Combinatorial Fructification, Act II

Amelco Semiconductor has become a leading manufacturer of highly reliable semiconductor components. This leadership has been gained through superior product designs and the employment of an advanced reliability program. Beginning with the stringent quality requirements we impose upon our suppliers, the reliability program culminates in the careful monitoring, evaluation, and control of our manufacturing process.”¹⁷

It is not clear whether Kozmetsky offered Hoerni a research position (that he declined), or whether he was fired immediately because of Amelco’s losses in 1963. Hoerni left for Union Carbide and founded a semiconductor operation. Kozmetsky hired Jim Battey, who had been managing Clevite Corp, and Amelco was profitable again in 1964.¹⁸

In 1964, Teledyne continued profiting from computers. Teledyne aided in the transition from analog to digital due to its first acquisition:

“the microelectronic integrated circuit modules utilized in the computer are produced by our Amelco Semiconductor division.”¹⁹ 

The pattern of substituting the underlying components of Amelco into the acquired company’s products was present in Henry’s aerospace expansion too:

“Working with Amelco Semiconductor division of Teledyne, Radar Relay has now improved the AID design to a point which should place us in an excellent competitive position. Our in-house capability in microcircuits and integrated circuitry has helped bring about improved performance characteristics with less size and weight at lower cost.”²⁰

The theme of combination was not only present in the design and manufacturing of Teledyne’s family of digital computers but also in the potential applications that it could be precisely tailored to, as discussed above.

The Loran A&C Digital Simulator was an early flight simulator used for pilots “utilizing a magnetic tape-stored position program. The simulator provides a real-time input to the Loran receiver system under evaluation.”²¹

On Teledyne Optics 

“There were far too many acquisitions of companies for me to discuss each one in detail. Many were joined together and became single Teledyne companies or were absorbed into existing companies, so I have chosen the major ones that contributed to the various important directions the corporation took.”²²

If this was the perspective of the meticulous note-taking number two who became Teledyne’s CEO and Chairman then what chance do we stand as students outside the company in understanding Henry’s acquisitions?

For example, in 1963, according to George Roberts, Teledyne acquired Geotronics Company which was not mentioned in that year’s annual report. Furthermore, Teledyne acquired Kiernan Optics in 1963 which brought Russ Kiernan into the business. Neither Russ nor Kiernan Optics was mentioned in the 1963 annual report despite the formation of Teledyne Optics.

Even the narrative portrayed at different points in Distant Force seems to contradict itself:

“Russ Kiernan, whose company was acquired in 1964, brought optical expertise and helped Teledyne expand into this related field with various other acquisitions.”²³

vs

“In 1963, the company entered the field of optics with the acquisition of Kiernan Optics, Russ Kiernan, whom I mentioned earlier, founded it in 1950.”²⁴

Anti-Fragile Conglomerate Form

“The holding company is often utilized for entirely legitimate purposes, e.g., to permit unified and economical operations of separate units, to diversify investment and risk and to gain certain technical advantages of flexibility and convenience. Many sound and important enterprises are in holding company form.”²⁵

Teledyne was sound and important. The conglomerate form was essential to its success. The word conglomerate has negative connotations, just like the term monopoly.

Joseph Schumpeter turned the conventional view against monopoly on its head by asserting that big business (and therefore a conglomerate) was essential and preferable to the traditional economic models of “perfect competition”:

“[the large-scale establishment or unit of control] has come to be the most powerful engine of progress and in particular of the long-run expansion of total output which looks so restrictive when viewed in the individual case and from the individual point of time.”²⁶

During Teledyne’s acquisitive 1960s maelstrom, Kozmetsky utilized operating loss carryforwards as one-off boosts to net income in several years.

George Roberts lists the 14 key questions that Teledyne “finders” and Henry considered when targeting potential acquisitions. The very first question was:

1. Is the company profitable?

So Teledyne was not acquiring unprofitable companies and turning them around. The persistent presence of tax loss carryforwards from acquired companies in the early 1960s indicates that the acquired companies nearly always operated with large losses before Teledyne was involved. 

Unprofitable companies can be kept alive under the conglomerate form but Singleton insisted that each operating company was self-sufficient. This enabled Henry to allocate excess profits at the corporate level as he saw fit rather than being forced to finance unprofitable units. Thus, the benefits of the conglomerate form further enabled the chairman’s exceptional ability at capital allocation to flourish. 

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1. George Roberts, Distant Force (2007), pg. 39.

2. ‘Henry Singleton of Teledyne: A Strategy Hooked to Cash is Faltering’, Business Week (May 31, 1982 Edition).

3. Roberts, Distant…, pg. 40.

4. Shelton Boyce III, “A Case Study of the Organizational Growth of Litton Industries Through Mergers and Acquisitions” MPA degree, Graduate School of Business, University of Texas (1967), pg. 3.

5. Singleton, Teledyne…, pg 12.

6. Singleton, Teledyne…, pp. 12-15.

7. Singleton, Teledyne…, pg. 26.

8. Singleton, Teledyne…, pg. 25.

9. Singleton, Teledyne…, pg. 25.

10. Roberts, Distant…, pg. 46.

11. Singleton, Teledyne…, pg. 26.

12. Singleton, Teledyne…, pg. 15.

13. Roberts, Distant…, pg. 35.

14. Singleton, Teledyne…, pg. 11.

15. Singleton, Teledyne…, pg. 11.

16. Singleton, Teledyne…, pg. 12.

17. Singleton, Teledyne…, pg. 28.

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

19. Singleton, Teledyne…., pg. 11.

20. Singleton, Teledyne…, pg. 25.

21. Singleton, Teledyne…, pg. 11.

22. Roberts, Distant…, pg. 46.

23. Roberts, Distant…, pg. 26.

24. Roberts, Distant…, pg. 36.

25. Benjamin Graham and David Dodd, Security Analysis, 7th Edition (2023), pg. 652.

26. Joseph Schumpeter, Capitalism, Socialism, and Democracy (1943), pp 91-92.