Pollination
Litton Industries Inc., Annual Report, 1956.
“The effort and money invested during previous years in extensive research programs have been rewarded by important development contracts in a number of areas of our activity.”
“In almost all of the more than 100 different magnetron and klystron models we manufacture we are the principal source.”
“We see a broad potential in the years to come for the production and sale of our computing equipment, of our “building block” components, and of complete automatic control systems, both for military and for industrial automation applications.”1
Headquartered in Beverly Hills, CA, Electro Dynamics Corporation was founded in 1953 by Charles “Tex” Thornton, Roy Ash, and Hugh Jamieson. It existed to acquire others. After receiving a loan from Lehman Brothers, in 1954, Thornton acquired the vacuum tube producer “Litton Industries” and changed the company’s name.
That was no coincidence.
“Charles V. Litton Sr., agreed to sell his vacuum tube manufacturing operation to Thornton, he had established a solid reputation among the military for the high quality of his main product — a mass-produced magnetron, a device that was then a key component of radar systems”
The prestige of the Litton brand appealed to Thornton who wasn’t just your typical technology founder. It was his
“early and unshakable conviction that the government would be buying weapons of constantly increasing complexity for many years to come. The way to sell to that market, Thornton thought, was to build a company loaded with knowledgeable men who could come up with the weapons”2
During World War II he rose through the US Air Force’s ranks before leading the Office of Statistical Control. Afterwards, Thornton offered his group of 10 officers to several companies: an all-or-nothing deal. Henry Ford II was in a tight spot, so he interviewed the team and hired them. This motley crew became known as the “Whiz Kids.”
Using their statistical proficiency, this group created a new corporate structure with individual accounting systems for Ford Motor Company. Each division became a separate "profit center". The Whiz Kids transformed Ford.
They weren’t the only exceptional individuals Thornton convinced to join Litton’s mission, though:
“When Litton Industries was formed, Tex Thornton attracted Henry [Singleton] to pioneer Litton’s work on the lightweight inertial navigation system still used by military and commercial aircraft worldwide. Henry became director of the engineering of the Electronics Equipments Division in 1957 and vice-president and general manager of the division in 1958.”3
Summary Stats:
1956 Sales $14,920,050
1955 Sales $8,898,797
1956 Earnings $1,019,703
1955 Earnings $436,413
1956 Earnings per share $0.97
1955 Earning per share $0.44
1956 Net Working Capital $2,655,003
1955 Net Working Capital $1,130,111
1956 Backlog $35,000,000
1955 Backlog $19,000,000
1956 Employment 2000
1955 Employment 1100
1956 Shareholders 3000
1955 Shareholders 1700
Backlogs?
Thornton focussed more on the backlog than Singleton. That’s not to say the backlog wasn’t important to Teledyne. Henry did not always mention but when he did there was a good reason to.
In 1965, Henry commented on it in typical Singleton fashion:
“Teledyne is entering 1966 with the brightest prospects in its history. Backlog is at record levels and business activity in our operating divisions is at an all time high.”4
In contrast to Singleton, Thornton used the term ‘backlog’ 7 times in the first 6 pages of his 1956 annual report.
Isn’t it peculiar that a scientist, known to be obsessed with details and quantitative financial management techniques, cited his company’s backlog much less often than his mentor?
“At the beginning of the year the company’s backlog of products and services amounted to $19 million. The addition of $31 million in new business during the year, less the delivery of almost $15 million in sales for the period, resulted in a backlog at year end of $35 million.”5
Real Estate Affinity
Henry Singleton loved real estate of all types. As the son of a well-to-do Texas rancher, this affinity for land seemed innate to him. Charles Thornton shared Singleton’s desire to acquire property and saw it as critical to technological leadership in the electronics industry:
“to stay in the forefront of the dynamic electronics industry - the company has continued its expansion of physical facilities during the year.”
In the twenty-first century, investors celebrate the benefits of intangible assets, brands, and capital-light businesses. The founders of the companies that built our intangible world today, were obsessed with physical assets.
Let’s see how Charles Thornton described the development of Litton Industries through the lens of land, property, and manufacturing facilities:
“the first 40,000 sq. ft. section of a planned 120,000 sq. ft. supplement to our plant facilities at the Electron Tube Division in San Carlos, California. This unit now houses the production of klystrons, most of our power tube engineering activities, and the administrative offices of this division.”
“The second 40,000 sq. ft. portion of this new plant is scheduled for construction within the present fiscal year. Completion of this second unit will bring the total plant facility at San Carlos to 145,000 sq. ft.”
“The manufacturing, laboratory and office activities of the company presently occupy almost 450,000 sq. ft. at nine plant locations.”6
According to a Horatio Alger tribute, Charles Thornton started purchasing land at age 12, had accumulated around 40 acres by the time he turned 14, and operated a successful filling station and car dealership by age 19.7
The point is that land was pivotal to the creation of the building blocks of intangible technology:
“From experimental design to finished product, Litton Industries facilities are equipped to be independent and self-contained.”8
That self-sufficiency theme was present in the Teledyne story. Kozemtky’s treatment of Hoerni during 1963 when Amelco was not profitable epitomized this core belief.
Inertial Guidance Systems
“The need is for a guidance system not dependent upon ground contact - radio, radar, or visual - but which can always retain in its own “brain” a full knowledge of where it is relative to both a starting point and a destination on the ground.”
At the risk of stating the obvious, capitalism rewards those who solve problems. You may believe that the bigger the problem is, the greater the reward.
Here is how Charles described a potential solution to the inertial guidance system problem:
“a platform capable of retaining an original orientation relative to a spherical earth in spite of the drift or acceleration, or the pitching, rolling, or other motions of the aircraft – are the predicted answer to this need.”
As we have the benefit of hindsight bias, we can conclude that Henry Singleton’s management aptitude and technical expertise contributed to the Litton Electronics Equipments Division’s success even before he was promoted to the director of engineering in 1957:
“Representative of the year’s operations has been the company’s progress in inertial guidance, one of the most highly technical and advanced areas of development in the electronics industry.”
“Resultant contracts for specific application of these techniques have provided the basis for major research and development activities… Expected with the successful completion of this development is operational equipment which will have widespread application leading to quantity production.”
“The company’s recognized capabilities and position in the field indicate promising growth in this area in the future.”9
Computers Akimbo
This period of business history is just one small part of the transition from analog to digital. Litton didn’t go “all in” on the new form of technology and ditch the old. Thornton argued that in 1956, there were three general areas of computer applications:
Mathematical computations.
Automatic control functions (commercial & military).
Business data handling.
In 1956, Litton released the LITTON 20, a digital computer that helped to solve differential equations.
“The development of a completely new set of “building blocks” for computer assemblies - a new type high density memory drum, new transistorized computer circuits, and specialized input-output devices – as well as the complete systems employing our techniques, were received with great interest.”
Litton benefitted from not only selling computers but also manufacturing the components inside them:
“our unusual position in the field of digital computers and controls - our ability to serve increasingly complex problems with less complex equipment having unusually low size, weight, initial cost, and maintenance cost factors, but retaining the high accuracy characteristics of digital versus analog units - has now been generally recognized by industry and the military alike. We see a broad potential in the years to come for the production and sale of our computing equipment, of our “building block” components, and of complete automatic control systems, both for military and for industrial automation applications.”10
Electron Tube Division
“Thornton left Hughes in the fall of 1953 with the goal of running his own electronics company and rapidly becoming one of the dominant companies in the field. His strategy was to buy a successful existing company and use it as a base for expansion through a combination of internal growth through research and acquisition of additional companies — aiming primarily at providing products to meet the growing needs of the Department of Defense.”11
Litton was a pioneer in the production of high-quality microwave tubes. Charles Litton, the owner-operator of Litton before Thornton acquired it, produced microwave tubing for communications devices and radar during World War II.
High-power magnetrons and klystrons propel pulsating microwave energy that is the emanating beam of electrons in radar equipment. These microwave tube devices enable electrons to be oscillated and amplified. Klystrons can oscillate and amplify electrons whereas magnetrons can only be used as oscillators.
The energy beam produced by klystrons follows a linear path because the electrons are injected normally through the cathode. However, in the magnetron, the electrons are injected forcefully, and the result is a spiral beam path from cathode to anode.
The most common use of a magnetron is a microwave oven. The magnetron, a type of tube, provides a high-power frequency that heats your meal by interacting with the food’s water molecules.
Klystrons and magnetrons were central to Litton’s operations in 1956 and institutions incubated the development of new technology:
“In February of this year we received from the Air Force what is believed to be the largest single contract ever placed for microwave power tubes. This contract was for a product we had developed over a period of four years in conjunction with the Microwave Laboratory of Stanford University.”
“we were awarded this contract on the strength of our reputation in the microwave field tube.”12
Again we see that monopoly-like economics exist for those who have pioneered cutting-edge technology:
“In almost all of the more than 100 different magnetron and klystron models we manufacture we are the principal source.”
Here is an example of the symbiosis between product and process:
“the development of our own specialized manufacturing processes for their production has enabled us to retain in volume production the high-quality characteristics which had been designed into these products originally – a feat unusual in the field of microwave tube production, where it is frequently difficult to maintain quality standards in quantity production.”13
Litton vs Teledyne
Charles Thornton and Henry Singleton both explored their desire to diversify. Singleton was also a concentrated contrarian, during his career. One can be both concentrated and diversified: it is important to distinguish the two concepts.
Here is Charles’ opinion on diversification:
“Such activity is an integral part of our plan to broaden our capabilities in this field and to continue the diversification of the use of our production facilities.”14
In the notes to the financial statements of the 1956 annual report, Litton shared a list of all of its wholly owned subsidiaries: something Teledyne rarely did.
Litton Industries of California
US Engineering Co, Inc
The Ahrendt Instrument Company
The Automatic Seriograph Corporation
USECO Incorporated
(Triad acquired after year-end)
(Utrad acquired after year-end)
West Cost Electronics Co (Majority Owned)
Litton also provided a detailed breakdown of all its areas of R&D and product lines whereas Teledyne only cited its main areas of interest for future growth:
Radar and countermeasures
Digital computers and controls
Inertial guidance systems
Microwave power tubes
Servomechanisms and automatic controls
Electronic transformers and magnetic components
Printed and etched circuitry
Precision microwave components
Note Litton presented its earnings statement. In contrast, Teledyne almost always placed the balance sheet before the earnings statement.
Dear Intelligent Investor,
Thank you for reading.
You can access this report and more due to the generosity of Adam Mead here:
Charles Thornton, Litton Industries 1956 Annual Report, pp. 3-14.
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. 11.
Memorial Tributes, Vol 9, National Academy of Sciences (2001), pp. 251-252.
Henry Singleton, 1965 Teledyne Inc. Annual Report, pg. 7.
Thornton, Litton…, pg. 6.
Thornton, Litton…, pg. 8.
Thornton, Litton…, pg. 16.
Thornton, Litton…, pg. 10.
Thornton, Litton…, pg. 13.
Monty Jones, A Civic Entrepreneur: The Life of Technology Visionary George Kozmetsky (2018), pg. 100.
Thornton, Litton…, pg. 14.
Thornton, Litton…, pg. 14.
Thornton, Litton…, pg. 14.