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Will Rockwell Find Some Roots?

The Corporation: Makeovers

Will Rockwell Find Some Roots?

It's back in Wisconsin--this time betting on factory automation

Working for Rockwell International Corp. means keeping your bags packed. Somehow, Steve Etzel let himself forget that. Just three years ago, the investor-relations executive hauled his family from Pittsburgh to company headquarters in Costa Mesa, Calif., after Rockwell decided to cluster support functions near its semiconductor business. Against his better instincts, Etzel had a new home custom- built. Now, just a year after moving in, that home is on the market. And Etzel, 38, has to explain to his family why they're leaving sunny Southern California for blustery Milwaukee. Says a resigned Etzel: "I swore I'd never build a house. Now, I'm building my second."

If Rockwell's history means anything, he ought to keep those blueprints handy. Three times this decade, the former defense titan has relocated its headquarters. Each move accompanied a change in strategic focus as Rockwell sought a place in the post-cold-war economy. The latest move was announced in February, following a decision last year by Chairman and CEO Don H. Davis Jr. to spin off the semiconductor division and refocus Rockwell around Allen-Bradley, its Milwaukee-based factory-automation controls business.

After many attempts, Rockwell may finally have found a core business in which it can thrive. Allen-Bradley is the domestic leader in making electronic controls and other devices that move goods through a factory. It has an edge in some technologies that is letting it steal business from worldwide leader Siemens. Rockwell has streamlined everything from the production of Lipton tea bags for Unilever to the sorting of packages for Federal Express. The biggest winner in Rockwell's latest makeover, however, is Milwaukee. After a long drain of companies from the city, it is gaining its first big new industrial headquarters in 20 years (page 80)."WHAT ARE THEY?" In a way, Rockwell is returning home. The company got its start in 1919 when Willard Rockwell slapped his name on an Oshkosh (Wis.) factory making axles, springs, and other parts for automobiles. From there, it set out on a winding road as it delved into new transportation technologies. In 1967, Rockwell merged with North American Aviation and moved to Pittsburgh to get into the booming aircraft business. The '80s defense buildup found it making the B-1 bomber and the Space Shuttle while headquartered in El Segundo, near Los Angeles. When defense spending shriveled, Rockwell hopscotched across Southern California, spinning off and selling divisions.

The exit from the semiconductor business, which provides chips for modems, startled some investors and analysts. It was Rockwell's fastest grower and the center of a restructuring just completed under Davis' predecessor, Donald R. Beall, when he retired in October, 1997. "The semiconductor systems division was supposed to be the `new Rockwell,"' says Anthony Ginsberg, an analyst at Fourteen Research in New York. "What are they now?"

But Davis, 59, saw semiconductors as dangerously volatile and a drain on his plan to build around automation and aircraft systems. After taking the reins of Rockwell, Davis confided in Kenneth F. Yontz, a friend who helped try to buy Allen-Bradley 12 years earlier, about his strategy. Yontz, the CEO and president of scientific-equipment maker Sybron International Corp., pointed out that many of Davis' customers and competitors are based in the Midwest. "Don sits on my board," Yontz says. "I talked to him about bringing the headquarters to Milwaukee so they could be closer to customers. And it would be a good thing for Milwaukee, too."

Davis' fears were driven home last year, when Rockwell fell behind after miscalculating demand for the new high-speed v.90 modem technology, leaving it with outdated products. Rockwell wound up losing $410 million in 1998 on revenues of $6.8 billion--after spin-offs--about half of its 1995 revenues. With that, Davis made his decision.CLEAN BREAK. Did he move too soon? Since the semiconductor business was spun off in December as Conexant Systems Inc., it has thrived, recruiting top new personnel and launching new products. Its shares have more than doubled, to about 40. Still, with Rockwell's shares up some 21% so far in 1999, to about 50, the clean break seems to have been a good move all around. Semiconductors, Davis argues, were simply too different a business. "Our strategy to focus on our core business of automation, avionics, and working," he says. This year, Rockwell should have net income of $567 million, on revenues of $7 billion, according to a consensus of analysts compiled by First Call Corp.

Automation may not have the upside of chips, but Rockwell's position there is much stronger. And Davis knows the automation business well. He spent 22 years at Allen-Bradley before making an unsuccessful attempt with other execs to buy it from the Bradley family in 1985. Davis joined Rockwell shortly after its $1.6 billion offer won out.

While U.S. spending on automation is expected to grow 3% this year, Rockwell expects to expand at more than twice that rate. Having smoothed out some of the bumps that came from recent acquisitions, it is also seeing recovery in Asia. Rockwell is a strong No. 2 worldwide, with a 21% share behind Siemens' 28%, according to Standard & Poor's. One customer says Rockwell benefits from a perception that it is not beholden to certain equipment suppliers. "We went with Rockwell because they were flexible and would work with companies" that Siemens and others would not, says Peter Lui, general manager for planning at Hactl, which manages operations at Hong Kong International Airport.

Rockwell will move about 150 of its total 40,000 jobs--including the top 15 executives--into the 40-story Firstar Center building in downtown Milwaukee. Its employees can only hope this strategy proves more permanent than previous ones. Says W. Michael Barnes, Rockwell's chief financial officer: "Our customers are in the Midwest now. Our largest manufacturing plant is here. I don't know why we would need to go anywhere else." Except that when you've got itchy feet, the open road always beckons.By De'Ann Weimer in ChicagoReturn to top

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