Grass Valley Takes Stock of the Future

The broadcast mainstay assesses where it's been, where it's going.

By Tom Butts

Changing Times—Changing Strategies
Strong Interest in New Products
An Internet Future

Having weathered the most turbulent period of its 40-year history, Grass Valley Group (GVG; Nevada City, CA) executives are confident and optimistic of the company's ability to succeed in a rapidly changing broadcast environment.

GVG officials recently met with the broadcast trade press to discuss the company's current status and strategies for the future. Having been formed by combining Tektronix's former Video Networking Division (VND) and Tek's Grass Valley subsidiary last year, GVG now has the opportunity to re-make itself to prosper in a future where the growth of digital video is not restricted by the delivery medium.

While company officials would be hesitant to classify the appearance of GVG's new chairman, Terence Gooding, on the scene last summer as a "rescue," it's clear that Gooding, a hi-tech entrepreneur, provided the much needed cash and vision—but with a "hands off" approach&3151;that will help stabilize the company.

According to GVG president Tim Thorsteinson, the company's stability rests on three key goals:

• A narrower focus on its strengths—namely the video server area—where GVG's Profile maintains the number one market share, as well as Grass Valley switchers, routers, and modular products. Over the past several years, Tek had tried its hands at PCs and non-linear editing systems, but found the market to be saturated and unresponsive.
  
• Reducing costs—over the past year, GVG consolidated from three manufacturing plants to its one present operation in Nevada City, reducing costs from $45 million per quarter to $19 million per quarter.
  
• Competitive pricing—including using commodity microprocessors to reduce manufacturing costs.

Changing Times—Changing Strategies (Back to Top)
Looking back over the company's fall in revenues over the past several years, Thorsteinson knew he had to act. The company was resting on the success of its Profile servers and its well-known switchers, but in a rapidly changing broadcast landscape, that wasn't enough.

A year ago, revenues from new products introduced within the previous 12 months represented less than 10% of VND's revenues, according to Thorsteinson. "Most of the products we were selling had been introduced 5–6 years ago," Thorsteinson said. "If you don't offer new products every 18–24 months, you won't succeed in this business."

Thorsteinson had already taken action, though—investing $60 million in research and development over the previous 24 months to develop new products. "Our investment in engineering expertise continues at about 13%–15% of sales. We continue to spend about $30–$35 million annually on R&D."

By the beginning of 2001, his goal is to have virtually all of the company's revenue come from products introduced onto the market within the last two years.

Thorsteinson admits that the downturn in the Asian economy was also a factor in the company's revenue drop. Total revenue overseas amount to 45% of the company's bottom line, and the company had a strong presence in Korea. Thorsteinson predicts that the company's strongest overseas presence going forward will be in Japan, Germany, and China.

In addition, the company recently purchased a 50,000-square-foot manufacturing facility in Beaverton, OR, and will spend $2.7 million in property improvements.

Strong Interest in New Products (Back to Top)
Interest in the company's new products introduced since last summer has been strong, according to Thorsteinson. GVG has taken 26 orders for its Kalypso production system, which will begin shipping in March. In addition, the company has received 65 orders for its next-generation Profile XP media server.

Avstar, the birthchild between Avid (Tewksbury, MA) and GVG, remains an important part of the company's business, but Gooding says GVG will rely less on joint ventures. "It takes so much work to do a joint venture," Gooding says. However, the company does plan on making some acquisitions, possibly in the software area, as the company intends to market GVG-branded software to video facilities in the near future. "You will see either a separate software business or unit sometime this year," Gooding predicts.

An Internet Future (Back to Top)
Looking to the future, GVG—like so many others—is positioning itself to harness the Internet as the basis for its technology. "Figuring out how to leverage the Internet will be a key part of our strategy," Thorsteinson says. For a company that has relied on a thriving broadcast market for the past 40 years, GVG is well aware the DTV transition has not provided the boom that many expected.

"The world is changing rapidly," Thorsteinson says. "To grow the business to where we want to take it in the next 5–10 years, we're going to have to start building products outside our core market."