Move Over, Sony

Just when everyone has written off consumer electronics, a few firms are bucking the trend. Can America make computers if it can't make TVs?

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To some, Bob Carver's operation near Seattle might seem like an act of rebellion, or sheer lunacy. At a time when most everyone from Wall Street to Silicon Valley has conceded the multibillion-dollar consumer-electronics industry to the Japanese and other Asians, Carver is trying to make a big score in stereo tuners and amplifiers. The thing of it is, he just might succeed.

Carver's products are based on technologies that he has developed and patented since turning from antiwar activism to invention in the 1970s. Using this technology as a starting point, he has been able to produce audio products with significant qualitative advantages over those turned out by much larger competitors. "The products of the Matsushitas, Pioneers, and Yamahas are so similar that you can put black tape over the labels and you couldn't tell the difference," says Carver Corp. marketing vice-president Milt McNally. "We do things that are not 'me-too,' where the Japanese can't wipe us out with their economies of scale and pricing."

For Carver, however, this "hit them where they ain't" philosophy has built-in limitations. Over the past three years, the company's sales have grown at a compound annual rate of 53%, and profits have nearly quadrupled. But the consumer market for $1,000 amplifiers and stereo televisions is limited -- maybe 10% or 15% of the total. Carver estimates that the esoteric high-end market will be saturated within five years.

To expand into new products, Carver has invested $6 million to improve the efficiency of his manufacturing operation, to make it competitive in the larger, mass-oriented market. "It might be easier to go to Japan with everything we design and say, 'You build it," Carver says. "But I don't see that as a way of building value for this company." Starting next year, the first American-made compact disk players will be made from his plant in Lynnwood, Wash.

Carver is certainly fighting against the current of conventional thought. "Leadership in consumer electronics [manufacturing] has passed to Japan, and it isn't coming back," declares William Relyea, a leading industry analyst at New York City's Eberstadt Fleming Inc. And the latest figures certainly help confirm this negative view. Once the dominant player in the industry, the United States in 1984 suffered a $9.6-billion trade deficit in consumer electronics, up 44% from the previous year. Estimates for 1985 show the deficit reaching $11 billion.

Nicholas P. Heymann, an analyst at Drexel Burnham Lambert, in New York City, expects the trend to accelerate over the next few years as the remaining consumer-electronics giants, particularly the new General Electric/RCA combine, shift from less profitable products, such as televisions, where the margins can be as low as 2%, to telecommunications and military hardware. "I don't see any future in consumer electronics in America," says Heymann, a former strategist for General Electric Co. "It's all going to go offshore. In a few years, there won't be a significant American stereo- or TV-manufacturing industry."

Rob Reis has heard the nay-saying countless times. Reis is president of Finial Technology Inc., whose turntable uses laser technology to allow the playing of ordinary vinyl records without wear. Although a sizable audiophile and professional market for the product exists, Reis had to spend over two years trying to find somebody to finance his startup." The attitude was that consumer was a market they didn't have time to learn about," he recalls.

Reis eventually got started without the support of Sand Hill Road, the Rodeo Drive of California venture capital. "We had always stayed away from the consumer field, like everyone else, but we were attracted to a differentiated technology," explains Carl Hutman, whose New York City venture capital fund provided Finial's first financial support. "It seemed a lot better than financing another diskdrive firm."

Reis now has some $2.3 million in capital, and expects to be turning out turntables by the end of the year from Finial's plant in Sunnyvale, Calif. But now there is another hitch. The American retreat from consumer electronics has meant that there are no domestic suppliers for many of the crucial, albeit mundane, components of his turntable. As a result, he'll be buying them from Japan.

Up in Lynnwood, Bob Carver's experience is quite similar. A Carver preamplifier, for instance, requires more than 400 resistors.Once commonly available in the United States, they can now be purchased for $1 or more only from companies supplying the aerospace industry. The same part can be purchased in Japan for less than one-quarter of a cent.

Even high-tech parts, such as laser-tracking mechanisms and VCR recording heads, are not available domestically, and Carver and his engineers spend hours trying to order them from catalogs printed in Japanese. This supply situation -- not the supposed superiority of Japanese manufacturing -- is largely responsible for driving Carver to contract with a company in Osaka to manufacture VCRs and other products in his line.

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