Francis Frazee isn't about to pass up even a tough job. So when a client came to him last year requesting a drilling machine capable of detecting broken tools, he set out on a month-long search for a company that could help. "You're looking for any job at a time like this," says Frazee, a project engineer at The Cross Co., a Cross & Trecker Corp. subsidiary that makes metal-cutting equipment. "And we were sure this could be done."

About six months later, Frazee had not only a prototype sitting in his shop but also a new business partner at his side. Sensor Developments Inc., a small company in Oxford, Mich., had created the tiny but crucial sensor that made the machine viable.

Such alliances could be instrumental in reviving the U.S. machine-tool business, which has been ravaged by imports. But many companies are resisting them. "The machine-tool builders are very private," says Albert Brendel, president of Sensor Developments. "The 'not-invented-here' syndrome definitely exists."

There is surely no lack of need. The recession and foreign imports have both delivered blows to machine-tool builders. The figures are numbing: Since 1981, about 25% of the industry has disappeared, and imports now claim about half the market.

The heaviest losses are in the commodity end of the business. To survive, many companies have added electronics, thereby making their machines "smarter." These computer-controlled machine tools -- now the industry's fastest-growing segment -- will become vital as companies build fully automated factories, complete with robots and sensors.

Factories running around-the-clock will use sensors to help inspect tools and parts. Sensors monitor systems by measuring force, vibration, sound, and other phenomena. Acoustic sensors, for instance, listen for dull or broken tools to prevent costly damage.

At least 50 small companies are vying for the sensor market, and a few are working with large businesses. Two years ago, Acme-Cleveland Corp., a machine-tool company, put up seed capital for Digital Signal Corp. It now owns more than 20% of the company, which builds equipment to interpret sensor data (see INC., "Strategic Alliances," June).

But most machine-tool builders have acted slowly. "The commitment to technology, the substantial investment, and the risk-taking are on a scale that they are not used to," says Richard Sebastian, Digital Signal's president. "They don't appreciate the commitment and investment it takes."

In the future, big companies are likely to pursue more such alliances -- and the industry could regain its health. "It's going to be a very gradual process," says Christine Chien, an analyst with Prudential-Bache Securities Inc. "The industry needs a lot of reviving in its current shape."