How TRW Inc., a mirror of US economy, is coping
Boston — Put a magnifying glass over TRW Inc. and you see the general state of American industry.
Two of the $5 billion company's business sectors - auto products and industrial products - are ''bumping along the bottom,'' Charles Allen, TRW executive vice-president, said at an analysts meeting here this week. But the third sector, electronics and space systems, is still blasting off with increased earnings.
With Detroit in trouble, and European and Japanese auto producers also feeling a slack, demand for TRW's auto and truck products has dropped considerably this year. Sales for the first nine months are off 8.2 percent from the same period last year.
And with an oil glut splashing around, the company has been laying off workers in its oil equipment division. Likewise, demand for industrial products such as tools, fasteners, and bearings is off as US industry reigns in capital spending.
Mr. Allen admits the company will have to ''grind through the recession'' and come out with lower earnings this year. But he also talks with optimism and excitement about the company's strategies to emerge ''in a strong position, ready to take advantage of new opportunities.''
Analysts see no major roadblocks ahead. ''Over the long run, the outlook for the company is extremely favorable - very, very strong,'' says Phil Fricke, who follows TRW for Goldman, Sachs & Co., an investment banking firm.
Mr. Fricke adds that the company, No. 71 on the Fortune 500 list of the largest industrials, has a capable management team to pull it through: ''The management team has a tremendous mixture of science and business acumen.''
TRW is counting on its strongest leg - electronics, space, and defense products - to do much of the supporting during the recession. Its two other segments, which account for about 30 percent of total sales each, help keep up the cash flow. ''Earnings are nice but cash in the till is better'' at this point, Allen says.
While its auto and industrial sectors may be limping along, ''they continue to do better than the overall market,'' says Fricke. He attributes this to strategies heavily emphasized at TRW. As priorities for the '80s, the company has chosen these areas:
* New-product emphasis.
* Niche marketing (supplying parts for a final product).
* Increased productivity and quality.
* Special attention to long-term research and development.
* Application of high-technology to older products.
''The niche strategy has worked pretty well,'' says a Morgan Stanley analyst, Wolfgang Demisch, who also follows TRW. He says the company is the leader in rack and pinion steering, especially for trucks. Mr. Demisch also feels the company's attention to oil pumps and drills as well as replacement parts has fared well.
In the last year and a half, TRW has come out with a number of new products. In the auto and truck sector, it has introduced an electronic control for truck engines which monitors performance. In the industrial sector it turned out carbide drills and cutting tools. And in electronics it produced a one-micron chip; a tracking data relay satellite for the space shuttle; and a deep space surveillance system.
In 1981, the company performed over $1 billion worth of research and development. About 80 percent was for the Department of Defense. The defense-related projects ''have propelled them through this nightmare (recession),'' analyst Fricke said. And high-tech products will continue to be a priority with the Defense Department, even if there are cutbacks in defense spending, he adds.
The recession hasn't stopped capital investing, said Allen, and next year the funneling money toward are microelectronics, fiber optics, advanced software, electronic warfare, and defense communications. About $400 million has gone to productivity and quality improvement.
TRW is not a company to take many risks. It leans heavily on geographic, customer, and product diversification. It's cautious in the acquisition area, too. Recently it bought an English company for its auto sector, a West German one for its electronics, and a US company for its industrial sector. All are small and specialized.
TRW strategies may not make a dazzling impact on earnings right away, but ''we're in business for the long term,'' Allen emphasized.