Defense Giants Launch Anew Into Commercial Market.

Local aerospace/defense giants, replenished with talent as engineers return from failed dot-coms, are stepping up their push into commercial ventures. Through licensing agreements and spin-offs, companies like TRW Inc., Rockwell International Corp. and others are developing a new wave of consumer applications for what were originally military technologies.

They range from lip-reading PCs to systems that would enable pilots to "see" through fog by superimposing computer-generated terrain onto the cockpit window.

This is hardly the first time defense giants have pushed the commercial-applications envelope, and for the most part, those earlier attempts were busts. (Boeing Co.'s effort in the 1970s to make shower compartments for modular homes and, more recently, Northrop Grumman Corp.'s Advanced Technology Transit Bus are two notorious flops.)

This time appears to be different, however, several industry executives and observers agreed. That's because valuable lessons learned in those past attempts are now being applied to this latest push.

"There is a recognition on the part of the defense and aerospace industry that it takes a certain mount of market savvy to take their technologies to market, which was missing before," said Brett Hoselton, analyst with McDonald Investments. "They're realizing that they have to form partnerships and combine those with their technology."

In other words, it's not just about having the best mousetrap.

"The primary thing they've learned from past mistakes is that they don't have the internal talent to make it successful and that they shouldn't finance it completely themselves," said Jonathan Kutler, president of aerospace industry research firm Quarterdeck Investment Partners. "They're starting to hire outside people to set the efforts up, and they're seeking outside capital to validate the concepts."

Among the more mature examples is TRW's local entertainment spinoff, Picture PipeLine LLC.

The Carson-based company, born in TRW's Redondo Beach facility, provides producers of TV shows, commercials, movies and other digital video products with technology that allows instant transmission of footage from remote shooting locations to editing studios. Also, using broadband connections, the technology allows videoconferencing in which all participants can simultaneously review and manipulate the same scenes and footage.

Warner Bros., a unit of AOL Time Warner, holds a small minority stake in Picture PipeLine and its TV drama "Third Watch" has signed up as a first client. "Third Watch" is shot in Brooklyn, has directors' offices in New York City and editing facilities in Burbank, making it an ideal candidate for the technology.

TRW specializes in defense-related satellites and specially encrypted computer communications systems. Picture PipeLine will use the same digital video and networking technology that the Pentagon uses, for example, to monitor classified missile tests.

Reaching out

The development of Picture PipeLine also illustrates the point that aerospace/defense giants are learning to emerge from their military-induced secrecy when developing commercial applications, and embrace cross-pollination with outsiders.

The idea for Picture PipeLine, for example, was spawned at meetings that TRW participated in with Hollywood executives at USC's Entertainment Technology Center.

"We knew there was a need and we knew we had the technology," said Tom Gritzmacher, a TRW executive who was tapped to be Picture PipeLine's president. "It's figuring out how to get that technology to market that's the unique and challenging thing."

Toward that end, TRW brought in a sales and marketing pointman, Charlie Mitchell, who was previously vice president of sales for Burbank-based 3 Point Digital.

Likewise, Rohit Shukla, CEO of the L.A. Regional Technology Alliance, has worked with Thousand Oaks-based Rockwell Science Center to help take Rockwell's mousetraps to market, and Shukla is bullish on the company's prospects.

"They're making a calculated step at the Science Center to get in the commercialization mode," he said. "And their technology, which is way ahead of its time, is ready for prime time because of the sheer growth of the communications revolution."

The Science Center is deploying an array of technology that evolved from its military past, technology the company hopes will find its way into everything from cell phones to home PCs.

The Science Center has been around since the 1960s, when it was launched to conduct R&D for Milwaukee-based Rockwell's space and national defense projects.

Fresh approach

Today, the Science Center, led by director Derek Cheung, is operating under an entirely new business model that its parent implemented a year ago. It generated $78 million in revenues in 2000, a slight increase over the prior year.

"Basically, we pick technology that has market potential, bring it to the prototype stage with our own money and then we start talking with investors," Cheung said. "As I see it, we're spinning off technology, not businesses."

That technology includes an olfactory sensor that simulates the sense of smell of a canine. The application has myriad industrial and medical applications because the sensor can be modified to "smell" anything. Prototypes can sniff out landmines, bacteria, chemicals and grains.

The Science Center's micro-electro-mechanical systems (MEMS) are tiny mechanical switches that can, for example, be used to make cell phones more efficient by directing antenna energy to specific locations. (In existing cell phones, a signal is beamed in all directions.)

Rockwell's augmented-reality technology, which lets a computer superimpose information over reality, has applications limited only by the imagination. It is the technology that can enable pilots to "see" through fog.

The Science Center is also marketing speech-recognition technology that tracks lip movement, enabling a computer user, for example, to "talk" to a computer and give it commands.

"All aerospace and defense companies are aware of the potential value of the vast technology they have," Cheung said. "But now there's a lot more deliberate effort to deliver value on those latent assets. That's going to involve partnering so we can get the expertise that we don't have."

Another player

Rockwell and TRW are, of course, not alone. Consider El Segundo-based Hughes Electronics Corp., which has aggressively transformed itself into a consumer concern with the jewel in its portfolio: DirecTV. One of the largest providers of pay-TV in the country, DirecTV kicks in about two-thirds of Hughes' total revenue.

Hughes, which General Motors Corp. acquired in 1985, began turning its satellite operations into a consumer-oriented business in the early 1990s.

What all the aerospace/defense firms have when they get into the commercialization mode is capital and talent, which are increasingly elusive to tech startups.

Dot-com disasters have been a boon for aerospace/defense firms, whose pool of engineers had dwindled to near crisis levels when techies began jumping ship for sexy startups.

According to Cheung and others, last winter marked the return of the techies to aerospace/defense companies. Cheung said he hired 94 people last year, boosting the Science Center staff to about 450, almost half of whom hold doctoral degrees.

"It was hard to recruit and retain a year ago, but now we're having success bringing people in," Cheung said. "In the last few months, our batting average has been extremely high."