Hughes, TRW offset defense cuts with telecommunications projects.

While the whole issue of defense conversion has left many companies high and dry, two Los Angeles defense giants are counting on their inroads into telecommunications to help offset losses due to military cutbacks.

Hughes Aircraft Co. in Westchester and TRW Inc. in Redondo Beach are finding that their backgrounds in making and operating satellites have given them a definite advantage to diversify into satellite communications in the commercial sector.

Although Hughes is considered the larger telecommunications success story of the two, TRW has made a foray into the wireless world and now both are competing in the area of mobile satellite communications -- a technology that enables callers to use portable phones to place international calls throughout the world.

As defense experts pointed out, these two companies have made the switch from defense into telecommunications because they already had a toehold on satellite technology before the satellite market was glutted.

"TRW and Hughes are already in related technologies such as satellites and fiber optics," said Michael Beltramo, president of Beltramo & Associates, a management and consulting firm in Brentwood specializing in defense and aerospace. "But as far as defense companies that make ships and airplanes, they will have no effect in telecommunications."

He said the idea of a defense company shifting gears overnight into telecommunications is "half nonsense" and about as likely as a pitcher becoming a linebacker.

"If you picture Nolan Ryan as a linebacker, then you'll see the whole problem with defense conversion," he said.

Nolan Ryan, 46, a pitcher with the Texas Rangers, has been a major league player for 27 years -- longer than anyone else -- and has racked up seven no hitters. But most sports experts would likely agree that Ryan would not last long as a professional football linebacker.

M.C. Lambert, a defense consultant in Century City, said, although all countries will start having telecommunications via satellite, "the world's not begging for more satellites."

He called Hughes "one of the best examples" of a defense company making the switch into telecommunications.

Hughes Aircraft Co. manages the telecommunications and space sector for its parent company, Los Angeles-based GM Hughes Electronics which, in turn, is owned by General Motors Corp.

Formed in 1986, GM Hughes is a merger of Hughes and Kokomo, Ind.-based Delco Electronics Corp., a leader in automotive electronics. The company moved its headquarters from Detroit to L.A. in 1992 when C. Michael Armstrong, chief executive of Hughes Aircraft Co., was given the additional title of chief executive officer of GM Hughes.

As a sign of the growing importance of telecommunications at the defense conglomerate, revenues for the telecommunications-and-space sector increased to $2.2 billion in fiscal 1992 from $755 million in 1982, said Richard Dore, manager of media relations for Hughes Aircraft.

Within the next five years, the telecommunications-and-space sector is expected to provide the largest segment of GM Hughes' earnings, stated Anthony Iorillo, president of the sector, one of six for the $12.3 billion (1992 revenues) company.

"If you look at our annual report, we have featured telecommunications as a primary growth area for the company," he said. "For years we have been focusing a lot of our energies and top talent in telecommunications."

Hughes executives said they have abandoned their goal of reaching a 50-50 ratio of commercial work to defense work, a goal they announced two years ago. Today, the commercial segment comprises closer to 25 percent of the company's total business -- the same proportion it comprised two years ago.

Since Hughes Aircraft Co. has been making satellites since 1963, it has been slowly but steadily expanding into a broader field of telecommunications.

* In 1979, Hughes set up El Segundo-based Hughes Communications Inc. to own and operate satellite service and break into the cable distribution business.

The company now owns and operates 12 satellites and has launched into two new areas. American Mobile Satellite Corp. is the company's genesis for a global satellite system for wireless phones, and DirecTv will provide 150 channels of direct programming to U.S. households starting in Spring 1994. DirecTv also started a division in Canada.

* In 1987, Hughes acquired a telecommunications company in Germantown, Md. and renamed it Hughes Network Systems. The company provides network equipment for private communications systems known as a VSAT (Very Small Aperture Terminal). The systems are used by large companies such as Wal-Mart Stores Inc., Holiday Inn, Merrill Lynch, Target Stores and Circuit City, which have multiple locations and need a cheaper and faster way to transfer large amounts of data.

A couple years ago, Hughes Network entered the digital cellular marketplace, providing both cellular phones and equipment for carriers.

Both areas have undergone rapid growth and are now being expanded overseas.

* In 1989, Hughes acquired a company based in Mountain View, Calif., which connects local networks, and renamed it Hughes LAN Systems Inc.

When Armstrong, the newly appointed CEO of GM Hughes, speaks about the company's future, he is most bullish about DirecTv, said Jeff Torkelson, a spokesman for Hughes Communication. "DirecTv is the single most important new business at Hughes Aircraft Co.," said Torkelson, who went on to call the division the "cornerstone of Hughes' diversification."

Torkelson said Hughes expects a $1 billion dollar market for DirecTv in seven years. He said DirecTv needs 2 million to 3 million subscribers to break even and the company projects 10 million subscribers by the year 2000.

While the defense sector at Hughes has been hit by defense cutbacks and the recession, Torkelson said Hughes Communications has grown from 280 employees to 400 in the last four years and expects to add another 100 in the next year because of DirecTv.

In the race for mobile satellite services, Hughes, as part of a consortium, is launching a satellite in 1994 to provide mobile phone services to anyone in North America. This would allow someone in the Yukon, for example, to carry a portable phone and call, fax or modem anyone in North America.

The satellite, being launched 22,300 miles high, is Hughes' vision of a global mobile phone system, in which similar satellites would be launched to orbit over different regions of the globe. The satellites would eventually be connected to provide worldwide portable phone access.

TRW, meanwhile, is hoping to get approval for a 12-satellite system that would provide voice, phone, fax and modem services to mobile subscribers around the world through satellites launched just 300 to 400 miles off the ground.

In May 1991, TRW filed an application with the Federal Communications Commission for its so-called Odyssey system, and company officials said they expect a ruling by the end of this year.

Ed Nowacki, vice president and general manager of TRW Federal Systems in Redondo Beach, said he doesn't know exactly how much money TRW would make if the license is approved, but it could be in the area of "several billion dollars per year."