Daktronics, Inc.

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Daktronics, Inc.

331 32nd Avenue
Brookings, South Dakota 57006
U.S.A.
Telephone: (605) 697-4300
Fax: (605) 697-4700
Web site: http://www.daktronics.com

Public Company
Incorporated: 1968
Employees: 638
Sales: $95.9 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: DAKT
NAIC: 339950 Scoreboards Manufacturing

Daktronics, Inc. is one of the world’s largest suppliers of electronic scoreboards, computer programmable display systems, and large video displays for sport, business, and government applications. Its primary product groups are made up of Sports Products, Large Matrix Products, and Business Products. Product displays include standard scoreboards, timing and judging equipment, commercial information displays, custom scoreboards, voting systems, and traffic/transportation displays. Typically, Daktronics sells standard scoreboards to high schools as sports scoreboards and message centers. Timing and judging equipment is sold to high schools, colleges, swim clubs, YMCAs, and other health/sports organizations. The commercial information displays are sold to all types of businesses for indoor and outdoor advertising through sign companies. The custom scoreboards are sold to colleges, arenas, auditoriums, and pro sports facilities. The voting systems are used by state legislatures to record votes and display information to members. The traffic/transportation systems are sold to airports and highway departments. The company offers the most complete line of large display products of any single manufacturer, from smaller indoor scoreboards and displays to multimillion-dollar outdoor video display systems. Daktronics’ displays communicate with millions of viewers in more than 60 countries worldwide. It is recognized globally as a technical leader with the capabilities to design, manufacture, install, and service complete systems displaying real-time data, graphics, animation, and video. Daktronics sells display systems ranging from small standard scoreboards priced under $1,000, to large complex displays priced in excess of $7 million.

1960s: Revolutionary Technical Advances Support Birth of New Company

Daktronics was founded in 1968 by Dr. Aelred Kurtenbach and Dr. Duane Sander, two professors of electrical engineering at South Dakota State University (SDSU) in Brookings. Kurtenbach received his B.S., M.S., and Ph.D. degrees in Electrical Engineering from South Dakota School of Mines and Technology, the University of Nebraska, and Purdue University, respectively. His experience spanned the fields of communication engineering and control system design, technical services, computer systems, electrical engineering education, and small business management. Cofounder Duane Sander began operating as a director and secretary of the company. He served as the Dean of Engineering at SDSU, where he taught electrical engineering courses and directed biomedical research projects since 1967. The founders utilized the talents of the school’s graduates, in 1970 producing and selling their first product, a voting display system for the Utah legislature. The founders sold shares to the public, marketing their offering as an opportunity for people in the community to invest in a new start-up. People in the area recognized the talent coming out of SDSU and responded favorably. Following up on a tip from the university’s wrestling coach, they built a small Scoreboard for school meets, a project that ultimately catapulted the company into the limelight, when a Daktronics Scoreboard was employed at wrestling competitions during the 1976 Olympics.

Daktronics began using the technology developed from voting display systems, expanding production to include large scoreboards and commercial displays. Typical users of commercial displays included banks, shopping centers, auto dealers, hotels, retail stores, advertising companies, and casinos. Attuned to technical innovations of the time, the company incorporated microprocessor-based computers to process information provided by an operator, and to formulate the information for presentation on a display. In the late 1970s the company began building computer-programmable information display systems utilizing standard modules or sections in a variety of systems. The use of modular sections allowed Daktronics to offer a broad range of standard as well as custom products. Daktronics’ systems were comprised of two principal components, the display and the display controller. The display controller used computer hardware and software to process the information provided from the operator and formulated the information, graphics, or animation to be presented on the display. The display controller then controlled each of the picture elements or “pixels” on the display to present the message or image. Data was transferred between the display controller and the displays for both local and remote display sites. Local connections used twisted pair cables, fiber optic cables, infrared links, or radio frequency. Both standard and cellular telephone connections were used to connect remote display locations, connections which were generally purchased from third parties. Prior to the use of computer programmable signage—which either emits or reflects light depending on the specific display technology—the large video display business was dominated by the small cathode ray tube-based product, and the suppliers were generally the same companies that were in the television set business.

World-Class Events: 1970s–80s

Daktronics quickly became an established leader in the niche of computer programmable signs and by 1977 the company had surpassed $1 million in annual sales, forcing it to double the size of its facilities. Daktronics secured a contract to provide nine large scoreboards for the 1980 Winter Olympic Games in Lake Placid. During that period it also provided scoreboards for several large college installations. The company continued to enhance its controller and display technology, acquiring the Glow Cube reflective display technology along with Star Circuits, a manufacturer of printed circuit boards. In the mid-1980s the company installed its first major league Scoreboard and provided systems to several other Olympic events as well as the PGA golf tour.

On New Year’s Eve, 1984, Daktronics installed its first large Starburst technology display at Caesar’s Palace in Las Vegas, and later converted the World famous “Zipper” display at Times Square in New York City to Daktronics LED (light emitting diode) technology. In an interview with Sharon Phillips of the Wall St. Corporate Reporter, Aelred Kurtenbach stated that “We are building off the computer industry so there is definite expansion taking place. This is a growth-oriented business that addresses interesting applications.”

Entering the Global Market; Lighting Las Vegas: 1990s

During the 1990s Daktronics initiated a strategic business alliance with Omega Electronics, S.A. of Bienne, Switzerland, a leading timing systems manufacturer and a company of SMH. The two companies planned to utilize each other’s complementary core business positions, with Omega distributing Daktronics scoreboards and matrix displays for use in sport applications around the world. In return, Daktronics added Omega Electronics sports timing and photofinish products to its product offering for sale in the United States and Canada. Daktronics was counting on Omega Electronics’ established presence and reputation to open up areas of the world that were very difficult and expensive to penetrate. Within months of the alliance, projects for Daktronics Scoreboard installations outside of North America included locations in Singapore, Egypt, France, Colombia, Switzerland, Portugal, India, and Scotland.

Another SMH company, Swiss Timing, the largest watchmaker in the world, contracted with Daktronics to provide more than 70 scoreboards for the 1996 Olympics to be held in Atlanta, Georgia. Everything from small, indoor reflective displays to large, outdoor incandescent displays using low-energy lamp/reflector/lens technologies were included in the installations, with the most sophisticated displays located in the Olympic Stadium, site of the opening and closing ceremonies and track and field events. After the Olympics, the stadium and scoreboards were reconfigured for baseball, where the Atlanta Braves began playing in the 1997 season. New service offices were opened in Atlanta, Columbus, and San Antonio, bringing the total number of Scoreboard Sales and Service offices to 11, as plans for further statewide openings were being considered.

Daktronics negotiated a multimillion-dollar contract with Artkraft-Strauss Sign Corporation to provide five large electronic displays and 24 digital clocks for installation in Times Square. Replacing the famous Zipper sign, the new 370-foot-long display used amber LEDs, controlled by the company’s proprietary Venus 7000 software. The Venus control system was a Windows-based, large matrix control system that allowed customers to easily display text messages, colorful graphics and animation, statistics and data imported from other programs, out-of-town game scores, live video, and instant replays. Three of the displays were designed to scroll news headlines in 48-inch-high characters, for NASDAQ and NYSE market information. The other two showed additional financial information, still graphics, animation, and video-sourced graphics in 256 different shades of color.

Company Perspectives:

As a company, we continue our focus on providing the best possible service to our customers. We do this through concentrated attention to market needs, by improving the features of existing products and introducing new products that excite the marketplace, and by providing product and service quality and delivery in a manner that is expected from an industry leader. We continue to improve our after sale service offerings as well, in both the operation and maintenance of the display systems that we have in the field. It was [more than] ten years ago that we made a paradigm shift in our approach to the marketplace. At that time we changed from ‘selling products’ to ‘serving markets.’ We expect the payoff for that change to continue.

Responding to the growth of the U.S. gaming industry—and due to the gaming industry’s large use of programmable displays—the company developed special products for that market, a market of seemingly unlimited growth potential. In Las Vegas, new and bigger casinos continued to entice customers. In response to that growth, the company consolidated its marketing efforts to casinos to take advantage of contacts and experience with electric sign companies. In addition to gaming growth in the Las Vegas area, Daktronics provided color displays to several riverboat and Native American casinos in other areas, and digital jackpot displays on billboards for the Oregon lottery. At dog and horse racetracks Daktronics’ products were utilized to display odds, winners, track conditions, and other information.

Despite sales growth in 1996, profits dropped from those of fiscal 1995, attributed to a $900,000 projected cost overrun on a contract to supply variable message signs to the New Jersey Department of Transportation and competitive conditions in other market segments. Company executives countered the loss by initiating a strategy to focus on product improvement and to slow down the growth pace. They planned to continue expanding sales and profits from standard products and to limit the increase of selling, general, and administrative costs, and to concentrate on returning to a profitable position in its custom technical contracting business. The company introduced a number of new standard products and expanded its manufacturing space to accommodate the final assembly of standard products. Additional sales and service staff were added to support that manufacturing facility.

Daktronics’ sport market niches continued to provide some 70 percent of sales in 1997. The company reorganized its Engineering Departments into three product groups: Sports Products (primarily scoreboards and timing equipment); Data Trac/InfoNet (primarily text based displays); and Large Matrix (graphics/animation/video displays). The reorganization was intended to allow the company’s technical employees to interact more effectively with the marketplace and to bring more appropriate products to the market in less time. The groups focused on standardizing smaller products and subassemblies that were used in building larger display systems.

Company management remained committed to having the capability to offer a variety of different programmable display technologies for different customers. Many of Daktronics’ competitors in the business markets produced only one type of display (lamp, LED, or reflective), limiting their offerings to customers, while Daktronics offered a solution for each unique situation. Management reasserted its desire to develop innovative products and updating existing ones with new features, reducing costs when possible to maintain a competitive edge. Their strategy paid off with improved profit margins—a net income increase in 1998 of 125 percent over the previous year. By May of that year company backlog exceeded $21 million and executives were confident that strong growth would continue. Following the introduction of the ProStar family of RGB (red/green/blue) LED displays, which were enhanced in both resolution and color depth, executives felt confident that the company could compete favorably with industry giants such as Sony, Mitsubishi, Panasonic, and other large screen video display companies.

Daktronics signed a multimillion-dollar contract with SMH to provide scoreboards, matrix displays, and technical support services at the 2000 Summer Olympics in Sydney, Australia. Daktronics had already installed equipment for certain venues at the site, including the International Aquatics Centre and the Sydney Showground. The equipment included more than 50 scoreboards and matrix displays to record scores, times, and other information at 34 different venues.

The company maintained its close relationship with South Dakota State University, attributing much of the company’s technical expertise to the institution’s policy of ongoing training and education. Some 300 of the university’s students were employed at Daktronics in various capacities in 1998. The company reimbursed tuition costs for work-related courses and internal education. According to company sources, many of the company leaders were at one time working at Daktronics as students. Additionally, Daktronics offered a few internships with other regional universities.

James Morgan took over as president and COO of the company in 1999, at a time when the company ranked as one of “The 100 Best Stocks to Own for Under $20,” in the book of the same name by Gene Walden. Morgan earned his bachelor’s and master’s degrees in electrical engineering from SDSU and joined Daktronics in 1970 as a graduate student. Morgan designed the first company Scoreboard, the Matside wrestling Scoreboard, in 1971. His other accomplishments included leading the design, manufacturing, and installation of the first Daktronics swim timing system, a control system for a municipal water treatment plant, various voting systems, and the first Daktronics outdoor electronic message center.

According to Jonah Keri of Investor’s Business Daily, “A boom in new stadium construction, a greater focus on fan entertainment and corporations’ heightened interest in sponsoring professional, college and high school sports has sent the Scoreboard industry through the roof.” Daktronics’ main rival in the Scoreboard market was Trans-Lux Corporation, and it, too, attracted high-profile sports clients, contracting projects such as the Rose Bowl and the San Francisco Giants’ Pacific Bell Park, among others. Industry analysts predicted that superior product offerings by both Daktronics and Trans-Lux would enable them to be major contenders, with the other rival companies dropping off.

Key Dates:

1968:: Daktronics incorporates.
1969:: Company completes its first stock offering.
1976:: Daktronics scoreboards are first used in Olympic competition (wrestling).
1984:: The company is restructured from a product-driven to a market-driven organization.
1987:: Daktronics acquires circuit board manufacturer Star Circuits.
1994:: Daktronics stock is traded on the NASDAQ exchange.
1999:: Daktronics sets record for annual orders with more than $100 million booked.