THOMSON multimedia S.A.

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THOMSON multimedia S.A.

46 Quai Alphonse Le Gallo
92648 Boulogne Cedex
France
Telephone: (+33) 1 41 86 50 00
Fax: (+33) 14186 6100
Web site: http://www.thomson-multimedia.com

Public Company
Incorporated: 1893 as Compagnie Française Thomson
Employees: 61,184
Sales: EUR 9.09 billion (2000)
Stock Exchanges: Euronext Paris New York
Ticker Symbols: TMM; TMS
NAIC: 334310 Audio and Video Equipment Manufacturing

THOMSON multimedia S.A. (Thomson multimedia) is one of the world’s top four consumer electronics manufacturers, with leading shares in a number of important product categories, including the number one position for televisions sold in the United States, through its RCA brand. Based in France, Thomson multimedia has successfully positioned itself as the leading player in the transition to digital technologies—ranging from DVDs to high-definition-television to high-speed digital networks—and has built up operations spanning five primary divisions: Displays and Components, including a number two worldwide position in very large picture tube production; Digital Media Solutions, with its world-leading share of the media and content services industries through subsidiary Technicolor; Consumer Products, including its TAK interactive television system developed in partnership with Microsoft and its Lyra portable digital music system; New Media and Services; and Patents and Licensing. The company’s brands include Thomson, RCA, and Technicolor. Production takes place in 31 sites located worldwide; the company also operates 28 sales and distribution centers, six research and development sites, and 12 patents and licensing facilities. Led by Thierry Breton, formerly of Bull SA, Thomson multimedia is listed on the Paris stock exchange. Primary shareholders include Microsoft, Alcatel, NEC, and DirectTV (GE) ; the French government remains Thomson’s single largest shareholder.

Consumer Electronics Pioneer in the 20th Century

Thomson was originally founded as the French subsidiary of the Thomson-Houston Electric Corporation, an American tramway-equipment manufacturer with considerable resources in patented machinery for the electric power industry. The company, called Compagnie Française Thomson-Houston, was established in 1893, and operated largely as a sales and administrative office. Ten years later, the parent company was acquired by General Electric Company, and General Electric sold Compagnie Française Thomson-Houston to a group of French investors.

The new owners, who retained the name of the company’s American founders, were faced with the difficult task of building a strong group of engineers and project managers. For many years, the company maintained a licensing relationship with General Electric. In search of greater managerial and creative freedom, Thomson-Houston began a diversification program in 1921 which led the company into a variety of new marketing segments, including General Electric’s emerging specialty: the consumer market.

Thomson-Houston grew slowly during the 1920s and 1930s. Changes in the government resulted in inconsistent industrial policy, which, on occasion, led to adverse economic conditions. Unwilling to invest heavily in new plants and equipment, Thomson-Houston saw no major growth until the eve of World War II, when the government hastily drew up an industrialization plan which, it hoped, would discourage German military adventurism in Europe. Thomson-Houston scarcely had time to begin planning production schedules before its facilities were overrun by German troops.

During the occupation, Thomson-Houston’s facilities were either converted to meet the needs of the German war effort or idled. As in virtually every sector throughout French industry, consumer product manufacturing ceased entirely, leading to a shortage of switches, motors, and lights.

At the end of the war, Thomson-Houston was reorganized to facilitate recovery. At the request of the government, the company first devoted production efforts to rebuilding French infrastructure and industry, but the demand for consumer products remained high for several years as well.

Political discord between France and the United States eventually led many French companies to end associations with American companies. For Thomson, however (the name Houston was dropped during this period), several other factors contributed to the company’s decision in 1953 to end its 50-year cooperative agreement with General Electric. Thomson had emerged as an important industrial supplier and strategic military resource. Sensitivity to the security of new French technologies and the French nuclear effort, in addition to Thomson’s ability to remain commercially successful on its own, all necessitated independence.

At the same time, Thomson benefited from a government militarization program to support French colonial interests. This provided the company with sufficient capital for a steady and broad internal expansion which continued until 1966. That year, Thomson acquired Hotchkiss-Brandt, a profitable French consumer products company with substantial interests in automotive and military products. The acquisition marked the beginning of a phase of rapid expansion for Thomson.

Reorganization in the 1980s

In 1968 Thomson-Brandt, as the new company was now called, merged its electronics division with the French communications manufacturer Compagnie Generale de Télégraphie Sans Fils. The new subsidiary, Thomson-CSF, became France’s primary manufacturer of high-technology professional electronics. Looking beyond its borders, Thomson-Brandt acquired several smaller companies throughout Europe. By the mid-1970s, the company’s interests extended to Asia, Africa, and North America.

Thomson-Brandt gradually lost the ability to efficiently manage shortcomings in development, production, and, ultimately, profitability. Overburdened by a bureaucracy which included two autonomous chief executives, Thomson-Brandt had no effective central-planning capability and no real budget control. These problems were exacerbated by a steady diet of government business; because liquidity could be guaranteed through sales volume, Thomson-Brandt continued to sink deeper into financial chaos. The company made numerous attempts to build new markets, including several joint ventures with such companies as Xerox, Contel, and later the Italian electronics company SGS.

During this period, industrial mismanagement became a political issue for French Socialists, who promised nationalization of large industries. In 1981, the year the Socialists came to power, the government took over management of Thomson-Brandt. Alain Gomez, a Harvard-educated manager who had worked several years for Saint Gobain, succeeded Jean Pierre Bouyssonnie as chairman. Administrators appointed by the government found the company in such poor shape that it required a massive reorganization. While production continued unhindered, management’s three-year shake-up ended in 1981, when Christian Aubin was appointed to overhaul the company’s financial-reporting system. New reporting methods enabled Gomez to identify losing and underperforming assets and recommend divisions for divestiture.

The year-long reorganization began in September 1982 and resulted in the creation of a new holding company called Thomson S.A., which superseded the old Thomson-Brandt organization.

In one of his first moves toward revitalizing Thomson, Gomez participated in a plan led by Industry Minister Laurent Fabius to rationalize French electronics production. Under the agreement, concluded in 1983, Thomson transferred most of its interests in telecommunications equipment and cable manufacturing to French electronics giant Cie Générale d’Electricité (CGE), participating only through a minority interest in a subsidiary managed by CGE. In return, Thomson took over a portion of CGE’s interests in consumer electronics, electronic components, and defense electronics. The pact drew much criticism, particularly for Gomez, a visibly frustrated entrepreneur and reluctant government servant. Gomez nevertheless defended the agreement, citing it as an essential step in positioning Thomson for greater competitive innovation.

In a separate move more in keeping with his ambitions, Gomez attempted to acquire the West German electronics company Grundig in 1984. Rebuffed by German antitrust law and the defiance of company founder Max Grundig, Gomez turned his attention to an easier target: the somewhat smaller firm Telefunken. Thomson, while successful in this effort, was widely denounced in West Germany, where the nationalization of French industry was perceived, in Gomez’s words, “as something between archaic and obnoxious.” Thomson’s greatest benefit from the takeover was not Telefunken’s product line, but instead the ability to circumvent German import restrictions and use Telefunken’s marketing network. The company was later criticized for streamlining Telefunken’s operations and laying off workers in Germany.

Company Perspectives:

“Thomson multimedia has been enjoying rapid and exciting change. We have been aggressive in creating our own destiny. We are transforming our company from a global leader in consumer electronics to a powerful force in the fast growing multimedia worlds of home entertainment, communications, and information technologies.”

—Thierry Breton, chairman and CEO

As Thomson’s position in world markets continued to recover, mounting opposition to the nationalization program led the Socialist government to reassess its experiment and declare that several companies would be returned to the private sector. On top of this, in 1986 Socialist President François Mitterand was forced to share power with a conservative element under Jacques Chirac, a strong proponent of privatization. Consequently, during 1987 the French government reduced its ownership in several companies, including Thomson. Gomez, who had become chairman of Thomson as a left-wing functionary, had become a proven turnaround artist, widely admired by conservative industrialists.

Consumer Electronics Leader: 1980s–2000s

In July 1987 Thomson engineered another operations swap. Only one month after acquiring the consumer electronics unit of Thorn-EMI, Thomson took over General Electric Company’s entire consumer electronics line—most of which GE had acquired in its 1986 takeover of RCA—in exchange for its Compagnie Generale de Radiologie medical equipment unit and some cash. As with Telefunken, Thomson saw nominal value in the products themselves, but sought to take advantage of an established marketing network.

This strategy of acquiring product lines for their marketing networks was not likely to pay off for several years. Meanwhile, Thomson struggled to revamp its product lines and create a consolidated brand identity. The strategy carried a great risk because of Thomson’s increased exposure to the volatile consumer electronics business, which was dominated by companies such as Philips (which succeeded in acquiring Grundig), Matsushita, and Sony. Yet the expansion of its consumer electronics side was seen as a necessary risk if Thomson was to reduce its dependence on profitable but unpredictable military contracts.

Thomson began the 1990s with high hopes. The company celebrated the production of the 50 millionth RCA color television. The following year the company launched a new brand, Prosean, targeting the high-end television market. In 1992, the growing importance of American sales—where RCA remained the leading brand of television—was highlighted by the construction of a new North American headquarters in Indianapolis started in 1992 and completed in 1994. By then the company had already debuted its CinemaScreen television in the United States, with the slogan: “Television Made for the Movies.”

The company was also taking an active role in the development of the satellite television market, launching the RCA Digital Satellite System. Thomson’s growing commitment to the coming digital television era was further deepened when it joined in the founding of the Digital HDTV Grand Alliance.

In 1995, Thomson Consumer Electronics changed its name to Thomson multimedia to underscore its growing interests in the wider spectrum of interrelated consumer entertainment appliances. But by then the company’s own future was coming into doubt. The company had taken a risk at the beginning of the 1990s when it sought to compete at the top levels of the consumer electronics industry. Yet by the middle of the decade, it appeared as if Thomson had not been able to make the risk pay off, and the losses began to mount, topping FFr 25 billion.

A new, conservative-led French government threw a darker cloud over Thomson multimedia. Committed to the wide-scale privatization of France’s many government-owned and protected businesses, the French government announced its intention to split Thomson S.A. into its two core components—and then sell them for the grand total of one franc to French arms manufacturer Lagardere. In turn, Lagardere had reached an agreement to give Thomson multimedia to Korea’s Daewoo Corp., which would have resulted in making Daewoo the world’s number one television manufacturer. Yet public reaction—and union and political criticism—forced the government to back down on the plan. Instead, Thomson CSF was spun off in 1996 (and subsequently renamed Thaïes), and Thomson S.A. now continued as the government-owned holding company for Thomson multimedia.

In 1997, Thomson multimedia was given a new CEO, Thierry Breton, who joined the company from French computer group Bull. Breton quickly orchestrated a turnaround of the flagging company, restructuring operations while closing down a number of overseas production sites, accepting a cash infusion from the government topping $10 billion, and bringing in a battery of new partners. In 1998, the company opened its shareholding for the first time, selling 7.5 percent stakes in the company to Microsoft, NEC, Alcatel, and GE through its DirectTV subsidiary. With Microsoft, Thomson multimedia began developing a new interactive television system, dubbed TAK. The company also began cooperating with Microsoft as a supplier for the software giant’s coming video gaming system, Xbox.

The opening of the company’s capital was a prelude to a public offering, made in 1999 on the Paris and New York stock exchanges. The success of the offering, which sold another 17 percent of the company, showed how diligent Breton had been in turning the company around. Indeed, by the beginning of the next century, Thomson multimedia had joined the top four consumer electronics makers—yet led the field in terms of profitability. Part of this success was credited to Thomson’s early and strong commitment to building up its digital television and audio interests, giving the company an advance position on its competitors as more and more consumers turned to digital media.

Key Dates:

1893:: Compagnie Française Thomson-Houston is founded as the French subsidiary of the Thomson-Houston Electric Corporation, an American tramway-equipment manufacturer.
1903:: Thomson-Houston Electric is acquired by General Electric Company, which sells Compagnie Française Thomson-Houston to a group of French investors.
1921:: Company diversifies into consumer electronics.
1953:: Thomson ends cooperation agreement with General Electric (GE) .
1966:: Company acquires consumer products firm Hotchkiss-Brandt and embarks on a period of rapid expansion.
1982:: A new holding company, Thomson S.A., is created.
1984:: Telefunken is acquired and the company enters the West German market.
1987:: Thomson acquires consumer electronics line from GE.
1995:: Company changes its name to Thomson multimedia.
1999:: Company goes public on the Paris and New York stock exchanges.
2001:: Thomson acquires Technicolor from Carlton Communications and DSL modem division from Alcatel; forms joint-venture with NEC.

In 2000, the company went further, establishing a new division, Digital Media Solutions, for the creation of digital interactive entertainment and services. That year, the company bought a minority share in Philips Professional Broadcast, and then reached agreement with the U.K.-based Carlton Communications to form an alliance for developing digital interactive television and media content. Thomson also announced its intention to raise another $1 billion on the stock market, with the French government expected to reduce its holding to below the 50 percent mark. At the end of 2000, Thomson launched the first of its TAK interactive televisions, featuring a Windows CE-based browser, and interactive and Internet access features.

Thomson multimedia moved into the new century on a roll, buying up Carlton Communications’ media services subsidiary Technicolor in May 2001 and reaching an agreement with shareholder-partner NEC to combine their plasma display operations into a new joint-venture subsidiary. In June, Thomson turned to another shareholder, buying up Alcatel’s DSL modem operations. Thomson had placed its bets on the digital entertainment revolution—and this time its bets seemed to paying off, making the company one of the fastest growing and most profitable consumer electronics groups in the world.

Principal Subsidiaries

Atlinks; Deutsche Thomson-Brandt GmbH (Germany) ; Singingfish.com (U.S.A.) ; Sofia; Thomson Audio Dongguan (China) ; Thomson Audio Hong Kong Ltd; Thomson Audio; Thomson Consumer Electronics International SA; Thomson Licensing SA; Thomson Multimedia Digital France; Thomson Multimedia Inc. (U.S.A.) ; Thomson Multimedia Ltd (Canada) ; Thomson Tubes & Displays S.A.; Thomson Videoglass SA.

Principal Competitors

Aiwa Co., Ltd.; Daewoo Electronics Co., Ltd.; Harman International Industries, Incorporated; Hitachi, Ltd.; Hughes Electronics Corporation; LG Electronics Inc.; Lucent Technologies Inc; Matsushita Electric Industrial Co., Ltd.; Nokia Corporation; Pace Micro Technology PLC; Koninklijke Philips Electronics N.V.; Pioneer Corporation; Samsung Group; SANYO Electric Co., Ltd.; Sharp Corporation.