RCA's Comeback

At Radio Corp. of America, the master's voice belongs to Chairman David Sarnoff, and it has been rather cheerless in recent years. By 1960, two ambitious projects had pulled RCA profits down to a bare 2.4% on sales. One was Sarnoff's gamble on color television--a burst of red on the ledger books. The other was RCA's assault on the grimly competitive computer market; the figures that RCA computers produced were all minuses.

Last week Sarnoff beamed to the world that RCA had turned the corner in 1962. On record sales of $1.7 billion, the company raised its operating profits after taxes to more than $50 million--an increase of 40%. Most gratifying of all, the upturn was primarily due to a virtuoso performance by color TV and improved prospects for RCA computers.

Profit with Honor. RCA's lonely pioneering in color television cost it well over $130 million before the first profits began trickling in two years ago. But the company's seven-year lead really began to pay off in 1962, when color TV sales tripled to 450,000 sets. RCA made about 55% of them and produced the innards of the rest. The picture tube in every U.S. color TV set is produced by RCA, which is now expanding its plant to keep up with demand. In all, color TV probably brought half of RCA's $15 million increase in net operating profits in 1962.

Also helping RCA's turnaround was its computer division. It was started in 1958 by Sarnoff and then RCA President John Burns. They had the right idea, but they overestimated their chances in a business where huge investments come back slowly as rental payments, and they underestimated the hard competition of IBM. Instead of specializing in one or two types of computers, RCA rushed out a broad range to do battle with IBM. Most were excellent, but not all.

Late in 1961, with Sarnoff growing impatient over computer losses that by then had mounted to $100 million, Burns was replaced as president by Engineer Elmer Engstrom, 61. In 1962, under Engstrom, RCA sharply reduced the research costs of its computer division. It also phased out the commercial model of the no computer, which was intended to run factories, and straightened out the bugs that had delayed for many months delivery of the high-speed 601 computer. The first 601 started whirring last month at New Jersey Bell Telephone, which is paying $375,000 a year rental for it; two more have been ordered by Reader's Digest and Newark's Public Service Electric & Gas Co. Between lower costs and bigger sales, RCA's computer losses were cut almost in half--from about $34 million in 1961 to an estimated $17 million or so in 1962. After taxes, this presumably reduced the computer division's 1962 drain on RCA profits to $8,000,000.

The Other Half. Sarnoff is confident that RCA's computer losses will be halved again in 1963, and hopeful that the computer division will move into the black in 1964. As for color TV, the industry predicts that sales will rise in 1963 to 750,000 or 1,000,000 sets, close to half of them made by RCA. With all this in prospect, Sarnoff sees the future in chromatic hues, predicts that RCA's 1963 earnings will be even better than the 1962 record.

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