Defense firm advances after its buyouts; Asian woes, doubts trip perennial leader

By Joann Muller, Globe Staff

The Sales 100

ince the Globe 100 survey began a decade ago, Digital Equipment Corp. has always ranked first among Massachusetts-based companies on the Sales 100 in terms of overall revenues, while Raytheon Co. has been number two.

But considering Digital's pending sale to Houston-based Compaq Computer Corp. and Raytheon Co.'s recent buyout of two big defense companies, it was fully expected that Raytheon would ascend to the throne as Massachusetts' biggest company.

But that was expected to happen next year.

What wasn't predicted was a significant slowdown in Digital's business in 1997, the result of unfavorable currency rates and financial turmoil in Asia combined with customer confusion over the fallout from its settlement of a patent dispute with Intel Corp.

Digital was especially vulnerable to the Asian crisis and lower currency rates because it does about two-thirds of its business overseas.

Spooked by the economic instability in Asia, many customers in that region decided not to lay out big dollars for computing equipment. And sales that Digital did make in other parts of the world were worth less because the US dollar was so strong against foreign currencies.

In the last quarter of the year, buyers also held back because they were unconvinced of Digital's commitment to its powerful 64-bit Alpha processor following its patent settlement with Intel. As part of the deal, Digital agreed to sell its Alpha chip-making operation to Intel, which is planning a 64-bit chip of its own.

As a result, Digital's revenues for the year fell 4 percent - to $13.1 billion. Despite the drop, Digital managed to squeeze out better profits by cutting expenses, selling more high-profit equipment, and targeting growth markets such as sales to telecommunications companies and Internet service providers.

Digital's revenues fell just enough to slip below Raytheon, whose sales climbed an unusually robust 11 percent, to $13.7 billion. That sales boost came from the partial-year contribution of Texas Instruments Inc.'s defense unit, which it acquired in September, as well as a continued strong performance by its commercial jet division, Raytheon Aircraft Co. of Wichita, Kan. Raytheon also bought the defense operations of Hughes Electronics last year, but the effects of that purchase will not show up on Raytheon's balance sheet until 1998.

Among Massachusetts' 10 largest companies, the biggest sales growth was recorded by Staples Inc. of Westborough. The chain of office supply superstores had 1997 revenues of $5.2 billion, an increase of 31 percent.

The growth came from the addition of 129 stores, as well as a new national advertising campaign and a chainwide remodeling effort that helped keep existing stores fresh. Staples's contract and commercial business also recorded a strong year, with sales topping $1 billion for the first time.

Another retailer in the top 10 of the Sales 100, TJX Cos., saw its sales grow 10 percent, to $7.4 billion, as it continued to reap the benefits of its acquisition of Marshalls Inc.

While the strong economy helped fuel sales growth at most companies, a few weren't so lucky.

Sales at Hills Stores Co. fell nearly 6 percent, as they did at Polaroid. The Cambridge-based photographic giant's revenues have been stalled for several years due to falling sales in Russia and the rising dollar. The company plans to step up its marketing of cameras and film, and it expects digital imaging products to make up a larger part of revenues by 2001.

Fast-growing companies in terms of sales include EMC Corp. of Hopkinton, whose revenues grew 29 percent to $2.9 billion. Its computer storage systems have become increasingly popular with corporations trying to manage vast amounts of information across wide networks of computers.

State Street Corp.'s sales grew almost 25 percent, to $2.3 billion, on the strength of its back-office, securities-processing operation.

Thermo Electron Corp. climbed into the top 10 with sales of $3.6 billion, an increase of 21 percent. Its two dozen subsidiaries market a variety of instruments and services for the biomedical, environmental, and energy-related fields.

Harcourt General Inc. of Newton also had strong revenue growth, especially in its core book-publishing business. Its sales grew 14 percent, to $3.8 billion, propelling it from 10th- to seventh-largest company in Massachusetts.

Acquisitions help explain the sales growth at some companies, such as Boston Scientific Corp., a medical-device maker whose revenues grew 21 percent to $1.9 billion. It has been scooping up rivals at breakneck speed.

The company with the biggest sales growth last year was Chicago Miniature Lamp Co. of Canton, which last month changed its name to SLI Inc. to reflect its September 1997 acquisition of Sylvania Lighting International.

Chicago Miniature's sales shot up 250 percent to $330 million. Next year, the full impact of the acquisition will be felt, with sales expected to approach $800 million, up from $57 million in 1995. The purchase of Sylvania, which added a line of fluorescent, incandescent, and halogen bulbs to Chicago Miniature's products, has made SLI one of the world's largest lighting companies.