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Corporate Histories
Gale Group
International
Directory of Company Histories -- Acuson
One Gale series I contributed to regularly was The International Directory of Company Histories. As a history major, I especially enjoyed delving into long-deceased business periodicals to find the story of how a company was conceived and nurtured. I also used the firm's own publications and queried their PR department often. Among the histories I wrote were Acuson, Fritz Companies, Merisel, and Thrifty-Payless.
For complete text, please download ACUSON.doc (45KB)
Acuson (1993)
Acuson Corporation
is one of the top manufacturers of ultrasound
imaging equipment for medical diagnosis. These
systems beam low-power, high-frequency sound waves
into the body, and the returning echoes are processed
as real-time, moving images of internal organs
and blood flows. In 1993, Acuson led the radiology
segment of the industry, with a market share estimated
at 40% to 50%, and was strongly competitive in
cardiology, ranking second only to Hewlett-Packard.
Founder Samuel Maslak became interested in ultrasound in the early Seventies when he was a doctoral student at the Massachusetts Institute of Technology. His first wife was pregnant with their second child, and doctors had ordered an examination of the fetus using ultrasound to test for intrauterine growth retardation. His daughter turned out to be fine, but Maslak saw that the existing technology was relatively crude, which sparked his interest. Moreover, he recognized that ultrasound had the potential to give doctors a tremendous amount of information about the body noninvasively. Maslak thus found a subject for his dissertation -- and the keystone for a $300-million company.
After MIT, Maslak moved to California to work on ultrasound for Hewlett-Packard. He created and patented a key subsystem of H-P's ultrasound system, and his achievements were recognized by the firm. But H-P did not want to press ahead with additional improvements, while Maslak thought much greater advances could be made. He left the company in December 1978, but continued to investigate ultrasound technology and the potential market for innovative products. He supported himself through a part-time job as a circuit design consultant, as well as from savings and by pulling equity from his home.
After nine months on his own, Maslak formed a general partnership with Robert Younge, a colleague at Hewlett-Packard, in September 1979; another engineer, Amin Hanafy, came on board in 1981. Maslak has said that, rather than aiming at an immediate market introduction, the three spent much of their time thinking about how they could contribute to the industry's development. During this period they picked up $100,000 in seed money from Karl Johannsmeier, an entrepreneur. In late 1981, the three partners submitted a business plan to several venture capital firms. All wanted to invest in the company, but the partners decided that, besides Johannsmeier, they would limit their outside investors to the firm of Kleiner, Perkins, Caufield & Byers of Palo Alto. The partners got $2.5 million initially from them, and the firm raised another $22 million for Acuson over the next three years. The partners filed incorporation papers in 1982, and the company became listed in 1986, raising $21 million in an initial public offering.
Describing industry conditions when Acuson's machines were first introduced in 1983, Business Week observed that "the market is nearly saturated, and sales have started to slip." Beginning operations in this environment, Acuson increased its sales from $3 million in 1983 to $18 million in 1984; in the next four years, revenues rose 60% or more annually, reaching $169 million by 1988. Moreover, following the usual initial losses for a start-up company in 1983-1984, pretax margins were 13% in 1985, and from 1986 to 1988 they were a superlative 24% to 26%. How did Acuson succeed in a business that one of their soon-to-be-outflanked competitors smugly described to Business Week as "very difficult...to break into, because the mature companies can quickly match any advances that come along"?
Ultrasound is often the physician's imaging technique of choice because is it noninvasive, easy to use, and relatively inexpensive. Although good for soft tissue, it cannot penetrate bone or air-filled tissue -- it is not used to examine, say, the brain or the lungs. But in a wide variety of applications it is the first test that doctors order, because it is both the safest -- there is no ionizing radiation or toxic dye -- and the cheapest.
Given the strong preference for ultrasound testing, Maslak foresaw that hospitals and doctors would be willing to pay more -- as much as 30% more -- for superior equipment that produced a clearer, sharper image. Acuson's first offering, the Acuson 128 ultrasound system, was so-named because it was equipped with 128 separate transmit\receive channels for image formation -- which enabled it to produce a better picture than existing machines that had only 64 channels.
The Acuson system could utilize more channels because it was based on a hybrid analog/digital computer. While computer technologies had long been used in ultrasound systems to control ancillary functions, like measurements and calculations, in Acuson's machines the image itself was formed in an ultrasound computer under software control. As in photography, conventional (ie, mechanical) ultrasound technology produced images that had much sharper resolution in the focal center of their fields than elsewhere. In contrast, Acuson systems could electronically focus at each point of the field of view, optimize the lens aperture at each focal point, and substantially filter out stray reflected sound ordinarily captured by conventional units. The result was superior pictures that doctors widely praised. Indeed, in some cases it allowed them to make diagnoses that would have been unlikely using conventional equipment. And Acuson systems proved extremely reliable, with up-time of better than 99.9%.
The emphasis on computer technology was also essential to the second key factor in Acuson's success: "field upgradability." Every unit that Acuson has ever sold can be upgraded -- at the customer's site -- to the level of the most advanced current model, simply by adding new software. At first glance, complete upgradeability would appear to act as a drag on sales of new machines. But since doctors continued to find new applications in which Acuson's products outperformed those of competitors, sales of new units continued to rise in the 1980s.
Acuson's string of impressive sales increases reflected its extraordinary commitment to upgrading its technology. Outlays for product development rose from $2 million in 1983 to $18 million in 1988, representing 10% to 12% of sales for most of this period. In late 1985, Acuson began to ship its Doppler option, which measured the velocity of blood flow in the heart and major arteries. It could thus, for example, instantly alert doctors to constricted blood flow in a vessel, and help them determine the extent of the blockage and the need for further intervention. In September 1987, Acuson shipped its first color Doppler imaging system, an important diagnostic tool for physicians since it allowed them to visualize directly the flow of blood, depicted as a color overlay on the standard black and white ultrasound image.
Early on, Acuson established an international presence. The company initially set up operations in the United Kingdom and Germany. Wholly owned sales and service subsidiaries followed in Sweden and Australia in 1986, and in Canada and France in 1987. The company also began to make significant shipments to China and opened up other Asian markets. By 1989, 18% of Acuson's sales came from international operations, which came to over $40 million, up 68% from the prior year.
Indeed, in 1989 Acuson passed several milestones. It was the company's first full year in the cardiology market, the second largest segment of the industry after radiology. It now employed over 1,000 people worldwide. Sales surged beyond the $200 million level for the first time, rising 35% from the prior year total to $227 million. While this was somewhat slower expansion than the 60% plus advances recorded in the middle 1980s, it was still a level of growth that almost any CEO would envy. Profitability remained stunning, with gross, pretax, and net margins at 62%, 27%, and 17%. Net income rose to $38 million, up 40% from the prior year and more than double the $17 million recorded in 1987.
For complete text, please download ACUSON.doc (45KB)
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