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IN THE DRIVER'S SEAT AT MICRODYNE

MICHAEL JALBERT STEERS INTO NEW MARKETS

By
March 29, 1998 at 7:00 p.m. EST

When corporate turn-around specialist Michael Jalbert took the reins of Microdyne Corp. a year ago, he figured the best way to send a message about his business philosophy to employees and customers would be to buy a company motorcycle.

Not just any two-wheeler, but a blue and white -- Microdyne's colors -- Harley-Davidson Heritage Springer Softail. "One of the big ones," Jalbert said gleefully.

"I wanted to show that we're a changing company, that we're no longer the old, staid Microdyne, but a new Microdyne," said Jalbert, who got the idea after seeing a newspaper photo of AT&T Corp. chief executive Michael Armstrong on a motorcycle.

The Alexandria company certainly does look different. Over the past year Jalbert has gotten it out of the money-losing computer networking products business, installed a new management team and taken the company into new markets.

On Wednesday he will transform the two remaining divisions -- one focuses on running customer support telephone "call centers" and the other on selling aerospace communications equipment -- into wholly-owned subsidiaries. Jalbert, 53, hopes that move will clarify Microdyne's new identity to investors.

"He's a very mature guy who's been there' before but who still has a lot of fire in him," said H. Brian Thompson, chief executive of McLean long-distance firm LCI International Inc. and a Microdyne board member.

Jalbert's overhaul has had dramatic effect on the company's bottom line. After losing $28.4 million in the fiscal year that ended Sept. 28, largely because of a restructuring charge associated with shuttering the networking products division, Microdyne posted a $2 million profit and sales of $12.7 million for the quarter ended Dec. 31.

Microdyne's shares, which dipped below $3 last April, hit a 52-week high of $8.12 1/2 in November and have been consistently trading above $6 for the last three months.

Founded in 1968, Microdyne started out as a supplier of measurement devices for the satellite industry. In the late 1980s the company entered the outsourcing business -- operating call centers, handling warranty repair work and running marketing programs for other firms. But it wasn't until 1991, when the company acquired Federal Technology Corp., that it became a player in the computer technology community.

Federal Technology designed computers networking products, primarily for government agencies. Microdyne took the technology and aimed it at the private sector.

The timing couldn't have been better -- there was a boom on as offices began wiring up formerly unconnected PCs. Microdyne focused on network "interface cards," inexpensive circuit boards that are placed in personal computers so they can communicate over office networks. The company soon became the primary supplier of such cards for networks that used an operating system designed by Novell Inc. By fiscal 1995 the networking products division accounted for $141 million of $170 million in annual revenue.

Then, almost as fast as the division boomed, it busted. The two biggest competing suppliers of such cards, microchip powerhouse Intel Corp. and networking giant 3Com Corp., slashed their prices by more than 35 percent in 1996 to gain more market share. Microdyne -- which unlike Intel and 3Com was sorely dependent on interface card revenue -- couldn't chop its prices enough. The higher-priced Microdyne products languished on distributors' shelves, causing the division's fiscal 1996 revenue to fall to $68 million.

Philip T. Cunningham, Microdyne's chairman and chief executive at the time, figured it was time to get out of that business. But first he decided, upon Thompson's recommendation, to have Jalbert replace him as chief executive, Thompson said.

Jalbert had been chief executive of IDB Mobile Communications of Bethesda, a joint venture between long-distance companies WorldCom Inc. and Teleglobe of Canada. He joined the company in 1995 with a mandate to make it profitable and sell it -- both of which he did.

A native of Canada, Jalbert previously had worked at several chemical companies, including Diversey Corp., West Chemicals Inc. and Air Products and Chemicals Inc. He came to Microdyne with a base salary of $250,000, a potential bonus of that amount and options to buy 300,000 shares of stock at $5 apiece.

Jalbert gave the executives in the networking division 90 days to show how they could transform their operation into a profitable business. When the results failed to sway him, he decided to shut it down -- no matter that networking products accounted for about 60 percent of the company's revenue and that Microdyne was known primarily as a networking products company.

"Once the facts were laid out, it was clear we had to sell the division," Jalbert said. "We needed to rejuvenate and resurrect Microdyne in a new direction."

He set out to visit Microdyne's facilities across the United States and in Britain with the goal of speaking to every one of the company's 790 employees. (The company has 22 employees at its Alexandria headquarters.) "I saw a very demoralized organization," he said.

After his tour and the sale of the networking division, he returned Microdyne's focus to its original lines of business, aerospace communications equipment and outsourcing. He said he also set about reorganizing the management structure -- to give lower-level workers more responsibility -- and revising employee benefits packages, in an effort to boost morale.

Turning back to the traditional lines of business, Jalbert maintains, isn't a surrender strategy. He believes that aerospace communications and outsourcing are businesses in which Microdyne can be a dominant -- and profitable -- player.

"It's a bold move, but if you focus on the bottom line, it's the right thing to do," said Paul M. Harbolick, research director at Ryan, Lee & Co., a McLean investment bank.

The communications division makes equipment that measures the performance of fast-moving objects, such as satellites, missiles and test aircraft. Microdyne's flagship product in this field is a radio receiver, which has an 85 percent share for such equipment in the testing and evaluation market, according to analysts. They expect Microdyne's business to grow both with the launch of new fleets of low-earth-orbiting satellites and the acquisition of smaller firms that make related aerospace communications gear.

On the outsourcing side, the company plans to concentrate on clients in the technology industry. In September, Microdyne opened a 300-seat call center in Torrance, Calif., largely to work for a U.S. subsidiary of car-radio manufacturer Alpine Electronics. Microdyne also handles customer support calls for computer printer maker Epson America Inc.

Although the two businesses are disparate, analysts believe the company has crucial experience in both areas. "Now they can focus their management on areas they know," said Harbolick, who expects the firm to post a modest $5.6 million profit on sales of $56 million for the fiscal year ending in September.

The animated Jalbert misses no opportunity to remind people that Microdyne is no longer in the networking products business, referring to it as a "new" company dozens of times in an hourlong conversation. Even the company's voice mail system says, "Welcome to the new Microdyne."

And there's that Harley, which has Virginia license plates that read "MCDY," for the company's ticker symbol. Jalbert, a Harley buff himself, doesn't ride the bike around town to promote the new image. He's got his own Harley and, he said, there are too many liability concerns associated riding with the company's bike, which primarily is used as a trade-show prop.

Conveying the message of change sometimes is harder than making the change itself, according to Jalbert. "It's a big challenge," he said. "We have to keep saying we're not the company you thought we were." CAPTION: Resume Michael E. Jalbert Position: President and chief executive of Microdyne Corp. since last year. Other experiece: Served as CEO of IDB Mobile Communications; division president for Diversey Corp.; president and chief operating officer of Penetone Corp. Education: Bachelor's degree from Loyola-Concordia University; executive program from University of Virginia's Darden School of Business. Home: Potomac Family: Wife, three children Other personal: 53 years old; 6 feet tall; 215 pounds. Activities: Enjoys golf, skiing and motorcyle riding; fluent in French and has a fair command of the Dutch language. CAPTION: Michael Jalbert and Microdyne's Harley-Davidson. "I wanted to show that we're a changing company, that we're no longer the old, staid Microdyne," he says. CAPTION: A LOOK AT...MICRODYNE CORP. (This chart was not available)