Zenith lands $ 1 billion contract , plans $ 100 million plant .
Susan Nadeau
CHICAGO 1996-08-22
A consortium of telephone companies and The Walt Disney Co .
said Thursday it had signed a $ 1 billion contract with Zenith to make digital televison set-top boxes for its home entertainment service .
The announcement of the contract for 3 million set-top boxes gave new hope to Zenith , which has struggled with years of losses .
" This really indicates we 're back in the business , " William Luehrs , president of the Glenview , Ill.-based company 's Networks Services Division , said in a telephone interview . "
Anytime somebody gets the opportunity to enter the next era with such a big bang has got to be seen as a strong message to the industry . "
Following the announcement , Zenith 's stock soared $ 5.50 to $ 16.875 on the New York Stock Exchange .
The consortium , called Americast , said the contract was part of its strategy to develop and market the next generation in home entertainment .
In addition to Disney , Americast 's partners are phone companies Ameritech Corp. , BellSouth Corp. , GTE Corp. and SBC Communications .
Americast said Southern New England Telecommunications Corp. has signed a letter of intent to join the group , which plans to provide a home entertainment service similar to cable television .
Zenith also said it planned to build a new $ 100 million plant in Woodridge , Ill .
, to make picture tubes for 32- and 35-inch screen TV sets .
The company currently buys the tubes from competitors .
The new plant , which is dependent on obtaining financing , will create about 280 new jobs , Zenith said .
The contract calls for production of the set-top boxes over five years .
Luehrs said manufacturing will begin and revenue will start to roll in during the first half of next year .
The boxes will be made on a build-to-order basis .
Zenith will convert its Chihuahua , Mexico , analogue set-top box plant to manufacture the digital boxes .
Luehrs declined to say when the operation was expected to be profitable .
Americast will provide the boxes to subscribers as part of the service .
Its service is being introduced in selected markets across the United States .
Luehrs said digital technology in set-top boxes is only the beginning and said the technology will eventually show up in retail consumer electronics .
" We 'll build a lot of these devices into television sets , for digital television , " he said . "
Although that is not where this particular contract is headed , the fact that there is a strong Zenith presence will pay us dividends in the future . "
Zenith has been plagued by generally soft conditions in the colour television industry , reporting full-year losses since 1989 .
Last month , it reported a second-quarter loss of $ 33.2 million , or 51 cents a share , vs. a loss of $ 45.3 million , or 97 cents a share , a year earlier .
Last November , South Korea-based LG Electronics Inc. bought a majority stake in Zenith .
Robert Gutenstein , an analyst for Kalf , Voorhis & Co .
, said the contract was " not unique , but it 's big . "
" Digital is coming , it 's economic and the question is what will make the consumer happy and at what price . "