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A little Minnesota history shows how support for education and new ideas pays off

Courtesy of the Minnesota Historical Society
A CONTROL DATA 1604/CONSOLE in 1959.

Fifty-seven years ago there was grumbling and discontent at the St. Paul Univac division of Sperry Rand, and in July a few employees left to form a new company. By September there were 12 employees in the new venture, almost all engineers, hoping to sell their design services to potential customers. A few early employees had experimented with combinations of words to come up with a name that would best describe the company’s business. They chose Control and Data, a practical choice, but hardly an inspiring combination of words. William Norris, the company president, was unimpressed with the new name, but neither he nor anybody else could come up with a better alternative.

Donald M. Hall

The initial prospectus said that the company did “not plan to compete with the giants of the industry,” but instead intended to “supplement these major companies as an important subcontractor.”

“We didn’t know what we were going to do, at least I didn’t,” said Norris later, “but when Seymour (Cray) came up with the idea of building a very big computer and the means for doing it, he gave us something to tie into, I kind of felt like shouting, Eureka.”  Two months later, the Minneapolis Star quoted Norris saying, “We’re aiming at sales of $25 million a year within five years.” His enthusiasm was based on the company’s plans to make special circuit boards using transistors and to build large, scientific computers whose upright boxes of wired connections almost filled a room.

As it turned out, Norris’ estimate fell short. In its fifth year of operation the company achieved sales of $41 million, earnings of $1.5 million, and had a backlog of deliverable orders valued at $49 million. Contrary to the initial intentions in the prospectus, the big computer that Seymour Cray had designed was successfully competing against the industry giants.

The stock went from $1 to $100 a share in four years, and because of that, the two simple words, Control Data, invariably brought smiles when mentioned as they represented a surprising accumulation of wealth — perhaps like the word oil to North Dakotans  today — or a disconsolate shake of the head from those who missed out. Such success transformed the local stock market and led to an explosion of financing for new companies, all kinds of companies, as investors were willing to believe in anything that might become another Control Data. There were five new listings in the local newspapers in 1958, and 96 new listings three years later. “All I had to do was answer the phone,” said one local broker about that time. “You would get one guy at Univac to buy and five more would call.”

While the future is unknowable, the history of Control Data — and the companies that followed soon after — tells us that a society can bend it in a favorable direction by supporting education in its many forms and by financing unusual, unproven ideas.

One of the companies taking advantage of the new financing opportunity was a little medical products business started by two brothers-in-law working out of a garage in Northeast Minneapolis. By 1960 they had been in business eleven years, but sales were uneven and profit elusive. They had, however, designed an early pacemaker. The little company decided  to sell debentures convertible into stock in order to raise money. But it did not come easily. A couple of stockbrokers went to the Mayo Clinic in Rochester, Minnesota, hoping to persuade knowledgeable prospective buyers, but returned home with no orders. Eventually, persistent effort succeeded in raising the necessary money. But without the early success of Control Data, the offering might never have been possible. The new company was named Medtronic.

Two years later, because of operating losses, Medtronic was out of money. It had built a new headquarters building in St. Anthony, and found it could not sublease the space it did not need. Their loans were in jeopardy, and their lenders gained representation on the company’s board of directors. Product lines were discontinued and half the employees were laid off. The two founders went for a year without pay. The bankers suggested the company put itself up for sale, and the two founders agreed. After a discreet search among possible buyers, only one party was willing to make an offer but it was contingent on a market study to be conducted by Arthur D. Little, an independent consulting firm. After reviewing the opportunity, the study concluded that the worldwide market for pacemakers would number about ten thousand units total. The buyer withdrew its offer, and Medtronic was left to make its way alone. The company’s board of directors told Earl Bakken, the principal founder, he had to get out of the lab and lead the company, or find someone else to do so. We now know he assumed the new role and succeeded very well.

A company called St. Jude Medical also received financing based on the success of those earlier offerings. It produced heart valves, and its achievements meant a 2000-fold appreciation in the stock value over the first 35 years and improved medical health for legions across the world.

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Today the name Control Data is gone. Microchips bearing the power of supercomputers are imbedded in automobiles, appliances, entertainment sets, and numerous other products of modern society. The major innovators in the industry are now on the West Coast. In the Twin Cities, the factory Control Data once used to build large scale computers in Arden Hills is now occupied by the cardiac rhythm management business of Boston Scientific, and the company’s former headquarters building in Bloomington is occupied by HealthPartners, a large health care provider. Medtronic is one of the world’s major medical device companies, and holds more than 22,000 patents worldwide. St. Jude continues to thrive.

It is apparent that the health industry has supplanted the supercomputer industry as a major employer in the Twin Cities, and also as an engine of economic success. The pacemaker industry, once thought to be of limited size, now delivers hundreds of thousands of units each year. A holder of 100 shares of Medtronic stock bought in the initial year of trading would now hold 100,000 shares because of splits, and a store of value exceeding $6 million.

Donald M. Hall, a retired stockbroker, is the author of a new book entitled “Generation of Wealth, the rise of Control Data and how it inspired an era of innovation and investment in the Upper Midwest.”

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Comments (1)

  1. Submitted by Robert Seidel on 07/26/2014 - 03:34 pm.

    CDC–the rest of the story

    Tom Misa, Director of the Charles Babbage Institute for the History of Computing, has written a comprehensive history of Minnesota computing in Digital State: The Story of Minnesota’s Computing Industry.

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