Dreams of High-Tech Glory Passing Orange County By

By EDMUND SANDERS and P.J. HUFFSTUTTER

July 9, 2000 12 AM PT

TIMES STAFF WRITERS

The glass offices and modern industrial parks that dot Orange County give every impression that the area is an American mecca for high technology, embodying the bold dreams set out by civic promoters decades ago.

But behind this high-tech facade and its blazing economy, Orange County has achieved only a glimmer of its promise.

For the record:

12:00 a.m. July 14, 2000 For the Record
Los Angeles Times Friday July 14, 2000 Home Edition Part A Part A Page 3 Metro Desk 1 inches; 35 words Type of Material: Correction
High-tech--A story Sunday about technology growth in Orange County inaccurately portrayed Roger Johnson’s view on Western Digital’s decline. The former chairman of Western Digital did not blame the county for the company’s financial problems.

The county can’t claim a single blockbuster company such as Intel, Microsoft, Qualcomm or Dell Computer. It is lagging behind Los Angeles and San Diego counties as a center for new tech investments and jobs. Few now mention Orange County in the same breath as hot spots such as Seattle, Austin, Texas, or Washington, D.C. In Internet circles, it is a dot-yawn.

What happened?

Orange County seemed to have everything going for it: wealth, educated workers, an ambitious university. The county was widely seen as Southern California’s best hope to create a preeminent tech valley, its ascendancy sure to boost Los Angeles in the way San Francisco has benefited enormously from the Silicon Valley.

But over the last few years, as the new technology-driven economy took shape, Orange County fell behind. It had made a big, ill-fated bet on computer hardware products, and it was slow to see the Internet revolution coming.

UC Irvine, the county’s leading university, was even slower to get behind a long-planned technology research park that could have sparked new growth. Its partner, the Irvine Co., did much more at Irvine Spectrum, and scores of tech firms sprouted in the business park at the juncture of the San Diego and Santa Ana freeways. But the powerful developer left out a few things, such as trendy nightspots and the kinds of snazzy meeting places where tech ideas and money often meet in the Bay Area.

“There isn’t that buzz that it’s cool and innovative,” observed Milken Institute economist Ross DeVol of Orange County.

Others put it more bluntly: Orange County’s a snooze. Its suburban neighborhoods and slower pace may be great for old-line industries such as banking and real estate, they said. But they’re turnoffs to new-economy companies, which prefer the creative chaos, Internet speed and chutzpah of Hollywood and San Francisco.

“Orange County is nice--and nowhere,” said Karen Zelina, vice president of marketing at QuestLink Technology, which bought Internet firm NetBuy in Laguna Hills last year and promptly moved it to the Silicon Valley.

Granted, Orange County companies such as chip makers Broadcom and Conexant Systems are starting to take off under supercharged leaders such as Broadcom’s Henry Nicholas III. Other Internet visionaries are pursuing plans to build a premier tech incubator. But for now they’re still mostly dreams.

“As a community, we have not been as organized,” said Greg Hawkins, chief executive of Buy.com, a major Internet retailer in Aliso Viejo. “We haven’t generated the momentum you would have expected.”

What Hawkins senses, the numbers confirm:

* Though Orange County’s job market remains one of the tightest in the nation, the region has been trailing the rest of the state in generating high-paying technology jobs. Taxable payrolls show that 13% of all new jobs created in Orange County between 1995 and 1999 were in high-tech fields. That’s only half the rate of Los Angeles County and significantly lower than the statewide average.

* Since 1995, Orange County’s share of Southern California’s venture capital has been cut in half, as investors have turned to Los Angeles’ burgeoning entertainment industry and, to a lesser extent, San Diego’s cluster of biotechnology firms. In the first quarter of this year, venture funding in Orange County has actually fallen by 23%.

* Comparatively fewer ideas and products are being spawned in Orange County. Over the last five years, the number of patent grants originating in the county has grown at half the rate of numbers for counties such as San Diego and for the statewide average.

* What’s more, Orange County is producing fewer high-tech graduates, a vital component of any tech hub. As institutions such as UCLA and UC San Diego churn out an ever-growing number of graduates in engineering, biology, physical science and computer science, high-tech enrollment at UC Irvine has slumped 7% since 1995.

UC Irvine has been a “good source of MBA talent for us, but not tech talent,” said Guy Abramo, chief information officer at Ingram Micro, the big computer products distributor in Santa Ana.

That Orange County would be lagging behind neighboring counties in tech growth is surprising to outsiders. “It’s always been our assumption that technology was driving the economy down there,” said Ted Gibson, chief economist for California’s Department of Finance.

To Orange County civic leaders, the current state of affairs is nothing less than stunning. A vibrant high-tech sector was supposed to enable the county to emerge from the shadow of Los Angeles and further diversify its economy away from its historical dependence on real estate, tourism and farming.

Wallace Walrod, a spokesman for the influential Orange County Business Council, could hardly believe that the county was lagging in tech growth.

The business council’s Web site boasts that the computer hardware industry grew rapidly from 1970 through the 1980s and employs more than 70,000 Orange County residents. But the council doesn’t say what happened during the pivotal 1990s, and its list of two dozen leading hardware firms includes several that have been sold, have closed plants or are no longer in business.

“It seems like the companies here grow to a certain stage, then always wander away,” said Tom Yuen, whose own former company, computer maker AST Research, falls into that category. “It’s so frustrating to know that we’ve never had that one big company explode here.”

Some Companies Work for Changes

Some members of Orange County’s tech elite acknowledge the county’s shortcomings and have been taking steps to reverse the trends. Broadcom and Conexant, perhaps the two most prominent technology companies in the county today, are trying to boost UC Irvine’s science and engineering departments with millions of dollars in donations.

Buy.com founder Scott Blum is moving to build a major Internet incubator--financing arrangements that encourage Internet start-ups--on a par with Idealab in Pasadena. Until about a year ago, Orange County did not have any incubators at all. Meanwhile, marketing groups are seeking to raise the region’s fading tech visibility.

“Outside of Southern California, there is not a high level of awareness,” conceded Paul Hiller, director of Destination Irvine, the economic development arm of Irvine, the county’s tech hub. In making the rounds of tech conventions, Hiller says, he keeps getting the impression that no one beyond the county line thinks of Irvine when thinking of tech hot spots. “That’s what we’re trying to change.”

Orange County can trace some of the tech slowdown to its reliance on computer hardware products.

Western Digital was a classic example. The Irvine disk-drive maker barely had $25 million in sales in the early 1980s, before riding the booming demand for personal computers. By 1990, its revenue soared to $1 billion, helping put Orange County on the map as a tech power.

But then came a recession, which triggered an industrywide slump in personal computer sales. A vicious price war ensued. Computer parts such as disk drives became low-cost staple items. Later in the decade, demand once again slackened for hardware, this time because of the Asian economic crisis.

No doubt, Western Digital and many others were blindsided by the online revolution, which advanced the technology sector beyond personal computers and hardware components to more ethereal fields tied to the Internet and telecommunications. But as investments and jobs shifted, critics say, these big companies were slow to adapt and shift directions.

“I worked at some of these big hardware companies, and they did not want to take chances,” said Phil Fremon, now chief executive of Biz2biz.com, a software start-up based in Irvine. “That’s not exactly the kind of ‘go-get-’em, take-no-prisoners’ attitude that you see in Silicon Valley or elsewhere.”

AST, Motorola, Ingram Micro--all major electronics component players in Orange County--cut back over the last decade. Others such as Advanced Logic Research were sold. And still others have shut down operations in Orange County, most recently data storage maker Seagate Technology.

Back in 1995, led by such firms, the high-tech industry accounted for 9% of Orange County’s payroll jobs--more than in neighboring counties and nearly a full percentage point better than the statewide average. But by the end of the decade, that lead was all but gone.

It wasn’t that Orange County didn’t create a bunch of jobs. In fact, the county produced a net 180,000 new nonfarm jobs between 1995 and 1999. But only 24,000--or 13%--of those new payrolls were in tech industries. Construction accounted for nearly as many jobs. By comparison, during the same period, 25% of new jobs in Los Angeles were in high-tech fields (including motion pictures), and statewide the figure was 17%.

Roger Johnson, who was Western Digital’s chairman for a decade before leaving in 1993 to join the Clinton administration, partly faulted the county’s conservative, detached style for his former company’s downfall, as well as for the region’s disappointing tech development. He recalled how Western Digital shifted big chunks of production to Singapore.

“That move was not about the search for cheap labor,” said Johnson, now a management consultant. “Was that a benefit? Of course. But the real draw was the government’s willingness to create a friendly business atmosphere. You could easily get low-interest loans. And all the schools--all of them--were shifting their educational targets to train people in technology skills and create the talent we desperately need.

“That’s why the entire drive industry is now based there--and not Irvine,” he said.

Walrod, the Business Council spokesman, said Johnson’s complaints are preposterous.

“Why would the county offer tax breaks?” he snapped. “It never has before. We have everything anyone would want: great weather, a highly skilled work force, a strategic location and wealthy people who spend money. You don’t need anything more than that.”

Certainly Orange County is no high-tech desert. The county has a good sprinkling of companies in virtually every technology field, from classic aerospace to computer services, and that has its benefits.

“We’ll weather the down times better,” said Richard Sim, president of Irvine Co.’s investment property group.

But in the new knowledge-based economy, diversity without bulk can exact costs as well. Apart from the smaller, glamorless field of biomedical device manufacturing, there isn’t one tech sector in which Orange County is dominant.

Though on the rise, Broadcom and Conexant are relatively young companies. Broadcom went public in the spring of 1998, and Conexant was spun off from Rockwell International in early 1999. Neither has had enough time to emerge as an industrywide icon of success. Nor has Emulex, QLogic or Powerwave Technologies--a second tier of hot communications players. Any of these might still. After all, it took Microsoft and Dell Computer years, as well as massive stock-market wealth and lucrative employee perks, to transform their hometowns of Seattle and Austin.

For San Diego, the tech dynamo is Qualcomm, the digital wireless giant. Dozens of “Qualcommaires,” as the stock-option-rich employees are known to locals, have gone off to launch their own companies. Qualcomm’s dominance also has attracted a slew of other wireless or satellite players, cementing the region as the center of cutting-edge communications.

“It’s all about what leaders of industry are in your area,” said Daniel Pittard, co-founder of the San Diego incubator IdeaEdge. The big question, he said, is: “Do you have enough to sustain a critical mass?”

Los Angeles County can’t point to a dominant tech company either. But what it has that Orange County doesn’t is the sprawling motion pictures industry, which has been a dominant force in the convergence of entertainment and technology.

Dozens of executives in the movie industry are forming digital entertainment ventures. Meanwhile, online media and multimedia dot-coms are flocking to Los Angeles, grabbing offices in hipster neighborhoods such as Old Pasadena, the Burbank-Glendale corridor and along the Westside. Firms such as IFilm, an online art film house, are looking to turn Hollywood into a tech paradise.

“Where you’re headquartered reflects the soul of the company,” said Kevin Wendle, IFilm’s chief executive. “For us, Hollywood is a state of mind.”

Today Los Angeles County sucks up more than half of the venture capital headed for Southern California; the region got $1.8 billion last year.

Since 1995, Orange County’s slice of the pie has been halved to 16%, or $538 million last year. In 1999 San Diego captured nearly twice as much, or $952 million.

This year’s early trends are even worse for Orange County. One local venture capitalist, Harry Lambert of InnoCal, recently said: “Whether the county gets anywhere near the lofty investment levels of Los Angeles or San Diego is probably doubtful.”

One thing that could change that is UC Irvine and University Research Park.

For many tech hubs, perhaps nothing has been more critical to success than the home university. Stanford University, the University of Texas and UC San Diego have all been powerful engines of those regions’ technology development.

UC Irvine is much younger, and people are awaiting breakthrough products or innovations born of a partnership with a local firm. But UC Irvine’s reputation and efforts have been marred by missteps, such as the fertility research scandal and controversy over Accelerate, which helped develop budding firms but was shut down in 1997 after a feud between its director and the business school dean.

More recently, the Irvine Co.’s University Research Park has lured tenants such as Cisco Systems and America Online, which have set up research teams on 185 acres next to UC Irvine. But the park is just getting underway, and whether it can create momentum and identity for the county is unclear.

‘Negative Attitudes About Suburbia’

It is already too late for companies like Handshake.com.

Ajay Shah, 23, founded the Internet service firm in Fullerton. But some of his key hires, including Chief Executive Mike Barton, refused to relocate or commute to Orange County. Other employees constantly griped that Orange County was too sleepy. The firm, recently renamed SimplyDone.com, moved to Marina del Rey.

Now, after working late into the night, his employees head out to nearby clubs, trendy Irish pubs or Hollywood sushi joints. A good night out in Fullerton, said Shah, was a trip to the mall to see a movie.

“They all had negative attitudes about suburbia,” he said.

Ibreakfast.com, a New York outfit that organizes meetings that bring together technology executives and investors, holds regular events in Los Angeles and West Hollywood. But not in Orange County. The main reason: The county lacks the schmoozy spontaneity of more urban spots, said Ibreakfast.com founder Alan Brody.

“The local money is more comfortable with more advanced businesses--businesses with older roots and more established models,” he said. “There’s more regimentation in Orange County. There’s a sense of waiting for permission to do something.

“We have a fair number of Orange County attendees at the L.A. angel breakfasts,” he added, referring to gatherings with investors who back firms in the earliest stages. “They say it’s hard to get their ideas taken seriously.”

Getting heard. Getting capital. Getting talent. Orange County’s tech leaders, past and present, have not given up hope that the county can become a major tech valley.

Don Beall, a former chief executive of Rockwell, which also drifted away from Orange County, said you have to give it time.

“I graduated from San Jose State University in the 1960s. . . . There was Hewlett-Packard, Stanford, Berkeley. We’re talking generations, not just years, of time.

“All of the strengths of Silicon Valley, that’s all still in the infancy stages here in Orange County.”

Dwight Decker, Conexant’s chairman and chief executive, agreed. But in the next breath, he rattled off a daunting list of challenges:

Having a world-class university nearby is absolutely critical to a high-tech region. High housing and living costs are making it tougher to recruit. Venture capitalists must be drawn to the region. The county’s tech community lacks a collective voice.

“We need a community of companies that shape our identity, and make this area a magnet for talent,” Decker said. “So far, we have more of a sales pitch.”

Staff writers Robin Fields and Karen Alexander contributed to this story.

Part two of this series will run in Monday’s Business section.

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Orange County’s Fading Tech Dream

Orange County is producing a smaller share of high-tech jobs than other areas...

New high-tech jobs 1995-1999, as a percentage of all new jobs:

Orange County: 13%

L.A. County: 25%

San Diego County:16%

California: 17%

... and the high-tech sector has plateaued in the county, even as it expands elsewhere.

High tech, as a percentage of total employment: