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YEAR IN REVIEW – The Business Journal Looks Back at 2003 Picks to Watch

YEAR IN REVIEW

The Business Journal Looks Back at 2003 Picks to Watch

Each December, the Business Journal picks companies and people to watch in the coming year. Our picks for 2004 are set to appear next week. For now, we’re taking a look back at our picks of a year ago and recapping how they did in 2003. With some, we looked like sages. With others, we proved to be off the mark. But all turned out to be worth watching to varying degrees, even if for reasons we didn’t expect.

TECHNOLOGY

Person to Watch:

Broadcom Corp.’s

Alan E. “Lanny” Ross

He’s not your average interim chief executive.

When Ross took the reins of Broadcom following the January exit of cofounder Henry Nicholas, everyone thought he’d just be filling in.

No one thought he’d overhaul the company.

When we picked Ross as our technology executive to watch in late 2002, he had just been named Broad-com’s chief operating officer. Little did we know Nicholas would shock Broadcom’s world a month later by resigning amid corporate and family changes.

In the past year, Ross has cut research and overhead costs, smoothed over customer disputes, dumped a salary cap and tied pay to performance. All the while, he’s worked to mature Broadcom’s image.

“I hope the press and the world make the basic assumption that we haven’t done anything that didn’t need doing,” Ross said in an interview earlier this year.

Known to many as an old-school executive, Ross is credited with bringing discipline to Broadcom after the company’s wild adolescence.

Broadcom has become less combative under Ross. In August, the company settled long-standing court battles with Intel Corp., which Nicholas had vowed to fight.

Ross, a slow, steady speaker who makes concise and succinct points when he talks, has tried to instill a culture of better communication. He even brought in a speaking coach to hold seminars with executives. That’s a big change from the midnight meetings where a verbose Nicholas would jump from topic to topic for hours.

Ross’ changes,and a better market for chips,have paid off. In the third quarter, Broadcom posted an operating profit of $53.3 million, versus a loss of $14.4 million a year ago. That was on a 47% gain in sales to $425.6 million.

On Wall Street, Broadcom’s stock has grown more than 190% since January. That helped the company regain its spot as Orange County’s most valuable company, surpassing Irvine-based drug maker Allergan Inc.

,Andrew Simons

Company to Watch:

Conexant Systems Inc.

Conexant was due for a big year. Now it is exiting stage left.

The Newport Beach chipmaker said last month it plans to buy Red Bank, N.J.-based GlobespanVirata Inc. in a stock deal worth about $865 million.

While the combined company is set to keep the Conexant name, it won’t be based in Newport Beach, where it’s been since its days as the chip arm of Rockwell International Corp. The company plans to move to New Jersey once the deal closes in March.

The buy caps a major reworking of Conexant by Chief Executive Dwight Decker.

Last year, Conexant shed three businesses. Its digital imaging unit was split off as Pictos Technologies Inc., which later was bought by Fremont-based ESS Technology Inc. Conexant’s wireless chip unit was combined with Woburn, Mass.-based Alpha Industries to create Skyworks Solutions Inc. And Conexant’s Newport Beach chip plant became Jazz Semiconductor Inc.

In June, Conexant completed the spinoff of Newport Beach-based Mindspeed Tech-nologies Inc., a maker of networking chips.

For Decker, the GlobespanVirata deal brings things full circle. He oversaw Conexant’s 1999 spinoff from what’s now Rockwell Automation Inc. Then came the heady rush of the technology boom, acquisitions, diversification and, more recently, downsizing.

,Andrew Simons

HEALTHCARE

Person to Watch:

Beckman Coulter Inc.’s

John Wareham

A year ago, Wareham was wrestling with the fact that drug and biotechnology customers weren’t buying as many centrifuges, DNA sequencers and other gear from Beck-man Coulter.

The predicament earned Wareham a spot as our healthcare executive to watch in 2003.

So how was 2003 for Wareham and Beckman?

In January, Beckman combined its scuffling life sciences and medical testing business to form a new biomedical research division. Elias Caro, a veteran of Coulter Corp., which Beckman bought in 1997, heads the unit.

The streamlining also extended to Beckman’s global operations. The fallout: a pretax charge of $18.5 million in the first quarter and a 2% cut in Beckman’s workforce. The company counts 2,290 OC workers and 9,800 worldwide.

By the second quarter, Beckman’s retooling largely was done.

In the third quarter, sales at the biomedical unit were up about 1% from a year earlier to $154 million,better than in recent quarters. Weak government and drug maker research spending continues to be a drag. Wareham predicts spending could pick up this quarter or next year.

The good news for Wareham is Beckman’s clinical diagnostics unit, which saw sales grow 9% to $381 million in the third quarter. The dominant division has provided cover for Wareham to address the more troubled biomedical business.

Scott Garrett, a veteran of Baxter International Inc. and American Hospital Supply Corp., was tapped last year to head the clinical diagnostics division, which makes up about two-thirds of Beckman’s roughly $2 billion in yearly sales.

Another noteworthy event: Last month, Beckman and Singapore-based contract electronics maker Flextronics International Inc. settled a breach-of-contract suit for $23 million. A jury had awarded Beckman $934 million in a case filed after Flextronics threatened to break a supply contract if Beckman didn’t pay surcharges.

,Vita Reed

Company to Watch:

Volcano Therapeutics Inc.

Volcano Therapeutics Inc., a promising Orange County heart device startup, blasted off earlier this year to the Sacramento suburb of Rancho Cordova.

Heavy venture funding and product advancements had earned the company, formerly of Laguna Hills, our nod as the healthcare company to watch.

Volcano moved after buying most of the U.S. assets of the Netherlands’ Jomed NV, a bankrupt medical device maker, in July.

The company moved to be near the bulk of workers acquired from Jomed, said Scott Huennekens, the device maker’s chief executive.

“If they were in Kalamazoo, Mich., we would be in Kalamazoo,” Huennekens said.

The acquisition also pushed Volcano closer to a public offering. Domain Associates, a venture capital firm with offices in Princeton, N.J., and Laguna Niguel, as well as the venture arms of Johnson & Johnson and Medtronic Inc., are Volcano’s main investors.

Volcano picked up Jomed’s line of pressure catheters and ultrasound blood vessel examination devices as part of the deal. The acquired products do some $50 million in annual sales, according to Huennekens.

Volcano is in a race to win what Huennekens calls a “war” against heart attacks caused by vulnerable arterial plaque. The company, which now counts some 420 workers, develops devices that detect and treat vulnerable plaque in heart arteries and the peripheral vascular, or circulatory, system.

Volcano isn’t completely out of OC. It has a research and development facility in Laguna Hills with about 10 workers.

,Vita Reed

MANUFACTURING

Company to Watch:

Hydraflow Inc.

Hydraflow, which got our nod to watch after moving from Cerritos to a new Fullerton headquarters, had a flat 2003.

Even with more defense business, the maker of hydraulic lines for commercial and military aircraft expects to see sales this year of $36 million, even with last year. Hydraflow’s workforce also is unchanged at 150 workers.

Chief Executive Dennis Ullrich said he isn’t complaining.

Holding steady in California’s worsening climate for manufacturers was just about all anyone could ask for this past year, he said.

Dealing with skyrocketing workers’ compensation costs was the biggest issue, Ullrich said. And Hydraflow didn’t even have a claim, which Ullrich attributes to a rigid safety program. Workers who do repetitive motions when building parts take periodic 10-minute group breaks throughout the day, he said.

“If you walk by the group, it looks like they’ve got a yoga class going on,” he said.

Early last year, Hydraflow moved into its new 175,000-square-foot building in Fullerton. The bulk of space is used for manufacturing. The company had run out of room in its former 70,000-square-foot facilities in Cerritos.

Next year looks more promising, according to Ullrich. Overall sales are expected to be up for 2004, based on new orders, Ullrich said.

“The programs we’re working on are going to be in production for the next 20 years,” Ullrich said.

Along with the military, customers include Boeing Co., Vought Aircraft Industries Inc., Lockheed Martin Corp. and Bombardier Inc.

In 2004, Hydraflow is looking into making aircraft subsystems, such as cooling systems. Ullrich said he is counting on Gov. Arnold Schwarzenegger to lower the state’s cost of doing business.

,Sherri Cruz

TRADE

Market to Watch: China

China,long hyped as the next great thing for OC exporters,didn’t quite live up to its billing this year.

Last year, local exporters were pegged to send $314 million worth of goods to China in 2003, according to California State University, Fullerton. The school’s revised forecast predicts China won’t quite reach that mark.

Now Cal State Fullerton expects OC exports to China to come in at about $285 million. That’s still up about 19% from $239 million in 2002.

Cal State Fullerton is sticking with its prediction that China will become a top 10 market for OC in the next few years. In 2002, China ranked as the 11th biggest export market for the county. By 2005, Cal State Fullerton predicts it will have moved up all the way to No. 6.

Meanwhile, OC exporters could find themselves caught in a tug-of-war between the U.S. and China over the Chinese currency. The U.S. recently slapped tariffs on Chinese textiles, possibly as a way to push the Chinese government to raise the value of its yuan or even allow it to float. Either would help U.S. exporters.

,Chris Cziborr

RETAIL

People to Watch:

St. John Knits International Inc.’s

Kelly Gray, Bruce Fetter

Eyes were on Gray and Fetter in 2003 as they finished up their first year as co-chief executives of Irvine-based St. John Knits.

The duo took over a year ago from retiring Robert Gray, Kelly’s father and founder of the upscale women’s clothier.

Kelly Gray, St. John’s signature model, oversees advertising, merchandising and sales and retail. Fetter, who also is chief operating officer, handles production and finance.

This year, the duo tackled a number of initiatives set in motion in 2002.

Among them: expanding the company’s retail business.

St. John opened flagship stores in Beijing, Tokyo and South Korea. It also opened one in Vancouver, British Columbia, and its first St. John Sport boutique at The Venetian Resort-Hotel-Casino in Las Vegas.

The company expanded its handbags, shoes and accessories lines, including adding semiprecious pieces to its jewelry collection.

Fetter continued his focus on production.

The company has been upgrading equipment and reducing workers through attrition in areas where productivity has improved, Fetter said.

St. John’s OC employment is down 2% from a year earlier to 2,635 workers.

Gray oversaw St. John’s increased marketing push, which included more advertising in Conde Nast magazines.

St. John, which sells to women ages 30 to 60, with age 45 being the average, has been trying to appeal to a younger audience by widening its offerings and tweaking its ads.

This holiday season, St. John began testing children’s apparel in its boutiques and said it was close to signing a swimwear agreement with Tustin-based Raj Manufacturing Inc.

Other plans in the works: The company is looking to relaunch its sunglasses. A licensee hunt continues.

,Jennifer Bellantonio

Company to Watch:

Grupo Gigante

The Santa Ana-based U.S. arm of Mexico’s Grupo Gigante SA de CV made a big splash in May with the opening of an Anaheim store, its first in OC.

Since then, the store has surpassed Gigante’s sales projections by luring shoppers from other stores. Weekly sales are about $500,000, on par with a Ralphs or Vons, according to Steven Soto, president of the Los Angeles-based Mexican American Grocers Association. And that was before the grocery strike, which has further fueled Gigante.

“Stores like Gigante are up as much as 40%” since the strikes, Soto said.

The Gigante name alone has proved a magnet for Hispanic shoppers who have flocked to the Anaheim store, despite only minimal advertising by the company.

Many Mexican-Americans know the chain from their native country, where Gigante counts yearly sales of $3 billion and some 270 stores of all types.

Along with Anaheim, Gigante this year opened two stores in South-Central Los Angeles,both built from the ground up. A store in Chino is set to open soon. Gigante has other stores in Arleta, Covina and Pico Rivera.

Gigante is searching for other spots in OC to open stores, according to Justo Frias, president of Gigante USA.

Gigante had to fight its way into Anaheim in 2002 after the city’s Planning Commission voted against granting the store a liquor license. Gigante claimed it was being singled out as a Hispanic market and eventually won city approval.

,Chris Cziborr

REAL ESTATE

Company to Watch:

Standard Pacific Corp.

2003 has been a banner year for Irvine-based Standard Pacific. The homebuilder defied all expectations that a slowdown in the housing market would dampen its profits, sales and stock price.

Real estate pundits and the Business Journal expected 2003 to be the year housing prices and sales cooled. That didn’t happen. Mortgage rates hit bottom in June but remain relatively low.

Buyers continue to snatch up what homes are available in OC, pushing the median price anywhere from $430,000 to $460,000, depending on who is doing the reporting.

In the third quarter, Standard Pacific’s net income jumped 156% from a year earlier to $58 million. Sales were $628 million, up 35%.

Standard Pacific’s biggest problem this year has been a lack of places to build in Southern California’s hot housing market. In October and November, the company saw 31 fewer orders for new Southland homes than a year earlier, for a total of 359 orders. The number of housing developments it was building at was down by 10 to 24.

Overall, Standard Pacific saw new home orders of 1,406 in the two months, a 25% rise.

The homebuilder has benefited from a trio of buys it made last year in Florida and the Carolinas. New orders in those markets were up 40% in October and November, thanks to a big surge in Florida.

Standard is set to sell more than 2,000 homes in Florida and up to 600 in the Carolinas this year, making up more than a third of the company’s business, according to Chief Executive Stephen Scarborough.

Last year, Standard Pacific sold 1,430 homes in Florida and the Carolinas, or 24% of its total.

A year ago, Standard Pacific entered south Florida with its buy of Westbrooke Acquisition Corp. from Olympic USA Inc.’s Newmark Homes. Last May, it hit central Florida with its buy of Orlando-based Colony Homes. In August, Standard bought its way into southwest Florida and the Carolinas by acquiring Tampa-based Westfield Homes USA Inc.

,Mathew Padilla

Person to Watch:

Mike Harrah

Well, this year wasn’t the year for Mike Harrah to start construction on his dream: a 37-story, $100 million Santa Ana office tower, which would be OC’s tallest.

In July, the city released a draft environmental report on the project, dubbed One Broadway Plaza. The proposed building could create traffic and a shadow over neighbors and displace historic buildings, the report said.

City planners are preparing responses to public comments on the report. From there, the Planning Commission is set to hold a “study session” on the issue in January.

Harrah continues to work with city officials to address issues raised by the report.

Unlike OC’s clean-shaven office developers, Harrah sports a ZZ Top beard and has piloted his helicopter in such movies as “The Hulk” and last year’s “Austin Powers” film.

Harrah’s Santa Ana-based Caribou Industries Inc. almost single-handedly has redeveloped Santa Ana. The company does construction and property management from its office on Main Street.

During the 1990s, Harrah bought into the city’s depressed core, fixed up landmarks and locked government entities into long-term leases. He owns more than 2 million square feet of office space in Santa Ana.

Harrah said it has taken five years to get One Broadway Plaza approved because he’s had to change plans to accommodate historic buildings at the site and to allow for a full environmental review.

For the proposed high-rise, Harrah envisions a five-star restaurant crowning a building occupied by Fortune 500 companies and law firms.

,Mathew Padilla

FINANCE

Company to Watch:

New Century Financial Corp.

Like homebuilder Standard Pacific, we had Irvine’s New Century Financial Corp. on our radar because of a possible shift in the housing market. And, like Standard Pacific, New Century defied our expectations.

In November, New Century did $2.3 billion in loans and said it is on track to end the year at a record $27 billion in loans.

A subprime lender, New Century makes loans to people with imperfect credit. Borrowers often swap high credit card debt for a second or refinanced mortgage at a lower rate.

As housing prices soared in Southern California this year, New Century saw its sales and profits rise along with its loan volume. New Century also has expanded into other states.

But subprime lenders face potential enemies in consumer activists and politicians. Governments from Los Angeles to the Carolinas have passed laws restricting subprime lenders.

Indeed, New Century said it expects to make 60% fewer loans in New Jersey after the state’s Home Ownership Security Act went into effect last month. The law, which seeks to curb predatory lending, is one of the toughest.

Consumer activists say the new laws are necessary to protect the uneducated, elderly and minorities from lenders who lead them into loans they can’t afford, putting their homes at risk.

Industry officials counter that the new laws merely will hurt people who can’t get loans anywhere else.

The issue could come to a head in California, where Oakland and Los Angeles have passed ordinances restricting subprime lending. In both cases, Wall Street buyers of subprime loans repackaged as securities could be held liable if a lender is found to be in violation of the ordinances. New Century stopped making loans in Oakland in November.

Selling loans as securities is critical for subprime lenders, which use the proceeds to make new loans. Last month, New Century sold $740 million in home loan debt.

The state’s Supreme Court is considering whether to hear the industry’s challenge to Oakland’s law after the California Appeals Court upheld it. Los Angeles officials have opted not to enforce their city’s law until the challenge to Oakland’s law is settled.

,Mathew Padilla

Person to Watch:

Charles Martin

OC’s venture dean is done.

That’s the rub for Martin, one of OC’s veteran venture capitalists. We picked Martin last year amid rumors he might get back into the venture game in 2003. But after bypassing venture capital work this year, does Martin expect to re-enter the arena again?

“No, I don’t really intend to do that,” Martin said. “I will continue to do venture investing with my own capital on a very selective basis. But I’ve been very fortunate in my life to build up a very large net worth. I don’t need to be managing other people’s money.”

Instead of venture capital, Martin said he has sought “great opportunities” in stocks.

“I’m up 80% year-to-date,” said Martin, with a “diversified portfolio of nontech growth stocks.”

His formula? He won’t exactly say. But last year, Martin self-published a book entitled “The Little Black Book,A Guide to Successful Investing in the Stock Market” where he details his approach. Only friends can get a copy.

Martin has other stuff on his plate.

He continued as senior adviser to Newport Beach-based private equity firm ClearLight Partners LLC, which has $300 million in assets to invest, and kept his partner emeritus status at Costa Mesa-based Westar Capital LLC.

Martin also serves in philanthropic roles in the county.

He’s co-chairman of the board for the Graduate School of Management at the University of California, Irvine, and is a trustee of both the University of California Irvine Foundation and Chapman University. He is also chairman emeritus of the Orange County Museum of Art.

,Andrew Simons

GOVERNMENT

Person to Watch: Joe Dunn

Santa Ana’s publicity-savvy state senator rode into 2003 fresh from a year of positive headlines, boosted by an easy re-election and chairing a high-profile special committee investigating the role of price manipulation in California’s 2000-2001 power crisis.

But Democrat Dunn, a trial lawyer who is eyeing the attorney general’s race in 2006, saw his momentum slow this year as energy concerns moved to the backburner.

Prices stabilized, California’s ailing utilities began righting themselves and Dunn’s probe continued to wrestle with differing interpretations of al-leged price-gouging.

Moreover, Dunn, like other legislators, saw pet causes eclipsed by the state budget shortfall and the Gray Davis recall.

In the end, Dunn’s bill to re-regulate California’s power industry was killed in an Assembly committee after clearing the Senate. Pacific Gas and Electric Co. negotiated a reorganization plan with state regulators that wasn’t to Dunn’s liking. And new Gov. Schwarzenegger put forth his own, more industry-friendly ideas for mending California’s energy markets.

Concerns about the state budget also deep-sixed a bill by Dunn and cosponsor Assemblyman Lou Correa (D-Anaheim) that would have boosted pension benefits for local police and firefighters. Dunn did succeed in passing a law, labeled as anti-business by critics, making it easier for employees to sue employers for labor violations.

,Rick Reiff

Agency to Watch:

General Services Administration

The General Services Administration, the federal government’s real estate broker, got going at El Toro in 2003. But the GSA did not get to play its predicted pivotal role in the redevelopment of the former Marine base into the Great Park.

That’s because legal and procedural hurdles slowed the redevelopment timetable. An online auction of parcels to developers that was anticipated for last fall now is expected to begin in the spring, with sales and conveyances by the end of 2004.

But GSA laid plenty of groundwork this past year, opening a Web site for people interested in the auction and retaining Colliers Seeley International Inc. as marketer.

In a strong showing of developer interest, about 600 people attended an April meeting at El Toro’s former officers’ club to learn about details of the plan,it calls for developing about 3,000 acres of park and open space from about $200 million in fees that developers will pay for the right to build some 3,400 homes and 2.9 million square feet of commercial space on the remaining 800 acres.

Meanwhile, the dwindling pro-airport faction was dealt one blow after another: Its legal challenges evaporated, a half-hearted attempt by the city of Los Angeles to commandeer the base sputtered, Irvine received the green light to annex the site and the Orange County Great Park Corp., the nonprofit master developer for the project, this month held its organizational meeting.

,Rick Reiff

TOURISM

Person to Watch: Sunstone Hotel

Investors Inc.’s Bob Alter

Alter’s moves this year weren’t as noticeable as in 2002, but they were big for San Clemente-based Sunstone Hotel Investors Inc. nonetheless.

In 2002, Alter made a splash by adding management of 15 hotels from Dallas-based Wyndham International Inc. Sunstone’s investment partner, Westbrook Hotel Partners, bought the Wyndham hotels for $447 million.

Earlier this year, Sunstone bought the 299-room Ontario Marriott and 176-room Residence Inn Manhattan Beach. It also sold five Hampton Inns in other Western states, as well as a Hilton Garden Inn in California.

But renovations have dominated the landscape.

“In all, we have spent over $50 million in renovations this year,” Alter said. “In Southern California, we spent $15 million.”

A local makeover: the Hyatt Newporter, where $9 million is going toward rooms, lobby, meeting space, restaurants and landscaping, as well as a new ballroom.

In September, the company began a renovation of the 299-room Ontario Marriott to update the hotel’s meeting space and public areas.

Alter said the improving economy might result in a long-expected move to take the company public again. Sunstone went private in 2000.

“We’re looking at an IPO for sometime between late 2004 and mid-2005,” he said.

,Sandi Cain

Team to Watch: Anaheim Angels

Wait ’til next year.

That’s what Anaheim Angels fans were muttering after a mediocre year on the field in 2003. The team’s record of 77-85 left them third in the American League West, 19 games behind the Oakland A’s, and marked a big comedown from 2002’s World Series win.

Oddly, virtually the same cast of characters couldn’t get it done on the field in 2003. But, to be fair, the team was hit with injuries, including those of third baseman Troy Glaus and outfielder Darin Erstad. Pitchers Jarrod Washburn and John Lackey didn’t build on their 2002 success.

The fans’ new chant: A-r-t-e M-o-r-e-n-o.

The Phoenix businessman paid about $180 million to buy the team from Walt Disney Co. early last season. Moreno is just the third owner in the Angels’ 43-year history. He’s the first Latino owner in the Major Leagues.

While there were no big changes made during the season,disappointing fans who hoped the Angels would make some trades to at least get in contention in the American League West,the off-season has seen the Angels add a bit of what they need most: pitching.

The new throwers are starting pitchers Kelvim Escobar of the Toronto Blue Jays and Bartolo Colon of the Chicago White Sox, picked up in free agency by General Manager Bill Stoneman.

Moreno has given Stoneman more than $90 million for payroll in 2004, up from last year’s $79 million at the start of the year. He also extended the contracts of Stoneman and Manager Mike Scioscia.

Rumors abound about more Angel signings: the Expos’ Vladimir Guerrero, White Sox’s Magglio Ordonez, Oakland’s Miguel Tejada and Boston’s Nomar Garciaparra are among those named.

Meanwhile, expect more changes on the business side.

Out is the Angels’ highly respected senior vice president for business operations, Kevin Uhlich, who began his career as a batboy decades ago.

In is club president Dennis Kuhl, a veteran billboard advertising executive who worked for Moreno’s Outdoor Systems outfit, which the Angels owner sold to Viacom Inc.

With all the billboard experience at the top, expect changes to the Angels’ marketing strategy and scoreboard.

The Angels’ World Series win did pay off at the box office. Attendance surged 33% to nearly 3.1 million, a club record. The Angels were the fifth-biggest home draw in Major League Baseball.

,Mike Mason

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