While Orange County’s technology engineers may not be in the money like last year, most of them still are in the labs.
Despite slowing sales, most of Orange County’s top tech companies have bumped up their research and development spending,both in dollar terms and as a percentage of total sales,as they look for new products that could add a little luster to fading financials.
While the economic slowdown is painful, executives say, it also is forcing them to re-examine their strategies and directions. The result: Even though many have cut back on expensive lunches, leases and corporate travel,as well as other expenses,tech executives are reluctant to give up R & D; spending. And new technologies that might not have been noticed amid the bustle of a hot market now are receiving attention,and funding.
Microsemi Corp. of Irvine, OC’s third-largest chipmaker by sales after Newport Beach-based Conexant Systems Inc. and Broadcom Corp. of Irvine, boosted its R & D; spending by $1 million to 5% of the company’s revenue, compared with 4% in the same quarter a year ago.
“We’re always looking to put more money in research and development,” Chief Executive Jim Peterson said, “especially in our high-growth areas.”
Microsemi says it is trying to shift its focus away from its slower growing segments to expanding ones that produce gross profits of more than 50%. The company sells products into a variety of markets, with military and aerospace, handheld devices and telecommunications accounting for the majority of sales.
Microsemi executives expect the in-house research and development spending,coupled with that of recently acquired companies,should help it win new work and sell more products to the medical device and automotive markets, which now account for a small fraction of the company’s revenue.
Peterson says that Microsemi increases spending by 12% in what the company sees as the highest growth markets while its slower markets only see a 2% increase in research money.
Still, Microsemi lags other OC chipmakers in R & D; spending and also is behind industry leader Intel Corp., whose R & D; spending comes in at about 15% of sales.
In the first quarter, Broadcom bumped its research spending by nearly $65 million from the first quarter of 2000, to $109.5 million. The company spent 35% of revenue on R & D; in the most recent quarter, vs. 23% a year ago.
“A contraction in the market can play to our advantage over the long term,” Broadcom Chief Executive Henry Nicholas said at a recent shareholders’ meeting. “We’re well-positioned to benefit from a re-acceleration of the economy.”
Even OC’s more troubled tech companies have stepped up research spending despite slowing business. Lake Forest-based Western Digital Corp., which has undergone a restructuring and a product recall in the past year, anted up an additional $1.78 million for research, increasing its R & D; investment to nearly 7% of sales from 6% in the same quarter last year.
Among their new research efforts, Western Digital engineers are looking at new uses for the company’s hard drives, which traditionally have gone into personal computers.
Similarly, Conexant, despite a dramatic slowdown in its business, bumped its research spending to 51% of net sales in its most recently reported quarter compared with 20% in the same period a year ago. The company attributed the increase to an increase in the number of engineers the company has hired.
To be sure, hiring new staff plays a big role in research spending. Even in a market where companies are laying off employees, few would be willing to let go of their top engineers and developers, whose salaries fall under research and development costs.
Top OC software maker FileNET Corp. bumped its research spending nearly $2 million from the same quarter a year ago. In total, FileNET increased research spending to 19% of the company’s revenue, from 14% in the same quarter last year.
“This increase in absolute dollars was primarily due to market-driven increases in salaries and recruiting costs as a result of the intense competitive environment for software engineers and an increase in the rates of contract developers,” the company said in its most recent Securities and Exchange Commission filing.
But perhaps the most telling of the trends among OC companies investing in new research is that executives still want to hire the best engineers. On top of having to retain their most talented engineers, OC’s tech executives are reluctant to pass on good available engineering talent,and will cough up research and development dollars to snag it.
Executives at storage component maker Emulex Corp. in Costa Mesa and Microsemi say they continually look at new engineering talent,a sentiment shared by many other OC execs.
“We’re always looking to hire a good engineer,” Peterson said. n
