There’s something about December that makes us look back at the year that’s winding down and forward to the one that’s ahead.
Next week, the Business Journal looks ahead to 2009 with our annual preview issue. We’re set to take a look at the major industries that make up Orange County’s economy and give a sense of what to expect in the new year.
We also pick people, companies, agencies, malls and even a country to keep an eye on in the coming year.
Which brings us to this week’s issue, where we’re taking stock of how our picks of a year ago panned out.
Just about all of our picks were worth keeping an eye on in 2008. Some more than others. And we missed the mark on a few. Here’s a look back at our 2008 picks.
TECHNOLOGY
Company to Watch:
Solarflare Inc.
No one swooped in to buy Irvine chip startup Solarflare Inc. this year as we had predicted.
We had pegged privately held Solarflare as a potential target for a buyout for a couple of reasons. It’s one of the best-funded startups in OC, with roughly $140 million raised to date. And Solarflare has landed several design wins and started shipping chips to Dell Inc., Irvine’s SMC Networks Inc. and Taiwan’s Accton Technology Corp., among others.
Solarflare makes chips that allow faster networks to link with slower ones.
The company’s potential customers include big networking gear makers, such as Cisco Systems Inc., Hewlett-Packard Co. and IBM Corp.
A year ago, Irvine-based Broadcom Corp. was named as a possible Solarflare suitor. Another potential buyer is Santa Clara’s Marvell Technology Group Ltd.
An independent Solarflare is in good shape to weather the downturn, Chief Executive Russell Stern said.
“Technology spending always gets scrutinized in times like this,” he said. “What companies don’t do is a wholesale forklift change. They want something to update their systems and keep them running.”
Stern declined to say if the company saw buyout offers in the past year or so.
The company is on track for a potential initial public offering in early 2010, he said.
Solarflare has been working to shore up its compliance with Sarbanes-Oxley and recently upgraded its internal software in order to automate the tracking and shipping of its chips.
“We have been building this company to go public,” Stern said. “But I would temper my own optimism because we don’t know yet what will be going on with the market.”
He doesn’t discount the possibility of a future buyout: “At the right price, all things can happen.”
,Sarah Tolkoff
People to Watch:
The Brothers Vanderhook
A public offering for Irvine’s Specific Media Inc. and its founding band of brothers didn’t happen. Blame the bear market.
“The downturn that started happening earlier this year definitely changed the outlook for technology companies and for plans for an
initial public offering,” Chief Executive Tim Vanderhook said. “The IPO market has been grinding to a complete halt during the back half of this year. We likely have the financial capability to go public, but we see no reason to do so right now.”
Brothers Tim, Russell and Chris Vanderhook founded their online advertising company in the family’s Yorba Linda home. In 2007, the brothers chose to take a $100 million funding over a public offering.
Specific Media grew in the past year, according to the brothers.
“This will be another banner year for us in terms of sales,” Tim Vanderhook said.
Specific Media, which doesn’t disclose revenue, makes money by buying up banner ad spots on Web sites and reselling the space to companies looking to advertise to very specific groups of consumers.
The advertisers pay a 20% to 30% premium for the spots because of Specific Media’s “behavioral targeting” technology.
The company can go after people based on demographics, location and Web sites visited, among other criteria.
In March, Specific Media bought London’s Adviva Media Ltd. for undisclosed terms.
Locally, the brothers have been hiring. They now have some 150 workers here, more than double a year earlier.
REAL ESTATE
Person to Watch:
Robert Maguire
Last December, we felt confident that Robert Maguire, the outspoken founder of Los Angeles-based landlord Maguire Properties Inc., would make news in Orange County in 2008.
That turned out to be an understatement.
Going into 2008, Maguire’s company was the second-largest office landlord here, thanks to a $3 billion portfolio buy made in early 2007, just prior to the crash of the area’s subprime mortgage market and national credit crunch.
We expected much of the news surrounding Maguire Properties to concern the shaky performance of its OC buildings, which have seen vacancy rates of about 33% for much of the year. Instead, internal goings-on at Maguire Properties,much of it surrounding its founder,stole headlines.
The company explored an outright sale at the onset of the year but backed away by March, saying it hadn’t received any strong offers.
Robert Maguire subsequently proposed selling off most of the office landlord’s holdings,except for buildings here. That proposal was rebuffed by directors in April.
In May, Maguire was ousted as chief executive. He was replaced by Nelson Rising, the former head of Catellus Development Corp.
Robert Maguire’s ouster hasn’t kept the brash-talking executive,who remains the landlord’s largest individual shareholder with a 16.5% stake,out of the headlines. He sent an October letter to shareholders to reassure them about the health of the company, which has seen its stock fall nearly 90% this year.
He told the Business Journal his reason for the letter was to “cut the panic, for God’s sake.”
,Mark Mueller
Company to Watch:
Standard Pacific Corp.
Irvine-based Standard Pacific Corp. ends 2008 with a new chief executive, a smaller, possibly more manageable balance sheet and the backing of big institutional investor.
The changes made our choice of the homebuilder as a company to watch look smart in hindsight.
The fact that the homebuilder still is around as 2008 ends means the company weathered the dismal year for homebuilders better than many expected.
We chose Standard Pacific as a company to watch during one of its toughest stretches last year. The company had seen the worst stock performance of any homebuilder in 2007, seeing a one-time market value of $2 billion fall by more than 80% during the year.
Standard Pacific had been tapped by some analysts as a likely candidate for bankruptcy. Rather than collapse, the company spent much of 2008 working to generate cash and sell off land and projects.
In June, the company landed a life preserver: a $530 million financing with New York-based private equity firm MatlinPatterson Global Advisers LLC.
In March, former chief executive Stephen Scarborough left the company after a 27-year career with Orange County’s largest homebuilder.
He was replaced by Jeffrey Peterson, who has served as a director of Standard Pacific since 2001.
Standard Pacific’s not out of the woods yet. Its shares are down by about a third this year, leaving the company with a recent market value of about $175 million. Officials say the housing downturn is expected to last for the foreseeable future. But the bankruptcy talk once swirling around the company largely has disappeared.
,Mark Mueller
MANUFACTURING
Company to Watch:
Ceradyne Inc.
We picked Costa Mesa-based Ceradyne Inc. as a company to watch as sales of its bulletproof vests to the military were feared to slow.
That played out in 2008 and sent Ceradyne in search of growth through diversification and acquisitions.
The 40-year-old company hit it big in recent years with contracts for the wars in Iraq and Afghanistan. But its boom has tapered with talks of troop withdrawal.
Its stock is down about 70% this year on a market value of $645 million.
The company forecasts only modest sales growth next year, especially with concerns over what Barack Obama’s presidency could mean for the war in Iraq.
In October, it won a contract to supply $2.4 billion worth of armor to the Army, it’s biggest to date, but stopped work after British rival BAE Systems PLC protested it.
Part of Ceradyne’s hopes for body armor sales lie with XSAPI, a plate it designed to defeat the next generation of armor piercing bullets.
The company has been busy trying to grow other parts of its business, which include sales to the dental and solar industries. Military sales make up about 60% of its business, down from 70% a year ago.
Hopes of a large contract for an armored vehicle outfitted with Ceradyne ceramics have decreased.
The troop carrier that it made with Wisconsin’s Oshkosh Corp. and Virginia’s Ideal Innovations Inc. is designed to protect troops from road bombs.
Meanwhile the company is on the acquisitions path, recently paying $125 million for North Billerica, Mass.-based SemEquip Inc. Ceradyne has more than $200 million for acquisitions in 2009.
,Dan Beighley
RETAIL
Mall to Watch:
Buena Park Downtown
We picked Buena Park Downtown as the mall to watch as it underwent a transition in 2008. The same could be said for 2009.
Struggling Buena Park Downtown is likely to spend at least another year in transition as retailers wait out a recession.
The waiting won’t be easy: For the 12 months through June, the mall saw a 50% drop in sales to $80 million.
Next year stands to be critical, as John’s Incredible Pizza,a 55,000-square-foot entertainment center and family restaurant,is set to open. Hopes are high for John’s Incredible, with its roller coaster and carnival-like atmosphere.
But for now, Buena Park Downtown has a lot of empty spaces, especially in its outdoor food court and entertainment wing.
The mall’s lower level, cleared for John’s Incredible, is a gaping hole of cement and rock piles, which lends an in-the-works mood to the mall.
Some of the lower level stores cleared for John’s Incredible were supposed to move upstairs but closed instead. Busy Bee, an Asian restaurant at the mall for decades, also called it quits.
The bankruptcy of discount clothing store Steve & Barry’s LLC was another blow.
The mall, which finished a makeover in 2003, hasn’t had much luck courting name tenants. Its bright spot in terms of atmosphere is outside near the Krikorian Metroplex theaters or Portillo’s Hot Dogs.
,Sherri Cruz
Company to Watch:
Wet Seal
Foothill Ranch-based Wet Seal Inc. didn’t disappoint as it spent the year resolving fashion missteps and addressing falling sales at its mall stores for teen girls and young women.
Wet Seal, which runs 408 Wet Seal stores for teens and 91 Arden B. stores for young women, has re-emerged as a “fast fashion” retailer by appealing to trend savvy shoppers looking for value.
Chief Executive Edmond Thomas has spearheaded changes since taking the reins from former chief executive Joel Waller, who left last year as gains from earlier in his tenure faded.
Under Thomas, Wet Seal has cut costs, carefully opened stores, added a wider
selection of jeans and tweaked its clothing assortment.
The moves have helped boost profits.
Wet Seal posted a profit of $6.8 million for the three months ended Nov. 1, versus a loss of $3.3 million a year earlier.
Sales for the recent quarter fell 2.5% from a year earlier to $146.6 million but came in ahead of the $145.7 million analysts were looking for.
The company’s Arden B. chain continues to be a drag. Earlier this year, some analysts suggested Wet Seal could look to sell
Arden B.
Wet Seal has fared better than some other retailers in what is the worst downturn in recent memory. But now the industry and larger economic trends could be overwhelming the company’s efforts.
After a big run-up at midyear, Wet Seal’s shares are flat for the year on a recent market value of about $230 million.
The weak economic situation has dampened Wet Seal’s outlook for the year.
For the three months through January, Wet Seal said it expects a big shortfall in profits from what analysts were expecting.
,Jessica C. Lee
FINANCE
Person to Watch:
Maurice McAlister
We had our eyes on Maurice “Mac” McAlister last year to finally end years of speculation over when he might sell his stake in Downey Financial Corp.
He ended up making news by stepping down as the savings and loan operator’s chairman just months before regulators seized it.
Bad home loans overwhelmed Downey, flattening its publicly traded market value to nothing. The company was worth about $2 billion in 2006, just before the reality of the housing and credit crisis set in.
Its $10 billion in deposits and 145 branches, including 34 in OC, were handed over to Minneapolis-based U.S. Bancorp.
McAlister, who owned 20% of its stock, watched his stake dwindle to nothing from more than $300 million a year ago.
While traditionally a cautious lender, 40-year-old Downey got into trouble as competition from looser lenders led it to go big into option adjustable-rate mortgages. The results proved fatal.
Some speculate loan officers had to lower standards to compete.
The adjustable loans, which had low introduc-tory teaser rates that reset at higher rates, were a problem for about one in seven borrowers.
The company renegotiated terms with many borrowers, but fell short of coming up with enough cash to cushion its losses.
Falling real estate values were shrinking its balance sheet while it had to foot the costs of selling hundreds of homes it foreclosed on.
Chances of survival were further dimmed after it was overlooked for aid from the government’s bailout program.
,Dan Beighley
Company to Watch:
Vineyard National Bancorp
Corona-based Vineyard National Bancorp was set to make a big push into Orange County last year. But against our prediction, it never happened.
Bad loans to homebuilders in the Inland Empire began to choke Vineyard as an internal battle for control ended up with the ousting of chief executive Norm Morales.
Its stock has been drilled down to pennies after falling steadily through the year.
Morales had wanted to increase Vineyard’s focus in the county to 25% of its business from 10%, saying the market would be a good place for the bank.
A source familiar with the bank had said it planned to eventually move its headquarters here.
Apparently some shareholders at Vineyard differed with Morales on the bank’s lending strategy, according to a source.
Morales, its largest individual shareholder, launched an unsuccessful proxy battle to take back control by nominating a new slate of directors to its seven-member board.
Vineyard now is lead by Chief Executive Glen Terry.
In November, the bank agreed to be bought by a company created by its former chairman, Doug Kratz, for $18 million. The deal hinges on him finding investors.
,Dan Beighley
HEALTHCARE
Person to Watch:
Timothy Tyson
We picked Tim Tyson as our healthcare person to watch as he faced a turnaround at
Aliso Viejo-based Valeant Pharmaceuticals International.
Turns out we missed the mark, as Tyson’s year ended almost as soon as it started.
Tyson, who came to what then was ICN Pharmaceuticals Inc. in 2002 as president and chief operating officer and became chief executive in 2005, resigned at the end of January.
He was succeeded by J. Michael Pearson, a turnaround specialist from McKinsey & Co.
Tyson, a veteran of GlaxoSmithKline PLC, had spent much of
his time restructuring Valeant in a move away from the era of ICN founder Milan Panic, which included selling off far-flung foreign operations and focusing the company on three product categories.
But some analysts argued that Valeant needed to find a blockbuster drug to spur growth.
Tyson bounced back later in the year. At the end of August, he was named chief executive of Greenwich, Conn.-based Aptuit Inc., which provides research, development and manufacturing services for drug makers.
,Vita Reed
Company to Watch:
Eyeonics Inc.
We picked Eyeonics Inc., an Aliso Viejo maker of replacement lenses for cataract surgery patients, as a healthcare company to watch on the prospects of it taking a more prominent spot among the county’s eye device makers.
That happened,just not as we expected.
Eyeonics was set to make its debut as a publicly traded company after filing to go public in 2007.
In February, Bausch & Lomb Inc. bought Eyeonics in a move to focus on OC as the hub of its surgical eye business.
Eyeonics got a new name, Bausch & Lomb Surgical.
Bausch, which was taken private last year by Warburg Pincus LLC, sought Eyeonics for its Crystalens replacement lens, which is used in people who have undergone cataract eye surgery.
“The Warburg team saw the value in what we were doing,” J. Andy Corley, a Bausch & Lomb corporate vice president and global president of surgical operations, said earlier this year.
Corley’s also an Eyeonics cofounder and former chief executive.
Bausch leased new space in Aliso Viejo for Eyeonics and its eye surgical research and development operations.
“It puts our surgical business right in the center of the heartbeat of where the ophthalmic innovation world resides,southern OC. This is where the action is,” Corley said.
Corley took on his new role in May and said it had been a “very busy, busy time” in terms of making the transition. Eyeonics’ sales force was merged with Bausch’s a month after the deal closed. There were some job cuts.
Bausch’s eye surgical lineup also includes other intraocular lenses, machines used to remove the eye’s natural lens during cataract surgery, devices used to help the eye retain its shape during cataract surgery and hand-held surgical instruments.
,Vita Reed
INTERNATIONAL TRADE
Country to Watch:
South Korea
Free trade with South Korea,Orange County’s fifth biggest export market,is all but dead for now.
A year ago, we picked South Korea as our country to watch on high hopes Congress would give the green light to a trade pact struck in 2007.
The deal would allow about 95% of U.S. exports of consumer and industrial goods to enter South Korea free of duties and tariffs within a few years.
Based on estimates from state figures, OC exported roughly $410 million worth of goods and services to South Korea for the six months through June. That was up 4% from a year earlier.
Local companies already do a lot of business with South Korea.
Those that make chips, software and circuit boards send products to big cell phone and computer makers there, including Samsung Group and LG Group.
President Bush pushed for ratification of the agreement, along with similar ones for Colombia and Panama. But the pacts got hung up in Congress over a few key issues including how lower tariffs would affect the U.S. auto, steel and beef industries.
Others have raised concerns about ways to protect the nation’s biggest automakers, which are seeking loans from the government to help them survive.
Farm lobbyists and some members of Congress have withheld support until South Korea lifts its restrictions on imports of U.S. beef.
Ratification is now in the hands of the new administration and legislators.
Barack Obama, who takes office in January, criticized the pending free-trade pacts during his campaign.
Policy watchers say that was campaign posturing and that Obama likely will ratify a pact with South Korea in the coming years.
“Despite these fairly predictable comments in terms of labor support, worker protections and environmental issues,he’s a pragmatist,” said Noel Murray, director of the Walter Schmid Center for International Business, part of the George L. Argyros School of Business & Economics at Chapman University in Orange. “I don’t see any political objections to it from his point of view.”
,Sarah Tolkoff
TOURISM
Venue to Watch:
Disneyland Resort
We picked the Disneyland Resort as the venue to watch on the heels of unveiled plans to remake Disney’s California Adventure and to expand Disney’s Grand Californian hotel.
But it turned out to be worth watching as a barometer of tourism in a slowing economy.
Early in the year, Disney’s two parks, hotels and other venues in Anaheim seemed to be holding up as other parts of the economy faltered. The critical summer season was busy.
Toy Story Mania, the first salvo in the remake of California Adventure, debuted in June to heavy crowds.
The Miley Cyrus 16th birthday party, a pricey, limited ticket production, brought “Hannah Montana” fans to Disneyland Park for at least a day in October.
And, in the midst of the financial meltdown, the Disney folks unveiled detailed plans for the $1 billion makeover of struggling California Adventure.
But signs of strain have started to show.
Despite efforts to keep things hopping, Disney parks saw attendance shrink by about 1% in the 12 months through September. In October, occupancy at Disney’s hotels was down 4% from a year earlier. Bookings for the current quarter are below last year’s levels, Chief Executive Bob Iger said in a conference call last month.
The company is “looking at efficiencies” to offset the downturn, Iger said. Typically that means fewer shows, shorter restaurant hours and other cuts that aren’t so noticeable to
visitors.
In October, the company came out with a package that lets people pay for four days but stay for a week at Disney hotels. The deal includes $200 in spending certificates aimed at the holiday crowd.
“Consumers are being careful about how much they spend and what they spend it on,” Iger said. “The price to value ratio is important and plays well with our brands.”
,Sandi Cain
Person to Watch:
Paul Makarechian
When we turned the spotlight on Makar Properties LLC’s Paul Makarechian last year, he was coming off a year of big news after buying the Hilton Anaheim and the Wyndham Orange County, dabbling in boutique hotel management in Palm Springs and launching a Resort Membership Club at the St. Regis Monarch Beach.
A month later, we broke the news that Newport Beach-based Makar plans to build a W Hotel at its Pacific City development in Huntington Beach.
We thought we’d be watching at least some of those projects unfold in 2008. As it turned out, the weakening economy resulted in less unfolding and more holding for developers.
Makarechian said the W Hotel opening is now targeted for the start of 2011, with the retail and first homes of Pacific City tentatively set to open in late 2010.
Plans for a tower of luxury condos adjacent to its Wyndham Orange County in Costa Mesa also “are on hold until further notice,” Makarechian said.
One Makar project that did get completed was the $62 million renovation of the Hilton Anaheim that breathed new life into the hotel with updated guest rooms, meeting space and restaurants and a spruced up lobby and lounge.
The company also hopes to expand the Palm Springs Bed & Breakfast Boutique late next year.
Makar’s St. Regis Monarch Beach Resort got national attention in October with a firestorm over an American International Group Inc. sales meeting held there.
Despite the controversy, the exposure was “positive in regard to the overall marketing of the hotel,” Makarechian said.
,Sandi Cain
GOVERNMENT
Agency to Watch:
U.S. Attorney’s Office
Probably our biggest bulls-eye.
We nailed it with last year’s pick of the U.S. Attorney’s Office in Santa Ana as the government agency to watch.
The office has made headlines with the trial of former sheriff Michael Carona and indictments of former Broadcom Corp. executives for stock options backdating at the Irvine chipmaker.
More salacious and headline grabbing was a separate indictment of Broadcom cofounder Henry “Nick” Nicholas on drug charges.
Meanwhile, the U.S. Attorney’s Office is at the center of one of the biggest trials the county has seen,the corruption case again Carona, which started in October.
Ken Julian, assistant U.S. Attorney and deputy chief of the Santa Ana office, is trying the case along with Assistant U.S. Attorney Brett Sagel.
Last year, federal prosecutors indicted Carona, wife Deborah Carona and Newport Beach lawyer Debra Hoffman (often referred to as Carona’s longtime mistress) after a three-year long investigation.
Broadcom’s Nicholas and former financial chief Bill Ruehle are set to go to trial in April on charges related to stock options. The trial of Nicholas on drug charges is slated for later next year.
Meanwhile, the office is looking into the 2007 failure of Irvine-based subprime mortgage lender New Century Financial Corp. for possible wrongdoing. A spokesman for the U.S. Attorney’s Office recently said he expects indictments in the probe, which also includes other mortgage lenders.
,Jessica C. Lee
Politician to Watch:
Lou Correa
We tapped Democratic state Sen. Lou Correa as the politician to watch as a moderate with the prospect of uniting lawmakers during a difficult year in Sacramento.
But 2008 turned out to be anything but the year of the moderate, as budget and other battles broke down along ideological lines.
Early in the year, Correa appeared with Gov. Arnold Schwarzenegger in Anaheim and Garden Grove as the governor stumped for a plan to solve the state’s long-term budget problems.
But more often than not, Correa’s moderate posture put him out of step with the left-lurching governor and Legislature. In August, Correa abstained from a vote on a budget proposal that called for a higher sales tax and that was backed by Democratic leaders and the Republican Schwarzenegger.
The bill’s failure by three votes extended the summer’s record budget impasse but won Correa plaudits from anti-tax groups.
During the budget standoff, Correa was one of the few senators to decline an additional $170 in daily pay for lawmakers as they worked to pass a spending plan.
When Sacramento finally passed a budget in September, Correa foreshadowed problems that since have come to light: “I know for a fact we’ll have more challenges next year,” he said. “As soon as this budget passes, we’re back to the drawing board. Immediately.”
Problems came even sooner than Correa predicted as the economy tanked and taxes came in lower than expected. The Legislature is in special session again this month to try to address a $27 billion deficit for the next two years.
Correa saw a handful of bills he sponsored signed into law by the governor, including those dealing with mortgages and traffic on the Riverside (91) Freeway.
,Michael Lyster
