Once Relatives, Now Rivals, Both Phenoms
Once Relatives, Now
Rivals, Both Phenoms
As a tortured adaptation of a 1990s Disney story might put it, the stock gains of Emulex Corp. and QLogic Corp. this year could be called the corporate circle of life.
It’s not unusual these days to see a spin-off outshine the company that gave it birth, but Emulex has added a curious twist to a classic case study by creating QLogic and, over time, competing with junior in the very same market. And judging from the runaway success of both Costa Mesa companies, the biggest lesson here is that for some growing segments, there might be room for several winners.
Faced with torpid stock and a growing disparity between its network systems and micro devices divisions, Emulex broke off the latter as a separate company in 1994 to concentrate on input/output devices for the hard-drive market and other storage devices. After a rough start, QLogic earned its own identity and five years later has begun challenging Emulex in one of its fastest-growing markets.
Though Emulex targets the corporate networking environment rather than QLogic’s niche of internal peripheral wiring (and most of that on old-fashioned SCSI interfaces), both are set on a crash course in the market for high-speed fiber-channel devices. The devices allow data to flow faster between computers and peripherals, both inside the computer and over networks.
Undeterred by the old-fashioned family feud, investors have responded en masse. QLogic stock shot up about 400% to more than $150 per share in 1999 (with two trading days left), while Emulex rose more than 900%, surpassing $100 per share.
That’s paid off handsomely for both the 54-year-old Folino, whose Emulex holdings are worth about $88 million, and Desai, 53, who owns about $48 million of stock in QLogic.
While you won’t hear Desai or Folino criticizing each other’s companies in public (as Desai once joked, it’s forbidden in his native India to disparage one’s parents), it’s clear that the two companies will compete vigorously in the high-stakes corporate networking arena, where faster connections to peripherals and storage devices can translate into real money as businesses depend more on automated enterprise systems and e-commerce.
With a secondary public offering last summer that netted more than $115 million for Emulex, Folino’s crew had money for more research and development along with some marketing.
QLogic hasn’t done so badly under Desai either. The company’s stock was recently added to the Nasdaq 100 index, an indication of its performance on an already thriving exchange. And over its most recent four quarters, QLogic more than doubled its profitability to $40.6 million, a feat that earned it an outstanding financial performance award from the Fabless Semiconductor Association.
, Ken Spencer Brown
They Did Plenty
for an Encore
So much for the Business Journal jinx.
While many of the executives featured as businesspeople of the year have gone on to a future of headaches, Broadcom Corp.’s “two Henrys” (actually, Nicholas’ friends call him “Nick”) continue to soar.
On the heels of their selection as the 1998 Businesspersons of the Year, the pair kept on rolling in 1999. Broadcom enjoyed a stock run-up of more than 320%, as the pair extended their virtually uncontested lead in the race to provide chips for high-speed data connections with a slew of new products and deals.
Well, almost uncontested. With a more aggressive stance from OC’s own Conexant Systems (whose CEO Dwight Decker garnered this year’s honor) and others, future gains won’t be automatic.
The situation isn’t lost on Nicholas and Samueli, who buttressed the company last year with seven acquisitions, several big-name partnerships and its ballyhooed entry into home networking and super-high-speed corporate networking,two markets expected to become blockbusters this year.
The company also got into the Internet content business through a joint venture with surfwear maker Gotcha for a glitzy web site for fans of extreme sports.
And if the introduction of Broadcom’s new voice-over-Internet products at last month’s Western Cable Show is any indication, the twin titans won’t fade into obscurity any time soon.
Their personalities generated almost as many headlines as their company. The Lamborghini-driving Nicholas became a poster boy for life in the corporate fast lane, and the quieter Samueli has made himself a deep-pocketed benefactor of charitable causes, highlighted by his recent $50 million contribution to the engineering schools at the University of California’s Irvine and Los Angeles campuses.
He Built It and
They Came
John Parker had a big year in 1999, as his hillside property along the 73 tollroad in Aliso Viejo became the new corporate headquarters hotspot of Orange County. Buy.com, Safeguard and RemedyTemp all took up space at Parker’s The Summit, with QLogic (see fellow Honorable Mention H.K. Desai) due to move in within days. Fluor Corp. and its Fluor Daniel unit are now encamped in separate buildings nearby.
And the former real estate broker turned developer managed to raise more than $70 million in new investment capital for the Summit, one of the county’s largest office projects.
The deals provided enough leverage for Parker and his partners to go ahead with plans for two new campuses, the final ones available at the 70-acre site. In all, the projects mean that $180 million in new construction work has been given an April 1 target date at the Summit.
Parker, through his family-run Parker Properties venture, originally started development of the 1.7 million square feet of offices with Boston-based pension fund manager AEW more than three years ago. In August, the partnership sold the initial two office buildings completed at the Summit to the State Teachers Retirement System of Ohio for more than $31 million. But Parker remained in control of the overall development, stipulating that his company would continue to manage the properties.
Then in November, Parker restructured the project’s ownership. While maintaining overall authority over the Summit’s development, his company sold up to a $40 million stake to Connecticut General Life Insurance Co., a subsidiary of Cigna Corp.
Also joining the project were New England real estate investors from Singleton Associates. The amount being pitched in by that group, which includes well-known real estate entrepreneur Joe O’Connor, has not been disclosed.
Parker also reorganized his own business, adding four new principals. Todd Burnight, who has worked as the company’s vice president and general counsel, became a partner of the revamped firm, now called Parker Partners.
John Parker and his son, Russ, have also brought aboard as partners in the business three other prominent real estate executives: Randy Falck, a former longtime executive at Kilroy Industries; Aaron Weiner, an ex-CB Richard Ellis regional director of management services; and Michael Pace, a veteran Orange County project development manager.
“It’s enormously satisfying to know that a project like this is moving toward fruition,” said Parker at the time his latest deals were struck. “This is a project a lot of us have worked long and hard to see completed.”
The 73-year-old real estate developer also explained that his company’s deals were made with an eye toward diversifying its interests. “By bringing in new partners, we’re now in a better position to start looking at other opportunities (other than the Summit),” said Parker.
,Murray Coleman
He Got Instant Riches, and Signage
In a year of hot IPOs, Smith’s Quest Software was one of the hottest. It hit the public markets Aug. 13 at $20.50 a share and hasn’t looked back. It closed the first day at $47, reached $120 by early December and was still flirting with the $100 level last week. That price gives Quest a market cap of nearly $4 billion, fifth highest in the county, and making the 35-year-old Smith a paper billionaire.
Quest is benefiting from the e-commerce boom, even though it isn’t exactly a dot-com. But its database-management software is well suited to the market.
Under Smith’s direction over the past two years, the company has gone from about 100 employees to more than 700 while nearly doubling its revenue. Unlike many recently public companies, Quest is profitable, earning $1.6 million so far this year.
Smith, who goes by “Vinnie” to friends and co-workers, says he loves the nitty-gritty of running a business and bringing it into the big leagues.
“You get to play and compete in the market, and you know whether you’re winning or losing against your competitors,” he says. “You’re not measuring success by a percentage investment gain. You’re measuring it by how well you can build a winning team and defend your market and come out with new products.”
Recently the company put its name on the Irvine Spectrum facility formerly known as the AT & T; building. That development, Smith suggested, was a more tangible sign of success than going public.
“We paid our dues,” he said.
A full profile on Smith and Quest is slated to appear in next week’s Business Journal.
, Ken Spencer Brown
Leveraging a
Winning Retail Hand
Greg Weaver has been growing Anaheim-based Pacific Sunwear of California Inc. from the time he took over in 1995, but last year he really ramped things up. He added 108 stores to his fast-growing chain of casual wear, bringing the total to 451 stores in 47 states. For 2000, he wants to add 125 more. In four years he wants to open store No. 1,000.
A year ago, Pacific Sunwear launched its first national advertising campaign and last month it announced it would double its advertising spending to $9.3 million. This past year marked the debut of a Pacific Sunwear e-commerce site that is expected to break the $2 million sales level in its first year. Also, the retailer formed a partnership with Vans Inc. to develop private-label-branded clothing to be sold exclusively in its network of stores. And Pacific Sunwear recently instituted a name change at stores to reflect its nickname “PacSun.”
In its most recent quarter, Pacific Sunwear’s earnings were up 51% year-to-year to $12.3 million, on sales of $124 million, up 35%. Same-store sales were up 10.5% in November.
Wall Street approves: Pacific Sunwear’s stock tripled in 1999, to the 35 level with two trading days left in the year. That made Weaver’s 2% stake worth about $13 million.
Analysts say Pacific Sunwear is likely to grow at least 30% in 2000. Thirteen analysts rate it a strong buy and five rate it a moderate buy. For the past two years, Pacific Sunwear has been named one of the “100 Fastest Growing Companies in America” by Fortune magazine. Forbes magazine included the retailer on its list of “200 Best Small Companies” in 1998.
One challenge ahead, Weaver said, is to better understand the growing company’s bigger, more diverse geographic markets. “We need to meet the demands of teenagers in a wider area of the United States,” Weaver said. “Four years ago, we didn’t have a history in Hawaii, Alaska, Maine and Vermont.”
There’s some caution at Pacific Sunwear, too. A move into international markets has been postponed for a few years.
, Susan Deemer
