PREVIEW 2003
2003 begins like 2002 did,with much of Orange County’s economy hoping for a turnaround in the new year.
What’s different this time around is the prospects of a rebound look more real than they did a year ago.
Economists see the county adding about 23,000 jobs next year, a 1.6% growth rate. This year, the county is likely to come in flat.
Services, trade, construction and some segments of manufacturing are expected to lead the job gains. Technology, which is coming off its worst downturn in recent memory, could see more sales of chips, computers and other gear in 2003.
But the gains could be too little to stir the county’s real estate market from its slump. Industry watchers expect office vacancies to get worse before better. And the housing boom could be in for a slowdown.
In our annual forecast issue, we take a look at what to expect in the coming year.
Facets of OC’s economy, from upper left: mixing fun with shopping at the Irvine Spectrum Center; inspecting chips at Newport Beach’s Jazz Semiconductor Inc.; houses under construction at Ladera Ranch; and surfwear styles awaiting shipment at Quiksilver Inc.’s Huntington Beach warehouse
Tech Companies Look to Build on Fledgling Turnaround
By ANDREW SIMONS
Technology companies have a simple wish for 2003: recovery.
While the start of a turnaround is in the works, industry watchers warn it won’t be swift. Think subtle bounce after two years at bottom.
Economic and political uncertainties,along with reluctance by consumers to spend lavishly on the newest gadgets,could hold some tech companies back next year.
Still, for the first time in several years, tech companies are projecting sales increases in the coming year. Take personal computers. For the first time in two years, PC sales are projected to grow next year.
That stands to benefit several Orange County companies, such as Lake Forest disk drive maker Western Digital Corp. and Fountain Valley memory products maker Kingston Technology Co.
But the growth stands to be tempered.
“We continue to expect slow worldwide PC shipment growth for the next several quarters, before the market accelerates in the latter half of 2003,” said Loren Loverde, an analyst with industry researcher International Data Corp. “While business has been slow to recover, we believe it will pick up in the first half of 2003.”
OC chipmakers, which were walloped again this year, could see a better 2003, executives say. Nearly all of them hope to see profits after cutting expenses in the past year.
“The outlook is very positive for 2003,” said Broadcom Corp. Chief Executive Henry Nichols during the company’s recent quarterly conference call. “The company is seeing a forecasted ramp that goes up from the fourth quarter moving into 2003.”
Broadcom cut 500 workers in November, while Newport Beach-based Conexant Systems Inc. has spun off several companies in the past year. Irvine-based Microsemi Corp., OC’s third largest chipmaker, also has been streamlining.
Global chip sales should post strong gains in 2003, according to the San Jose-based Semiconductor Industry Association. This year, sales are expected to grow 2% to $141 billion and rise 19.8% next year and 21.7% in 2004. If the growth sticks, the industry will be back at 2001’s sales level in 2004.
Software makers could benefit in the coming year,in part from increased defense spending and a projected uptick in corporate buying.
Santa Ana’s MSC.Software Inc., a maker of engineering and testing software, already has seen a rise in orders from government agencies and contractors, perhaps presaging an increase in the coming year.
Analysts expect other OC software makers to post better results, too.
Irvine’s Quest Software Inc., a maker of database management software, has a chance to produce great results in 2003, according to one analyst.
“The company has grown well beyond a business that is dependent on a few products to one that is becoming increasingly broad based, with the challenge being to effectively manage and sell these different products to different users,” said James Mendelson of Soundview Technology Group.
Company to watch: Conexant Systems
Newport Beach-based Conexant hopes its growth-by-subtraction strategy works in 2003.
In the past year, Conexant became a shadow of its former self, selling off businesses and reducing its own workforce.
The question for 2003: Will the chipmaker spin off its networking chip business Mindspeed Technology or wait yet another year?
After all, Conexant got its breakup going in late 2000 by proposing a Mindspeed public offering. But the unit has been among the hardest hit of Conexant’s businesses, leaving dim prospects on Wall Street.
The company already has jumped through most of the hoops needed to unleash Mindspeed, with Internal Revenue Service approval for a tax-free spinoff to Conexant shareholders.
“Although current business conditions have delayed the separation, we remain committed to completing the separation as soon as business and market conditions permit,” the company said in a recent Securities and Exchange Commission filing.
Whatever happens, Conexant already has changed the face of OC chipmakers this year. The selloff of businesses led to the debut of three new companies in the county: Pictos Technologies Inc., Jazz Semiconductor Inc. and Skyworks Solutions Inc.
“We’re almost done,” Chief Executive Dwight Decker said in a recent interview.
,Andrew Simons
Person to watch: Alan “Lanny” Ross
It helps to hire a hatchet man.
That seems to be the thinking at Broadcom Corp., which hired its longtime board member Lanny Ross as chief operating officer in November. The move opens up the company’s leadership beyond cofounders Henry Samueli and Henry Nicholas,and puts some big challenges on Ross’ plate.
Broadcom has grown big through acquisitions in the past few years, though profits have been scarce amid the chip industry’s slump.
Barely two weeks into his job, Ross gave the boot to 500 workers,about 16% of Broadcom’s total. And the cutting may not be over, especially if parts of Broadcom’s expanded chip portfolio don’t pan out.
“Although Broadcom has had unusual success with technology acquisitions, it used this round of layoffs as an opportunity to target a few acquisitions that had not panned out,” said US Bancorp Piper Jaffray analyst Ashok Kumar in a report.
Ross is no stranger to chips. Before joining Broadcom’s board in 1995, he worked at Rockwell Automation Inc.’s telecommunications group, which evolved into Broadcom rival Conexant Systems Inc. While there, Rockwell’s chip sales grew to more than $1 billion. Before Rockwell, Ross also had stints at National Semiconductor Corp. and Fairchild Semiconductor Corp.
,Andrew Simons
