Tech Makeover Leaves Survivors Awaiting Rebound
By ANDREW SIMONS
Restructuring at Orange County technology companies in the past three years has changed the face of the industry here.
The county’s leading chip, software and computer products companies have dramatically cut costs, sold off businesses, reworked executive ranks and revamped their offerings since the tech implosion began in 2000.
What’s left are companies that have slimmed down considerably from their boom-year peaks but still have some unresolved issues and unfinished business.
In terms of scope, tech’s transformation here ranks second only to the sweeping overhaul of the aerospace and defense sector in the early 1990s.
Back then, more than 10,000 OC defense jobs evaporated with the end of the Cold War.
Flash forward to today. In the past three years, more than 6,000 people who worked in OC for a telecommunications company, chipmaker, software developer, Internet business or computer products maker lost their jobs.
Half of OC tech companies have restructured at least once since 2000 with many of companies undergoing two rounds of job cuts.
Among the changes: personal computers no longer are assembled here.
When Toshiba Corp. decided to quit assembling laptop computers in Irvine and cut some 500 jobs in 2001, the move ended a once lively PC production business here that dated back to AST Research Inc. and Advanced Logic Research Inc.
Gateway Inc. closed what was left of ALR in Lake Forest last year after buying the business computer maker in 1997.
There have been other shifts.
Thanks to the breakup of Newport Beach-based Conexant Systems Inc., OC counts three new chip businesses: Newport Beach’s Pictos Technologies Inc., Woburn, Mass.-based Skyworks Solutions Inc., which employs 480 in Irvine, and Newport Beach’s Jazz Semiconductor Inc., a contract chipmaker that competes with Asian plants.
While sweeping, tech’s restructuring isn’t as bold as the 1990s aerospace and defense makeover, which left just a few players in command of a smaller industry.
Instead of wholesale consolidation, tech has seen cutting to survive during an epic downturn,in the hopes of growing again in better times.
Take Western Digital Corp.
In the past three years, the Lake Forest-based disk drive maker has cut hundreds of jobs, closed a massive plant in Rochester, Minn., shifted production to a newly acquired Thailand facility and revamped its executive ranks, including promoting longtime executive Matt Massengill to chief executive in 2000.
Three years ago, Western Digital was big on internal startups, including Keen Personal Media Inc., which made set-top box software, and SageTree Inc., a supply management software developer.
But by last year, the two units were costing too much for a company whose bread and butter is disk drives. Western Digital shuttered Keen and laid off about 30 people. The company also sold off its stake in SageTree to NCR Corp., an early investor in the venture.
“It was a terrible time for venture money,” Massengill said. “We’re not going to be a venture capitalist.”
Western Digital wasn’t alone. By 2001, venture investments and acquisitions by companies such as Conexant, Irvine’s Broadcom Corp. and Microsemi Corp. ground to a near halt.
Western Digital’s restructuring has produced results.
The company’s drive business has run profitably for 10 straight quarters. The company as a whole has been in the black for five.
“They’re in a lot better position,” said Glen Ingalls, an analyst with SoundView Technology Group Inc., of Western Digital. “They’ve had to place their bets. The industry has consolidated and they serve more of a niche now.”
Chipmaker Conexant,itself once part of defense contractor Rockwell,has begun to see its fortunes turn around after mounting one of the most dramatic restructurings of local tech companies.
In the past year, Conexant has sold off three businesses. Its digital imaging business became Pictos, its wireless chip unit became Skyworks, and its Newport Beach wafer fabrication plant now is Jazz Semiconductor.
As part of the selloffs, Conexant shed 4,000 workers and three facilities.
The moves have helped Conexant dig out of a hole. In 2001, the chipmaker burned through $600 million in cash as sales of communications chips all but died.
In 2002, the company’s cash burn rate was down to just $13.9 million. For the quarter ended Dec. 27, Conexant’s pro forma operating loss narrowed to $28.6 million on a 16.5% rise in sales to $164.5 million vs. a year earlier.
Wall Street has noticed. Conexant’s shares are up 130% from their October low.
Other chipmakers are more efficient, too.
In hopes of eking out more chips from its plants, Irvine’s Microsemi shuttered two facilities in Massachusetts, one in Ireland and another in India. That resulted in 470 layoffs and the shift of some jobs to Microsemi’s Garden Grove plant. (see related story, page 5).
Microsemi’s remaining plants now are producing more chips.
Arguably the biggest OC tech restructuring has played out at Santa Ana’s Ingram Micro Inc., OC’s largest company with yearly sales of more than $22 billion.
Since 2001, the tech products distributor has cut 3,400 jobs worldwide, closed five facilities and launched new sales and service programs to boost profits.
The steps have paid off.
Ingram Micro has pared more than $70 million in regular operating expenses and said it’s on track to see $160 million in profits from the moves by next year.
“I thought we were being pretty aggressive,” said Michael Grainger, Ingram Micro’s chief operating officer. “But it shows that we get done what we need to get done.”
The impact of other tech moves still is to come.
Consider Broadcom. The chipmaker has been restructuring since 2001, when it laid off about 200 people as the market for networking gear slowed.
Since then the company has fired another 500 people, closed offices in Los Angeles, El Segundo and elsewhere and replaced several department heads.
The results have brought Broadcom to near break even on its pro forma operating results. But one of the biggest changes is unsettled,the January departure of brash cofounder and chief executive Henry Nicholas.
For now, chip veteran Alan “Lanny” Ross is interim chief executive, while cofounder Henry Samueli, the company’s research and development chief, also is playing a more active role in day-to-day management.
“Henry Nicholas is a legend at the company,” said Mark Lipacis, a Merrill Lynch & Co. analyst. “He is known as being a strong leader, a great motivator, and in many ways drove the intensely competitive culture of the company. While we believe that the current management is capable, we believe that the departure of such a strong leader, the company will undergo a cultural change, if not a bit of a vacuum.”
Conexant also has some unsettled issues. The company still needs to spin off networking chip business Mindspeed Technologies, which caused Conexant to post a loss for the December quarter.
A Mindspeed spinoff could come this year, depending on the market.
