Technology: Big Firms Spawned Entrepreneurs
By ANDREW SIMONS
Orange County’s tech companies of ’00s have firm roots in the defense industry of the ’50s.
That’s when the defense industry,hungry for skilled labor to build missiles, tactical computers and rockets and seeking space to expand,opened plants and factories here.
Thanks to hiring by such defense names as Rockwell International Inc., McDonnell Douglas Aerospace (now a part of Boeing Co.), Northrop Grumman Corp., Lockheed Martin Corp. and Raytheon Co., OC’s population tripled during the ’50s, going from 216,224 in 1950 to 703,925 in 1960, according to the U.S. Bureau of the Census.
And laboratories at those companies produced technologies and software that would set the basis for present day titans such as Conexant Systems Inc. and Microsemi Corp.
The defense and related aerospace industry changed OC from a predominately agricultural area to a highly industrial area.
By the ’70s, aerospace lost its sheen. Several government programs,including one for the B-1 bomber,were terminated, resulting in job losses in OC. Technologies developed in the labs of OC’s defense contractors went on for commercial applications.
“Life in defense contractors is very rigid,” said Dwight Decker, chief executive of Conexant. “There are very many rules, so one might argue it’s not a natural link to entrepreneurship. But it is a long-range sponsor of R & D; dollars.”
Look back in the annals of technology in OC and you’d be hard-pressed to find a technology company here that doesn’t credit its rise to the massive defense contractors that dotted OC from Buena Park to Newport Beach.
Take Newport Beach chipmaker Conexant, which was formerly a part of Rockwell, then in Seal Beach. Henry Samueli and Henry Nicholas, the founders of Irvine-based Broadcom Corp., got their start in the defense industry working for contractor TRW Inc. and the Defense Department’s VHSIC program, which stands for very high speed integrated circuit.
Irvine-based Microsemi long has sold chips to the defense industry. Comaraco, based in Irvine, was a perennial name in the defense industry.
OC’s tech industry has diversified over the years.
Or take the personal computer boom in the region.
Started in 1984 by tech guru Safi Quereshy, AST Research rode on the coattails of the personal computer industry’s boom days, making products for both Apple Computer Inc.’s Macintosh computer and IBM Corp.’s PC. AST built its fortune on producing add-on memory boards and other products primarily for IBM personal computers, as well as entire computers.
But AST faced competition from so-called “clone” manufacturers,which later became industry icons like Compaq Computer Corp. (now part of Hewlett-Packard Co.) and Dell Inc.
Falling prices have ushered PCs into tens of millions of homes and businesses.
In 1986, AST purchased Camington Corp. from John Tu and David Sun who went on to found Fountain Valley-based Kingston Technology Co. Kingston now counts more than $1.3 billion in annual sales. Samsung Electronics bought a troubled AST in 1997.
There were other OC PC companies. In 1986, Advanced Logic Research shipped the first personal computer based on Intel’s 386 processor, and, later, the first 486 machine. Back then, such machines sold for $1,800 to as much as $13,000.
Lake Forest-based Western Digital Corp., which started in 1970 making various types of semiconductors, really took off making hard drives for personal computers in the ’80s.
“Most of the last 20 years was a fairly orderly and gradual evolution, nothing we should be ashamed of,” said Gary Leibl, a longtime OC tech executive and founder of QLogic Corp.
“In the past five years, we’ve seen the shape of the curve change dramatically. We have seen a lot more growth and innovation in the past five years, and that gives me great encouragement. We’ve seen the county diversify. It isn’t only just a player in PCs and hard drives. We’ve moved into communications, software, semiconductors and into a number of other areas. We’re not a specialized region but a county that is starting to play in the major technologies. The past five years was a breakout.”
OC also diversified into software in the ’80s. In 1982, Ted Smith founded Cost Mesa document management software maker FileNet Corp.
It wasn’t until the ’90s when OC’s present day technology landscape really started to take place.
In the early ’90s, Irvine-based Linksys Group Inc. started taking off developing products that linked PCs to printers and to each other. In 1991, David Doyle founded Irvine-based Quest Software Inc. In 1993, Costa Mesa-based Emulex Corp., a maker of components that link storage units together, spun off Aliso Viejo’s QLogic.
Enter 1995 when Henry Nicholas and Henry Samueli moved their tiny chipmaker, Broadcom, from Los Angeles to Irvine. In 1998, the company had a blockbuster public offering that produced dozens of millionaires and put Nicholas and Samueli among America’s richest men.
Broadcom wasn’t alone. Conexant, which spun off from Rockwell in 1999, shot up in its first day of trading, giving the company a massive market value.
“In the early ’90s, information and communication technologies weren’t associated with this area,” said Decker. “There’s now a cluster of tech companies here. It’s really become a credible technology center.”
But the party came to an end for Broadcom and Conexant and a host of other tech companies in 2001 when the bottom fell out of the stock market. And the downturn was terrible. Within eight months, Broadcom’s market capitalization plummeted from $60 billion to $6 billion. (It has recently rebounded to $8 billion.)
Conexant stopped production at its plants, sold assets, shifted production to contract chipmakers in Asia and laid off hundreds of employees. Broadcom also laid off employees and consolidated divisions. The personal computer division of Toshiba America Information Systems shuttered its PC manufacturing plant here and moved it to lower cost digs in Asia, resulting in hundreds of layoffs. Perennial OC names such as Lake Forest-based Western Digital and Microsemi also laid off hundreds of employees.
But while OC suffered a downturn akin to the one it faced after the fallout from the defense industry, the area is still appealing to companies looking to relocate here. MSC.Software Inc., a maker of industrial design software, moved to Santa Ana from Los Angeles in 2001.
Meanwhile, things are looking up once again in the OC defense industry that started it all. Defense subcontractors, slimmed down and reinvigorated, are seeing strong orders and anticipating demand for weapons and security products as American faces an uncertain world.
