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 2010 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 and companies 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 2009. Some more than others. A few we missed the mark on. Here’s a look back at our picks of a year ago.
TECHNOLOGY
Company to Watch – STEC Inc.
We look pretty good having picked Santa Ana’s STEC Inc. to watch. The company went on a wild ride in 2009.
We had an inkling big things would happen for the maker of flash memory drives for corporate and industrial uses. But we didn’t know how big.
STEC’s shares spent nine months of the year on a mad bullish run, peaking at an 800% gain in early September.
The run-up hinged on better-than-expected sales of STEC’s ZeusIOPS drives, which are used by banks, retailers, governments and others to store data.
For most of the year, STEC fed Wall Street a continuous stream of upward revisions to its financial guidance, further driving up the stock.
The company’s devices are known as solid state drives because they have no moving parts. They’re seen as potentially replacing traditional disk drives for their speed, quick startup, durability and energy savings.
But STEC’s exuberant run reversed course in September when investors got spooked by signs of slowing orders from top customer EMC Corp.
The slide continued when the company gave a conservative outlook for the balance of the year on the heels of its third-quarter results.
Since then, STEC’s shares have given up more than 75% of their value. The sell-off pared STEC’s gains since the start of the year to around 180% last week with a market value of about $640 million.
Adding insult to injury, the company was slapped with a handful of recent shareholder lawsuits as lawyers pounced on STEC’s stock slide.
Even with the pullback, a lot of people at STEC got rich this year.
“Over the years, we have probably given about 25% of the company to our employees,” Chief Executive Manouch Moshayedi said. “Everyone is working extremely hard to make sure our stock gets back up again.”
STEC largely has had the market to itself for corporate and industrial flash drives. But now it faces some big competition.
Intel Corp., Kingston Technology Co. and disk drive makers Seagate Technology LLC and Western Digital Corp. all have come out with solid state drives or have plans to.
Wall Street still has high hopes for STEC, which is set to announce three products next year.
“We continue to believe that STEC will be a leading player within the emerging enterprise storage solid state drive world,” said Richard Kugele, an analyst at Needham & Co. in Boston.
The company has announced design wins with other data storage computer makers, including IBM Corp., Hewlett-Packard Co., Hitachi Data Systems Corp., Sun Microsystems Inc. and Fujitsu Ltd.
“We are hoping that next year we will have five large customers, not one single large one,” Moshayedi said. “That’s our goal.”
—Sarah Tolkoff
Person to Watch – H.K. Desai
We were off on our prediction for H.K. Desai, longtime chief executive at Aliso Viejo’s QLogic Corp.
We had pinpointed Desai, 63, on the expectation he’d pick a successor in 2009 after a false start in 2007. But Desai still is plugging along at QLogic, a maker of electronics for data storage networks that he has run for 15 years.
Desai, who declined to comment for this story, doesn’t appear to be ready to pass the baton just yet after a failed attempt at lining up a successor two years ago.
Desai and other directors picked IBM Corp. veteran Jeff Benck to be his successor in 2007. Then Benck stepped down as president and chief operating officer after about a year on the job.
Company watchers said the two couldn’t come to terms about the timing of Benck’s ascension as chief executive.
Shortly after, Benck took the chief operating officer post at QLogic rival Emulex Corp. in Costa Mesa.
For now, there’s no clear No. 2 at QLogic. Day-to-day tasks are handled by a team of other executives and general managers.
A year ago, Desai said he would resume talks with the board about succession planning.
But an analyst familiar with the company said there has been “no talk about a successor” recently.
The company has made headway in winning customers for a new technology, dubbed fibre channel over Ethernet, which combines everyday corporate networks with speedier data storage networks.
QLogic this year announced design wins with IBM, NetApp Inc. and EMC Corp.
—Sarah Tolkoff
REAL ESTATE
Company to Watch – Grubb & Ellis
We hit a home run with Santa Ana-based Grubb & Ellis Co.
The real estate brokerage and investor saw a long-awaited appointment of a new chief executive, lined up investors and pulled off a potentially life-saving $90 million refinancing, all amid a struggling real estate market that shows no indication of seeing a quick turnaround.
From a corporate perspective, Grubb ends 2009 in much better shape than it started the year.
In November, the company closed a $90 million financing deal, ending months of speculation that the company—faced with a big impending debt payment—could be in financial trouble.
The financing eliminated most of Grubb’s near-term debt with investments from FMR LLC, the Boston-based parent of Fidelity Investments, and some existing shareholders.
Also in November, Grubb ended a long-running executive search, naming Thomas D’Arcy to replace interim Chief Executive Gary Hunt. The search for a full-time chief had been ongoing for nearly a year and a half.
D’Arcy, 49, is chairman of Inland Real Estate Corp., a $1.5 billion real estate investment trust based in Oak Brook, Ill.
There could be more changes in store for Grubb. Language in D’Arcy’s employment contact raises the possibility that the company could be looking to relocate its headquarters out of Orange County with Chicago and New York being the two most likely destinations.
Officials for the company said that Grubb has “no plans” to relocate and declined to address the wording of D’Arcy’s contract.
—Mark Mueller
Person to Watch – Igor Olenicoff
We nailed it with Igor Olenicoff, but not entirely for the reasons we expected.
A year ago, we picked the president and owner of Newport Beach-based Olen Properties Corp. to watch based on expectations that the real estate investor and developer would be busy snapping up distressed properties in Orange County and elsewhere.
Olenicoff instead ended up at the center of a global story that turned the spotlight on Switzerland’s secretive banking system.
In mid-2008, Olenicoff filed a $500 million lawsuit against Switzerland’s largest investment bank, Zurich-based UBS AG, and others, claiming they orchestrated a massive fraud against him and other clients that led to federal tax charges against Olenicoff in 2007.
What followed this year were big changes to the way UBS does business with wealthy U.S. clients.
In February, the bank said it would pay $780 million to settle federal investigations into its activities. In August, UBS agreed to turn over details on 4,450 accounts to the Internal Revenue Service.
The story also brought criminal implications. Bradley Birkenfeld, one of Olenicoff’s former personal bankers at UBS, was sentenced to 40 months in jail this summer for helping wealthy U.S. clients avoid taxes.
Olenicoff still is said to be eyeing up potential distressed buildings to buy, although no large deals have been announced so far this year.
—Mark Mueller
MANUFACTURING
Company to Watch – St. John Knits International Inc.
Irvine-based St. John Knits International Inc. got a reprieve on the fate of its Irvine plant in 2009.
A year ago, the luxury women’s clothier faced a decision on what to do with its 169,555-square-foot plant at Jamboree Road and Michelson Drive, where it employs about 1,000 workers.
In 2006, the company sold the building to Houston-based developer Hines Interests LP and leased back the space. A plan to redevelop the site as offices was approved last year.
That put the spotlight on St. John and whether it would relocate the operation locally or perhaps farther afield.
“Then the whole world changed, particularly for commercial real estate,” said Glenn McMahon, St. John chief executive.
For the foreseeable future, Hines’ redevelopment plan appears to be on hold.
“We are committed to staying there for the immediate future,” McMahon said.
The company has been in talks with Hines to extend its lease and continue operations, he said.
St. John, known for making knit suits worn by politicians, socialites and professionals in their 40s, 50s, 60s and older, is one of the few apparel companies that actually makes clothes in Orange County.
“It’s only a percentage of our total manufacturing, but we still do the majority of our manufacturing in Southern California,” McMahon said. “We’re committed to manufacturing here in California.”
—Michael Volpe
HEALTHCARE
Company to Watch – TherOx Inc.
We picked Irvine-based TherOx Inc. to watch for the prospect of it becoming the first local company to go public in a while.
TherOx, a maker of devices and products to treat oxygen-deprived tissue after a heart attack, didn’t go public and ended up having a low-key but eventful 2009.
In February, TherOx withdrew plans for a public offering that could have raised $100 million, saying in a Securities and Exchange Commission filing that it was “no longer in its best interests to proceed.”
TherOx was the only Orange County company to file for an initial public offering in 2008.
Product issues could have had been behind TherOx’s changed plans.
In early 2009, TherOx received an unfavorable recommendation over safety concerns from a Food and Drug Administration panel for its SuperSaturated Oxygen Therapy, said Kevin Larkin, its chief executive.
TherOx has met with the FDA and is planning to do a confirmatory safety study, with a goal of getting FDA approval for SuperSaturated in mid-2011, Larkin said.
Larkin said a public offering isn’t in TherOx’s plans. The device maker has a “reasonable amount of cash” and still is using money from a $30 million funding round in 2008.
The device maker has raised more than $120 million since its founding 15 years ago. Major backers include Kleiner Perkins Caufield & Byers, which owns about a quarter of the company.
TherOx has 19 workers, down from 38 in late 2008. Larkin said the company cut 11 of those jobs in July as part of a bid to conserve cash.
—Vita Reed
Person to Watch – David Bailey
Our pick of David Bailey was somewhat of a fizzle.
A year ago, the former vice chancellor for health affairs at the University of California, Irvine, had several big items on his plate, including the opening of the county’s biggest hospital expansion in 2009.
Then in early 2009, he told staffers in an e-mail that he was stepping down by midyear.
Bailey said in published reports that he gave up the vice chancellor’s job because he wasn’t able to gain support from faculty members on financial accountability issues.
Bailey now is on the faculty of the University of California, San Diego.
UC Irvine plans to leave the vice chancellor for health affairs post unfilled.
Before Bailey left, he oversaw the appointment of Terry Belmont as UCI Medical Center’s interim chief executive to re-place Maureen Zehntner, who retired in March.
He also was around for the opening of the $556 million New University Hospital, which took its first patients in March.
—Vita Reed
RETAIL
Mall to Watch – The Shops at Anaheim GardenWalk
Orange County’s newest mall saw some progress in 2009, but isn’t much better off than it was a year ago.
The Shops at Anaheim GardenWalk opened in summer 2008, just before the economy went south. That left a lot of empty stores and grumbling by the few retailers that had set up shop.
It was against this backdrop that we picked Anaheim GardenWalk as our mall to watch for 2009.
The mall didn’t make much headway in leasing in 2009—it’s about half full, down from 65% a year ago. Hopes were to have the mall mostly leased during the second half of 2009. A few tenants have moved in, including clothing store Rebel and restaurant Fire + Ice Grill + Bar.
The mall’s management says it has a couple of deals in the works for next year.
Tight credit is still pinching retailers’ expansion plans, said Bill Stone, senior vice president of development for mall developer and operator Excel Realty Holdings of San Diego.
“I don’t see the leasing really opening up until midyear,” he said.
The restaurants that line the outside of Anaheim GardenWalk continue to draw visitors. During summer, tourists from neighboring Disneyland and conventioneers provided big evening crowds.
But daytime shoppers remain elusive. The mall changed its name from Anaheim GardenWalk to the Shops at Anaheim GardenWalk to try to highlight the shopping side of its business.
—Sherri Cruz
INTERNATIONAL TRADE
Country to Watch – Cuba
As we had predicted, 2009 proved to be a big year for U.S.-Cuba relations.
With President Obama taking the helm, many anticipated the White House would change its tone and tack with Cuba. It has, to some degree.
In April, Obama took steps to ease some of the economic sanctions and travel restrictions that previous administrations had employed.
It lifted some controls on sending money to Cuba and travel by Cubans living in the U.S. who have family on the island.
The moves paved the way for possible trade deals in certain industries, including telecommunications, medical devices and agriculture.
An opening in trade with Cuba would be more symbolic than substantive for Orange County companies.
The country of 11 million people is poor and isn’t likely to give local exporters a big boost.
Cubans would be the biggest beneficiaries of trade. They’d receive more modern medical equipment and see more tourism.
“Trade engenders peace,” said William Hernandez Requejo, principal at Irvine-based international business consulting firm Requejo Consulting Inc. and an adjunct professor at the Merage School of Business at the University of California, Irvine.
In October, Obama said he would maintain the U.S. economic embargo of Cuba, which has been the nation’s bipartisan stance for nearly 50 years.
Obama said he would keep the embargo as a means of pressuring for political change in the communist country.
Some observers say it was a shrewd political move meant to appease voters. Others say his hands were tied because Cuba hasn’t met conditions for reversing the blockade.
Obama’s effort to make progress with Cuba amounts to a small first step, said Raul Ferndandez, a professor of social sciences at UC Irvine.
“What he promised specifically were those baby steps and he has delivered on them,” he said. “Beyond that, people have a lot of hopes.”
—Sarah Tolkoff
TOURISM
Hotel to Watch – The Resort at Pelican Hill
We picked The Resort of Pelican Hill to watch as it opened during the worst part of the downturn for luxury hotels.
The Italian-themed resort built around two golf courses and ocean views in Newport Coast has made strides in the past year, according to owner and operator Irvine Company and sources familiar with Pelican Hill.
Parts of Pelican Hill that were mothballed amid low demand in late 2008 and early 2009 now are operating—albeit with a lean staff and managers wearing several different hats, sources said.
All but some villas at the resort are open, they said.
Pelican Hill has 332 bungalow suites and villas in all.
Summer saw a pickup in business. Weddings have been another source of visitors. Bookings for holiday parties have been brisk.
“The Resort at Pelican Hill has had a successful first year open,” said Ralph Grippo, president of Irvine Co.’s resort properties unit. “We are proud to have opened the resort during one of the hotel industry’s most difficult times.”
The resort has been offering golf and other packages but hasn’t cut rates, which can go as high as $2,700 a night.
“Discounting is not part of the luxury position,” Grippo said. “We focus on value and creating memorable experiences to ensure we build loyalty and repeat business.”
The resort goes after upscale travelers with understate elegance, pampering and exclusivity.
Unlike other coastal hotels, Pelican Hill was built on Irvine Co. land and has no debt.
—Michael Volpe
City to Watch – Anaheim
The county’s tourism hub held its own in a challenging year.
We picked Anaheim to watch after its long run of tourism prosperity looked to be teetering as visitors pulled back at the end of 2008.
The city has seen big drops in tax revenue as hotel and sales taxes have fallen this year. That’s prompted the city to dip into reserves.
“Unlike the state, we address revenue shortfalls immediately,” Mayor Curt Pringle said.
While tourism and consumer spending are down, the city’s convention business is solid. Trade shows typically draw more than 1 million visitors each year.
The number of citywide conventions using multiple hotels in 2009 is on par with 2008 with 42 conventions held.
In the third quarter, hotel occupancy in the Anaheim area was up 9% from a year earlier to 65.5%, according to Hendersonville, Tenn.-based Smith Travel Research.
The city’s other big draw—the Disneyland Resort—continued to show resilience in the face of the downturn.
Disney, typically a master at weathering downturns, saw a 15% rise in attendance at its theme parks in the September quarter from a year earlier, thanks to deals to lure visitors.
—Michael Volpe
FINANCE
Person to Watch – Ed Carpenter
It’s not entirely clear how Ed Carpenter did in 2009—we weren’t able to get a hold of him to check in.
But it appears Carpenter, chairman and chief executive of Irvine investment bank Carpenter & Co., raised more money to invest in banks in the past year.
Carpenter’s raised $450 million, according to an interview with trade publication American Banker. We estimated him to be at $300 million in money raised in early 2009.
His fund targets shares in small West Coast community banks, which Carpenter has sought to scoop up on the cheap as the industry struggles.
Among his investments is Irvine-based Plaza Bank.
Other banks Carpenter’s invested in include San Jose-based Bridge Capital Holdings and its Bridge Bank, San Luis Obispo-based Mission Community Bancorp, El Segundo-based Manhattan Bancorp and its Bank of Manhattan.
It also invested an undisclosed amount in CG Holdings Inc. of Delaware for 80% of the voting shares of Pasadena-based California General Bank.
Young banks have been pegged for consolidation as they face challenges from rising bad loans, a struggling economy and competition.
Carpenter & Co. is of the country’s largest bank consultants, working with more than 715 banks in more than three decades.
—Dan Beighley
Company to Watch – Bank of America
Bank of America Corp. came back with a vengeance as the largest holder of Orange County deposits in 2009.
A year ago, we tapped the bank to watch after it bought New York’s Merrill Lynch & Co., and as rival Wells Fargo & Co. took the lead in local deposits thanks to its 2008 acquisition of Wachovia Corp.
Adding Wachovia put Wells at $14.06 billion in local deposits before the deal closed in mid-2008, versus $14.03 billion at BofA.
By mid-2009, BofA retook the lead, and then some. It had about $16.5 billion in local deposits as of June 30, topping Wells’ $14.8 billion.
BofA added $2.5 billion in deposits for an 18% increase in what Leigh Cross, regional executive for BofA’s consumer banking in Torrance, calls a “blockbuster year.”
Part of the gain likely came from customers BofA picked up through its 2008 acquisition of Calabasas-based mortgage lender Countrywide Financial Corp.
In all, BofA has 22.5% of the market for deposits in the county, including about $300 million worth from First Republic Bank, which it acquired when it bought Merrill and now is selling.
BofA also changed its local leadership, with Merrill Lynch veteran Greg Mech stepping in as market president. He replaced Kim Burdick.
Mech also kept his post of running the company’s investment business for the Southwest, which combines BofA and Merrill and was renamed Merrill Lynch Global Wealth Management Services.
—Dan Beighley
GOVERNMENT
Democrat to Watch – Loretta Sanchez
Loretta Sanchez was a pretty safe pick, and she didn’t let us down.
For the first time since Sanchez came to Washington, D.C., in 1997, her party is in control of both houses of Congress and the White House.
In November, Sanchez cast the final, symbolic Democratic vote to pass healthcare reform in the House of Representa-tives.
She played a leading role in pushing the legislation, holding town halls and penning a Sac-ramento Bee opinion piece on the topic with Rep. Jane Harman.
Sanchez also helped steer federal money to the county.
Nearly $50 million went toward local water projects. Some $7 million went to Anaheim for projects in the industrial corridor along La Palma Avenue. Another $2 million went to Orange County Head Start to ready kids for school.
For a while, Sanchez was considered a possible candidate for California governor, a prospect that since has faded as Attorney General Jerry Brown appears to be the party’s all but official candidate.
Sanchez is set to have a race on her hands next year as she defends her congressional seat. Republicans have targeted her as a Democrat they’d like to defeat.
State Assemblyman Van Tran and businessman Quant Pham are vying to challenge Sanchez in a race that’s already drawing a lot of campaign cash.
—Michael Lyster
Republican to Watch – Chuck DeVore
Boy did Chuck DeVore come through and how.
A year ago, we pegged the conservative Republican Assemblyman from Irvine for his uphill battle to run for the U.S. Senate seat of three-term incumbent Barbara Boxer.
DeVore still wants to take on Boxer. But first he’s waging a battle for the soul of the GOP in a primary fight with former Hewlett-Packard Co. executive Carly Fiorina, who’s the Republican frontrunner to challenge Boxer.
But DeVore isn’t making it easy for Fiorina. Despite her name recognition and fundraising prowess, polls show she has only a narrow lead over DeVore with most undecided.
He’s framed the battle as one of a conservative insurgent versus a moderate.
The issue is whether primary voters want “someone who epitomizes Reagan Repub-licanism or Rockefeller Republicanism,” DeVore said in November.
In state politics, DeVore was an outspoken critic of California’s early 2009 budget deal. He stepped down as chief Republican whip in protest in February.
—Michael Lyster
