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Now Hear This—Right Here

Orange County has been a technology hub for decades, but its audio-tech concentration developed a bit more recently.

Chip and computer makers laid the ground work in the 1970s with the advent of minicomputers. The area became a hotbed for engineers and programmers, and new business divisions morphed into spinouts and spawned startups.

One result: the local audio-tech industry.

“Many of the technical people in these companies had an interest and passion for audio and have moved in that direction,” said Alan Kramer, chief technology officer at SRS Labs Inc. in Santa Ana. “Add to that the proximity to the entertainment industry in Los Angeles, and audio is a natural for Orange County.”

SRS specializes in surround sound, audio rendering and voice processing. It develops and licenses its technology to consumer-electronics makers, home theater builders, computer game developers, carmakers and others.

Local audio-tech companies are operating against the backdrop of an industry shift to digital audio, and that’s causing some related movement in the audio-tech landscape.

Mergers and acquisitions are back in play—as evidenced in DTS Inc.’s recent $148 million acquisition of SRS—while the explosive growth of mobile devices is opening up new product markets.

There’s also a big push afoot to sync electronics for easy access at home or on the go, further expanding growth opportunities for the industry.

“We’re seeing growth in all our segments,” said Joe Pham, chief executive of QSC Audio Products LLC.

The Costa Mesa-based company—which makes amplifiers, loud speakers and complete sound systems—took in about $150 million in revenue in a 12-month period ended in June, marking a 43% rise during a two-year period and earning a nod in the Business Journal’s list of fastest-growing private companies last year.

QSC specializes in the professional audio sector and targets DJs, businesses, concert venues, movie theaters, casinos and transportation ports.

The company operated primarily as an amplifier manufacturer in its first 33 years in Orange County, but it has transitioned into an audio systems company during the past decade. That’s meant retooling its 100,000-square-foot plant in Costa Mesa to make new products such as loud speakers and to develop digital and networking technology.

“We feel like we’re in a real good position as a company,” Pham said.

Most of the company’s 400 employees are housed at its multibuilding campus in Costa Mesa, where it also houses research and development, sales, marketing and distribution operations. It also has an R&D office in Boulder, Colo., and an office in Hong Kong.

Good Vibes

QSC isn’t the only local speaker manufacturer making good vibrations.

Santa Ana-based AuraSound Inc., which specializes in high-end speakers and other audio products, saw sales increase more than 700% to $63.1 million in 2011. That was the biggest percentage jump of any OC publicly traded company last year.

The Bulletin Board-listed company moved its headquarters from Santa Fe Springs to an office on Red Hill Avenue early last year. It credits a mid-2010 acquisition of Hong Kong-based ASI Holdings Ltd., which makes components for home theater systems, for much of its gains in the past year.

“Our revenue and profit generation opportunities have dramatically improved,” following the stock and debt-driven deal for ASI, the company said in its latest quarterly report.

AuraSound earned about $2 million in net income last year and counts Irvine-based flat TV and accessories maker Vizio Inc. as a customer.

Roots

Orange County’s roots in audio technology were planted decades ago under the banners of Hughes Aircraft Co., Rockwell Interna-tional Inc. and others. In many instances the audio technology of today was born from re-search and development legacies of yesterday.

QSC, SRS and Newport Beach-based Conexant Systems Inc. reflect the county’s deep history in audio technology.

SRS’ origins date back to the late 1970s when Hughes Aircraft landed a government contract to develop a test communication system for airplanes on aircraft carriers.

In 1984 Hughes hired noted researcher and inventor Arnold Klayman as a senior scientist to build an audio division around him. He later led Hughes’ creation of advanced entertainment systems for commercial aircraft.

It was at Hughes that Klayman created SRS’ namesake technology: the sound retrieval system.

The technology, which captures certain qualities of sound lost in stereo recordings, eventually became the standard for 3D audio technology. Klayman developed several more audio technologies and patents before joining a few engineers from Hughes in buying the SRS name and taking the company independent in 1993.

Tom Yuen—cofounder of one-time Irvine-based computer maker AST Research—bought into SRS in 1994 and recruited former AST engineer Kramer to lead the technology side of the business. SRS went public in 1996.

The company’s revenue—from its inception until early 1998—came from audio technology licensing for consumer electronics, computers and video games.

Strategic Shift

SRS revised its business strategy in 2001 to focus on licensing the company’s audio and voice enhancement technology for Internet audio, online radio and other broadcast applications. The company recently expanded its Santa Ana headquarters, adding a wing and a 700-square-foot, soundproof advanced-rendering lab, which features 22 speakers and two subwoofers controlled by a laptop computer in the center of the room.

The lab is where SRS executives show potential customers and industry insiders the company’s surround-sound technology rooted in psychoacoustics, the science of sound perception. The technology caught the eye of Hollywood and music industry brass, prompting SRS to open an office in Santa Monica last year and retrofit it with a smaller version of the rendering lab.

Earlier this month SRS agreed to be acquired by Calabasas-based rival DTS in a cash-and-stock transaction that will end SRS’ storied history here as a public company.

Yuen, who is SRS’ chairman and chief executive, controls about 20% of outstanding SRS shares and has signaled his approval of the deal. He is expected to join the DTS board.

A decision has yet to be made on whether SRS will keep its name, one of the more established brands in the industry.

Conexant Heritage

Conexant also traces its heritage back to the 1970s as the chip arm of defense contractor Rockwell.

In 1999 Rockwell spun off its chip division and established Conexant, which has had its own share of local chipmaker spinoffs. Those include Jazz Semiconductors Inc. and Mindspeed Technologies Inc., both based in Newport Beach.

Conexant made its first audio play in 2003, supplying chips for the PC market in laptops and desktops. It still has Dell, Lenovo and Toshiba brands as big clients.

Conexant has been moving away from technology for set-top boxes and DSL Internet service toward products keying on the audio and video consumer markets. The shift follows its being taken private in a $282 million buyout by San Francisco-based Golden Gate Private Equity Inc. last year.

Conexant launched two chips at the International Consumer Electronics Show in January that enhance audio quality and eliminate peripheral sounds in video streaming.

The Aakash tablet—which sells for less than $50 in India—and Samsung’s recently released “smart” TVs with Skype and Web access feature Conexant chips, software and related controls. The Samsung deal was the first big design win for Conexant in a burgeoning smart-TV segment.

“Conexant is trying very hard to make an audio and video play,” said Saleel Awsare, who joined the company recently as vice president and general manager of Conexant’s audio division. “We’re trying to have products, programs and projects that really interplay these technologies together.”

Audio represents roughly 20% of the company’s $200 million in annual revenue. About 120 of Conexant’s 500 employees are in the audio division, while 200 of its workers in various divisions are OC-based.

Sonic Emotion AG, which maintains executive offices in Newport Beach and its on-the-books headquarters in Zurich, Switzerland, also is trying to tap into the consumer market.

The company was established nine years ago and moved into consumer electronics about 18 months ago. It recently inked its first deal to embed its chips in soundbars—thinner, lightweight speakers—made by Portland, Ore.-based AudioSource.

Sonic Emotion took three years to develop its chip technology, which creates sound waves around the user to produce an effect similar to surround-sound without numerous speakers.

Chief Executive Rajeev Kapur recently demonstrated the technology in a closed conference room at the Business Journal, blasting out rock hits and grabbing the attention of passersby.

“We believe the technology sells itself,” Kapur said. “If you put us up against the big boys, I believe we will beat them.”

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