Most L.A. dot-coms may be in the Dumpster, but a new breed of tech company is stepping up to cash in on the ongoing tech frenzy and the willingness of investors to get a piece of it.
The new players are part of the exploding yet decidedly unsexy communications infrastructure business, making products that help high-demand devices like cell phones and hand-held computers work faster and cost less.
“L.A. is poised to be an important center and an important player in the communications infrastructure space,” said Rohit Shukla, CEO of the L.A. Regional Technology Alliance.
The need for that technology continues to explode shakeout or not. Demand for bandwidth is skyrocketing as use of the Internet and other data communications services increase. At the same time, the Telecom Act of 1996 has opened access to existing telecommunications cables, resulting in scores of new carriers hungry for cutting-edge equipment to build their networks.
“With businesses like these, you’re investing in a real technology that is attempting to solve a real problem, as opposed to most of the B2C plays and other dot-coms that weren’t using technology to solve a problem,” said Massoud Entekhabi, managing partner with TL Ventures.
Indeed, waiting for those tech companies to find their markets is what many neglected to do last year, when vulture-like investors scoured the tech landscape for fast cash. That approach spelled disaster for many local Internet companies.
As evidence of the mounting strength of the communications infrastructure sector, Shukla pointed to the ongoing tech growth along the Ventura (101) Freeway corridor from the San Fernando Valley to Ventura County, where examples of fast-growing firms include Moorpark-based Accelerated Networks Inc. and Calabasas-based Ixia Inc.
Ixia, which held a massively successful IPO in mid-October, provides network performance analysis systems for broadband-access devices. Its equipment evaluates the quantity and speed of transmission of so-called data packets and whether the information is received intact and in order.
Large customers
Customers include giant network equipment manufacturers like Cisco Systems and communications chipmakers like Lucent Technologies. Last month, the company inked deals with telecommunications service providers AT & T; Inc., Sprint Corp. and others.
Accelerated Networks makes equipment that telecommunications service providers use to send voice and data over broadband networks. The company’s voice gateways convert voice signals from broadband networks into the format recognized by standard phone networks.
Accelerated Networks also makes devices that combine voice and data transmissions and the systems used to manage networks. The company sells to telecommunications service providers like CTC Communications, FirstWorld Communications and MCI WorldCom. Siemens AG, also a customer, owns about 18 percent of the company.
Another local infrastructure business is Westlake Village-based Diodes Inc. The company makes semiconductors, primarily for computer and communications companies. Diodes has been profitable for a whopping 41 consecutive quarters. Revenues for the third quarter ending Sept. 30 increased 49 percent to $32.3 million, compared to $21.8 million a year before.
Other tech firms moving to cash in on the growing market are Westlake Village-based Troika Networks Inc., a provider of storage networks; Calabasas-based Malibu Networks, a provider of wireless broadband technology; and Xylan Corp., a Calabasas-based subsidiary of French telecom giant Alcatel.
Ready workforce
L.A.’s legacy of the aerospace and defense industries has provided a ready supply of brain-power for those firms.
“The broader L.A. area has a lot of companies that have historically nurtured those kinds of engineers,” Entekhabi said. “These newer companies are staffed by people from the aerospace and defense industries, and many of them have strong connectivity and communications backgrounds.”
These technology companies may have been under-hyped and overlooked last year because they are not appealing to investors looking for overnight riches.
“To get the effect of what they’re developing today, you have to look down the road,” Shukla said. “The products that they develop today will be in full bloom three or four years from now.”
The markets of 2000 focused investors on near-term gains, something Shukla believes was a mistake.
“These aren’t dot-com businesses that you can ramp up in two months,” he said. “The market has made us all observe the day-to-day changes in the stock value. It’s about time that our investment community gets more sophisticated and allows for technological innovation, which should be rolled out slowly and deliberately.”
