Pared Down After Tech Crash, Firms Still Encountering Hurdles

By ANDREW SIMONS

Orange County Business Journal

Restructuring at Orange County technology companies in the past three years has changed the face of the industry.

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 ranks second only to the sweeping overhaul of the aerospace and defense sector in the early 1990s.

Back then, more than 10,000 Orange County defense jobs evaporated with the end of the Cold War. In the past three years, more than 6,000 people who worked for telecommunications firms, chipmakers, software developers, Internet businesses or computer products makers lost their jobs.

Half of the county’s 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 500 jobs, 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 Advanced Logic 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., Orange County 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.

Instead of wholesale consolidation, tech has seen cutting to survive during an epic downturn in the hopes of growing again in better times.

In the past three years, for example, Lake Forest-based Western Digital Corp. has cut hundreds of jobs, closed a 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.

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.

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.

Chipmaker Conexant itself once part of defense contractor Rockwell has begun to turn around after mounting one of the most dramatic restructurings of local tech companies.

In the past year, Conexant has sold off three businesses, which resulted in the company shedding 4,000 workers and three facilities. By 2002, the company’s cash burn rate was down to just $13.9 million; in 2001, the chipmaker burned through $600 million in cash as sales of communications chips all but died.

Chipmaker Broadcom 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 co-founder 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 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.