THE TIMES 100: THE BEST COMPANIES IN CALIFORNIA : THE GIANTS : FAMILIAR FACES : What Banks, Utilities and Energy Companies Lack in Glamour, They Make Up in Revenue
Exotic-sounding high-tech firms may have the glamour that comes from swift growth, but familiar energy companies, banks and utilities remain California’s true giants when it comes to annual sales.
A look at the companies that led the state in sales last year shows that, for some at least, older means bigger. And richer. The Times Sales 100 is dominated by aging firms that have had decades to build up their businesses. Moreover, these companies provide familiar products and services, in contrast with their more sprightly counterparts whose survival depends on new products and emerging markets.
“You’re dealing with oil companies and banks in California that in some cases have been around for 75 or 100 years,” observed Michael Penzer, an economist with BankAmerica Corp.--which finished fifth on the list.
Some are even older. Chevron, which was founded in 1879, placed first in The Times 100 ranking of sales by publicly held companies ased in California. Chevron racked up 1987 sales of $26 billion. Atlantic Richfield, which finished third, was born in 1870. Unocal, which ranked sixth on the list, is descended from Union Oil Corp., founded in 1890. By contrast, Occidental Petroleum, which finished second, was a relative newcomer: It started up in 1920.
Elderly oil companies weren’t the only sort of firms at the top of the list. Such well-known names as Lockheed, the aerospace firm; Pacific Telesis, the telecommunications company; Hewlett-Packard, a pioneer electronics firm; Security Pacific National Bank, and Pacific Gas & Electric all ranked among the state’s sales leaders.
Mansoor Zakaria, a San Francisco consultant who provided statistics for The Times 100, said that, in energy and other areas, many of the huge firms last year reaped the benefits of corporate restructuring efforts undertaken in the mid-1980s. “In American industry, and certainly in California industry, the big firms have done quite well over the last year,” he added.
While it comes as no surprise that established companies monopolized the sales statistics, the extent of their dominance is striking nonetheless: Of the $367 billion in revenues attained last year by the 989 public companies studied, the 100 sales leaders accounted for more than $309 billion, or 84%, according to the analysis by Zakaria’s firm, MZ Group.
Indeed, companies with the fastest sales growth were not very likely to register vast amounts of sales. Similarly, the leaders in sales weren’t likely to be fast growing. Only 24 firms managed to place in the top 100 in each category. Moreover, some of the bigger firms only achieved their fast growth by purchasing outside companies.
Consider the area of financial services, which had 21 companies on The Times 100 list of companies with the greatest revenues. Only two such companies--Security Pacific and Great American First Savings Bank--also ranked among the 100 fastest-growing firms.
Both relied on acquisitions to boost their revenue. Security Pacific’s growth was boosted by its addition early last year of Seattle-based Rainier Bancorp. for $1.1 billion. Similarly, Great American First Savings Bank enjoyed fast growth last year with the help of previous acquisitions, which included Home Federal Savings & Loan of Tucson and Los Angeles Federal Savings Bank.
According to analysts interviewed, such outside purchases arise from a reality facing the banks and other companies in older industries: It is harder to achieve growth in a field in which many companies offer a similar product or service. As a result, Zakaria said, “the growth strategy for big companies is acquire, acquire--and acquire.”
BankAmerica’s Penzer put it this way: “There’s really not much growth for the (banking) industry as a whole, other than growth with the population.”
There may be limited growth, but the financial industry is already enormous. According to The Times’ analysis, financial services--comprising banks, thrifts, insurance companies and investment firms--had the highest revenues of any sector, with more than $75 billion. (Bank revenues were computed by adding interest income and fees.) Energy was second in the state, with total sales last year of $70 billion.
High tech was far down the list, with $37 billion to more than $45 billion in sales, depending on which industries are counted in the category.
By a broad measure, which takes in makers of computers, electronics, biotechnology products and pharmaceuticals, high tech represents just 15 of the 100 sales leaders. By contrast, 46 such firms appear on the growth list. The relationship between youth and growth is vivid. The growth ranking, which was led by Seagate Technology, also included such high-tech and electronics firms as Magnetek, Micropolis, Rexon and Genentech near the top.
The median year the top 10 growth firms were founded: 1976. “If you come up with a product that they (the public) really love, your growth prospects are huge,” Penzer said, referring to high-tech companies. “With energy and banking services, people already have as much as they want.”
High-tech sales grew last year as the sector emerged from a period of lackluster demand and a product glut that hurt companies in the mid-1980s. As a result, the outlook is for high-tech firms to continue growing--and ultimately gain distinction for their sheer size as much as their growth rates. “You would expect the high-tech firms to move up in sales,” said Stephen Levy, senior economist with the Center for Continuing Study of the California Economy, a nonprofit research organization in Palo Alto.
In any case, sales do not tell a company’s whole story, whether the company is new and hungry or old and satisfied. Nor do they reveal how effectively a company’s strategy is preparing for emerging competitive challenges.
An example is provided by 84-year-old Bank of America, which last year had the fifth-largest revenue of any California-based company. While quite large, that revenue was not enough to shield the bank from a rocky year, including an 11% decline in assets exacerbated by unprofitable loans.
The upstarts in high tech face different headaches. New companies cannot always handle the stress of success, particularly if heated demand for their products forces the companies to expand in a great hurry.
“We’ve seen this over and over again, in virtually every study we do,” Zakaria said. “Of the ones that grow very fast, there are always a lot of burnouts.”
