THE TIMES 100: THE BEST COMPANIES IN CALIFORNIA : GROWTH : ONES TO GROW ON : Computer Revival Sets a Torrid Pace as High-Tech Outfits Sprint to the Top of Fastest-Growing List

Alan Shugart feels vindicated.

Three years ago, as the personal computer market was experiencing its first market meltdown, Shugart axed nearly half the work force at Seagate Technology, the Scotts Valley disk drive manufacturer he founded in 1979.

Although roundly criticized for decimating the economy of the small, woodsy community on the western fringe of Silicon Valley, Shugart believed that only bold measures would save the company. Others bet that almost nothing would prevent Seagate’s demise.

But while other disk drive makers folded or were swallowed in the industry’s retrenching in 1985, Seagate survived--and rather nicely. Despite the cutbacks, the company retained sufficient strength to take full advantage of the tremendous rebound that the personal computer industry has enjoyed in the past two years. In its 1987 fiscal year Seagate posted sales of $958.1 million, representing a remarkable 111% annual growth rate since 1985. The performance won Seagate the No. 1 position on The Times list of the 100 fastest-growing California companies. Seagate’s growth is all the more remarkable when compared to other California publicly traded companies.

The 989 public companies surveyed for The Times Growth 100 posted an average annual growth rate of 8% from 1985 to 1987. For the top 100 companies, a list that admittedly favors smaller companies, the average yearly growth rate was 17%. (To be ranked in the Growth 100 a company had to have sales of $30 million in 1985 and must have been a publicly traded company for the past three years.)

Seagate’s growth is consistent with the strong showing from the state’s high-tech sector. Thanks largely to a new generation of powerful desktop computers, surging exports and renewed modernization of manufacturing facilities, the state’s high-tech companies--and particularly those related to personal computers--are enjoying a new round of growth, the strongest in the past five years.

Fifty-one of the 100 companies on The Times list of the fastest-growing public concerns can be categorized as high tech or high tech-related companies. Of the top 10 companies on the list, six are personal computer-related concerns. “High technology is one of the most exciting segments of our economy right now,” says Larry Kimbell, director of the UCLA Business Forecast for California. And Shugart believes that there’s room for even more spectacular growth in the high-tech industry in general, and at Seagate in particular.

“The industry is growing, and unless we screw it up we should expand accordingly,” says Shugart, who serves as the company’s chairman and chief executive.

Although high-tech companies dominated the growth chart, also making a strong showing were speciality retailers, such as Wherehouse Entertainment, the video and record chain; Williams Sonoma, the upscale housewares concern; The Gap and Clothestime, two clothing chains, and Price Co., the discount warehouse operator.

The strong showing of these outfits is sure to continue fueling the interest of venture capitalists in specialty retailers that was aroused about two years ago when the traditional outlets for their funds--high-tech companies--started slumping.

Health-care operators also enjoyed some fast-paced growth. Among the fast-growing companies in this segment were Maxicare Health Plans, the health maintenance organization, and Community Psychiatric Centers.

Nevertheless, it was high tech that stood out for its sales growth from 1985 to 1987. And analysts are projecting that 1988--possibly even 1989--will see continued banner sales for the state’s high-tech companies. “Last year was a good year for technology companies, and 1988 should be a great year,” says Jeanette Garretty, a Bank of America economist who specializes in the state’s high-tech sector.

Garretty credits the declining value of the U.S. dollar for spurring export sales of computers and other technology goods, a situation she predicts will continue at least through 1988 and possibly well into 1989. She says high-tech companies have also benefited from the latest round of plant modernizations and expansions because corporations are increasingly buying labor-saving machinery, such as computers and robotics, to improve worker productivity. High-technology companies can claim some credit of their own for the growth they are enjoying. Among the products most often cited for renewing confidence and interest in office computers are: a powerful new microprocessor chip from Intel Corp. of San Jose, which is increasingly serving as the “brains” for a whole new generation of PCs; sophisticated networking software that allows computers to share information easily, and the easy-to-use Macintosh from Apple Computer, whose graphics capabilities prompted the creation of the fast-growing desktop publishing industry.

“California is well positioned to take advantage of the high-tech growth in the future,” says UCLA’s Kimbell. “You wouldn’t want to trade the state’s industrial portfolio for that of some midwestern state.”

Kimbell says the strength of the state’s high-tech industry is particularly important because it sets the tone for the health of other segments of the economy, such as retail and services.

“It’s a strategic segment,” Kimbell says. “We’re fortunate that ours is so strong.”

The only caveats in the otherwise rosy projection: a recession, for which the timing, strength and duration are still a matter of considerable debate, and continued uncertainty about the effects of the emerging slowdown in defense spending on civilian technology companies and their projects.

“The state is vulnerable to a defense downturn,” warns Philip Vincent, an economist with First Interstate Bank in Los Angeles. “We have to be careful, because a lot of what some of us think of as high-tech goods are actually defense goods that may be squeezed by the drop in defense spending.”

Still, many economists believe that the state’s high-tech sector is in far better shape today than five years ago, when it was riding the crest of another major boom. The reason: The high-tech crash of 1985 made computer companies realize that they are a part of the cyclical capital goods economy and not immune to its peaks and valleys.

According to Vincent, technology companies are acting very cautiously. Unlike in the early 1980s, he notes that companies have not increased their work forces to handle the booming sales. He says his studies show that current high-tech employment levels in the state have not increased substantially in the past year, and, in fact, equal those of late 1984 when the industry was at its last peak.

“High-tech companies are very concerned that the good times aren’t going to last forever,” Vincent says. “They remember the deep trouble they got into in 1985.”

THE GROWTH 100 Ranking by sales growth

2-year avg. 1987 annualprofit income(loss) Rank Company growth % ($ millions) 1 Seagate Technology 111 958.1 2 NewWorldEntertainment 90 384.3 3 Maxicare Health Plans 89 1,838.6 4 Franklin Resources 81 206.5 5 Magnetek 77 608.9 6 Micropolis 74 288.3 7 Rexon 74 101.4 8 Micro D 72 352.5 9 Genentech 68 230.5 10 Scientific Micro Systems 65 107.2 11 3COM Corp. (1) 64 171.1 12 Western Digital 62 462.5 13 Applied Biosystems 57 88.4 14 Wyse Technology 54 392.8 15 Intl. Lease Finance Corp. 53 173.1 16 Beeba’s Creations 52 107.6 17 Covington Technologies 51 81.0 18 Businessland 50 600.0 19 Xidex 49 572.8 20 VLSI Technology 48 172.0 21 Ropak Corp. 46 69.0 22 Countrywide Credit Inds. 46 141.9 23 Ashton-Tate 45 254.7 24 Sunrise Medical 44 140.8 25 National Education 44 378.9 26 Diceon Electronics 42 111.1 27 Zenith National Insurance 41 459.7 28 Ungermann-Bass 41 143.8 29 Wherehouse Entertain. 39 266.8 30 ICN Pharmaceuticals 39 121.0 31 Cooper Cos. 38 627.5 32 Anthem Electronics (2) 37 196.9 33 Xicor 37 64.7 34 LSI Logic 37 262.1 35 Transtechnology 37 209.4 36 Williams-Sonoma 36 127.2 37 Comarco 36 77.4 38 Integrated Device Tech. 35 105.9 39 Pacific Scientific 35 157.0 40 Neutrogena 35 135.1 41 Adia Services 34 390.3 42 Leisure Technology 34 157.2 43 Price Co. 33 3,305.7 44 Coast RV 33 109.7 45 Applied Magnetics 32 211.9 46 Gradco Systems 32 76.2 47 Amdahl Corp. 32 1,505.2 48 Homestake Mining 32 516.2 49 Diasonics 31 267.6 50 Kaufman & Broad 29 1,518.0 51 Cherokee Group 29 139.6 52 For Better Living 29 78.5 53 Tandem Computers 29 1,035.5 54 SPI Pharmaceuticals 28 74.6 55 Alza 28 70.8 56 The Gap 28 1,062.0 57 Grt. Amer. First Sav. Bank 28 1,427.0 58 Dionex 27 56.3 59 First Am. Financial-Calif. 26 415.0 60 Dreyer’s Grand Ice Cream 26 162.9 61 Avery Intl. 25 1,465.5 62 Phone-Mate 25 112.6 63 Lorimar Telepictures (3) 25 857.3 64 Sizzler Restaurants Intl. 25 285.0 65 Bio-Rad Laboratories 25 159.5 66 Western Micro Tech. 25 64.8 67 Triton Group Ltd. 24 467.9 68 Archive Corp. 24 88.8 69 National Semiconductor 24 2,267.9 70 Financial Corp.-SB 23 483.8 71 Amer President Cos. 23 1,862.0 72 Silicon Systems 22 81.8 73 AST Research 22 206.0 74 Hexcel 22 349.2 75 Viking Freight 22 192.8 76 Quantum 21 178.3 77 Odetics 21 48.5 78 Jacobs Engineering Group 21 320.3 79 Calmat Co. 21 602.1 80 Computer & Com. Tech. 20 89.8 81 EECO Inc. 20 77.7 82 Walt Disney Co. 19 2,876.8 83 Western Waste Inds. 19 97.9 84 Clothestime Inc. 19 179.2 85 Fluorocarbon 19 146.8 86 Shaklee Corp. (4) 19 571.8 87 National Sanitary Supply 19 89.9 88 KLA Instruments 18 88.2 89 Kaypro 18 105.6 90 MSI Data Corp. 18 87.5 91 Raychem 18 944.4 92 Intel 18 1,907.1 93 Community Psych. Cntrs. 18 285.3 94 Marshall Industries 18 340.3 95 Gottschalks 18 156.6 96 Apple Computer 18 2,661.1 97 Bergen Brunswig 18 3,376.0 98 Security Pacific 17 7,617.5 99 Summit Health Ltd. 17 375.3 100 Wyle Laboratories 17 357.2

1986 income(loss) Rank ($ millions) 1 139.741 2 (18.456) 3 (255.8) 4 58.895 5 4.867 6 27.240 7 6.184 8 5.495 9 42.230 10 3.162 11 14.970 12 42.782 13 9.448 14 25.383 15 47.506 16 4.106 17 0.004 18 8.370 19 (44.540) 20 8.061 21 1.577 22 16.332 23 40.891 24 0.850 25 3.575 26 9.535 27 41.103 28 6.612 29 2.968 30 (30.813) 31 68.300 32 5.007 33 7.737 34 10.300 35 11.862 36 1.925 37 (10.122) 38 8.379 39 4.447 40 14.893 41 11.353 42 6.708 43 73.324 44 2.526 45 14.219 46 2.728 47 141.985 48 146.407 49 15.221 50 60.567 51 10.397 52 2.484 53 105.604 54 10.140 55 13.984 56 69.595 57 88.000 58 8.886 59 32.412 60 2.774 61 34.731 62 0.901 63 (130.394) 64 17.352 65 7.713 66 (0.652) 67 11.248 68 5.846 69 42.700 70 2.770 71 79.100 72 2.845 73 13.032 74 12.869 75 3.895 76 8.129 77 0.934 78 3.512 79 78.072 80 4.838 81 1.526 82 392.300 83 4.856 84 7.889 85 5.257 86 21.900 87 2.860 88 7.489 89 (9.596) 90 4.093 91 73.599 92 175.543 93 60.024 94 10.579 95 4.959 96 217.496 97 15.887 98 15.700 99 7.908 100 5.406

(1) Merged with Bridge Communications in September, 1987.

(2) In 1987, changed fiscal year-end from March 31 to calendar year-end. 1986 results recalculated to reflect comparable 12-month period ending Dec. 31, 1986.

(3) Financial data recalculated to reflect merger of Lorimar Inc. and Telepictures in 1986 and year-end change.

(4) Reflects change of fiscal year-end to calendar year-end and acquisition of Bear Creek Corp. and Jackson Perkins.