The Times 100 : The Best Performing Companies in California : THE FAST TRACK : High-Tech Companies : Still Pacing the Pack : In an economy as diverse as California’s, growth comes from many sectors. But high-technology firms remain the standouts.
Despite a diverse economy that would be the envy of most industrialized nations, one segment always stands out from the pack in California.
In the beginning it was gold. Then agriculture. Now it’s technology--a broad spectrum of an industry that is expected to remain among the fastest-growing segments of the world economy for the foreseeable future.
California is particularly fortunate because it is home to literally scores of small high-tech companies that toil at the forefront of emerging technology markets, where growth opportunities are the brightest.
“This state is still a hotbed of entrepreneurial effort,” says Philip Vincent, the senior economist for First Interstate Bank in Los Angeles. “We are envied by other states and nations. It is clear that high technology will continue to play a strong role in California.”
But before we get too giddy, let us remember that high technology does have a downside.
It matures--very quickly--as Massachusetts found out during the past year, when a number of its large computer makers fell on hard times. It’s as prone to business cycles as other industries. As industries go, it hasn’t been the source of a lot of new job creations in California. And, finally, competition is intense, particularly from Pacific Rim nations.
Despite the negative aspects, high-technology firms are a major source of the growth in the state’s total industrial sales. Even last year, when many of the nation’s larger computer makers and suppliers saw their growth rates stall, smaller technology companies in California fared well.
According to industry survey data provided by MZ Group of San Francisco, high-tech revenue in 1989 grew 17.8% from the year before, a performance second only to the retail sector, where sales grew 19.1%. And fully half of the Growth 100 companies are involved in high technology: from semiconductors to computers--both large and small--to medical devices to biotechnology to software to aerospace and computer components.
Some companies that made the list are quite small, with annual sales of less than $75 million. Others are large, billion-dollar companies, including Apple Computer, Intel and Sun Microsystems. But they share a common fast track.
Overall, the 830 companies surveyed for The Times posted an average sales growth rate of 8.8% in 1989. Of the 100 fastest-growing, a list that admittedly favors smaller companies, the median growth rate--the midpoint on the tally--was about 38%. (To be ranked in The Growth 100, a company had to have sales of $30 million in 1989 and be publicly traded for the past three years.)
Despite the dominance of high technology, other sectors contributed to the state’s growth.
Maxxam Inc., a natural resources holding company that includes real estate ventures and Pacific Lumber, topped the Growth 100 list for the second year in a row in part because of its purchase in late 1988 of KaiserTech, an Oakland aluminum and chemicals concern. And L.A. Gear, a Los Angeles company whose athletic shoes stand out in aerobic dance studios as well as basketball courts, repeated in the No. 2 spot on the Growth 100 list.
However, those two, along with newcomer Lewis Galoob Toys in the No. 4 position, are the only companies not involved in high technology among the state’s Top 10 fastest-growing companies--a fact that underscores the dominance of the state’s technology sector.
Economists expect small technology companies to continue to be the source of the state’s fast growth for the remainder of the century.
Where are the opportunities for the coming decade?
Analysts generally agree that the fastest-growing tech sectors will be computer software, biotechnology, electronic medical devices, data communications and specialized computer chips. The state will continue to attract new ventures, analysts say, because high tech has already established such a strong foothold here and the important services and support networks are in place to nurture new efforts.
This “infrastructure,” as it is called, is particularly established in the Silicon Valley, Orange County, northern San Diego County and the western portion of the San Fernando Valley.
The venture capitalists, lawyers, accountants, bankers, real estate agents and universities, says one Bank of America banker in Palo Alto, know how to do business with a new technology company and have grown to understand the special needs of these companies.
For example, she notes that in the Silicon Valley, landlords of new technology companies sometimes take stock options in lieu of lease payments from start-up companies, understanding their tenants’ cash shortage and the potential for a huge payoff that the options can have.
The existing base of companies also means that there is a ready source of engineers and others to spin off new ventures, some right in the shadow of their former employers.
“Despite everything--the high real estate and the school system,” says Jeanette Garrety, an economist specializing in the high technology sector for the Bank of America in San Francisco, “California still has a good climate for small high-tech companies.”
