THE TIMES 100 : The Best Performing Companies in California : THE FAST TRACK : High-Tech Firms Stay Out Front in Growth Race

The computer industry is maturing, the microchip business is moving offshore, biotechnology grows in fits and starts . . . and yet, high-tech firms still dominate the list of the fastest-growing companies in California.

Indeed, the strength of firms such as Conner Peripherals, Quantum, Cadence Design Systems, Silicon Graphics and Sun Microsystems shows that rich market segments continue to emerge even in a slowing technology sector and that California companies still lead the way in seizing those opportunities.

The performance of Conner--whose sales grew at a stunning 128.3% average annual rate during the past two years--is especially impressive because the company, although only 5 years old, now has revenue of more than $1.3 billion a year and “size is the enemy of growth,” in the words of John T. Rossi, a technology analyst at the San Francisco investment bank Robertson, Stephens & Co.

Only two other companies in the top 30 of The Growth 100--workstation vendor Sun (No. 10) and Union Bank (No. 18)--had revenue of more than $1 billion a year.

Among non-tech companies on this year’s list, health insurance and health services firms, including Pacificare, Chiron, FHP International, Nichols Institute, Salick, Unicare, Psicor and American Shared Hospital Services, all appeared for the first time or advanced from last year’s ranking.

And although the top half of The Growth 100 is technology heavy, the bottom half sports a wide mix of firms in retailing, transportation and finance.

Top-ranked Conner, which supplies disk drives used in desktop and portable personal computers, will have trouble maintaining its torrid growth rate, admits founder and Chairman Finis Conner. In fact, the first quarter of 1991 was the first for Conner in which its revenue did not increase from the previous period, although revenue was still up a healthy 62% from the year-earlier period.

Many tech firms have suffered Gulf War-related weakness in sales so far this year, indicating that industry expansion in 1991 might not match 1990’s rate. Indeed, the mean two-year annual growth rate among the 1990 Growth 100 companies slipped to about 28% from 38% the previous year, the cutoff for making the list fell to 18.4% from 23.5%, and even Conner would have ranked only third last year.

Several high-flyers from 1989, including chip maker Intel and Apple Computer, ran into Rossi’s law of large numbers and failed to make the list this year. Natural resources conglomerate Maxxam, top-ranked in 1989, moved out of the state.

Valid Logic Systems, a computer-aided design firm, lost revenue when it stopped distributing hardware along with its software, and it fell to the No. 86 spot from No. 16. Informix, a computer software firm that ranked third last year, skidded to No. 98 after a major change in accounting procedures.

Yet economists are confident that California’s high-tech sector retains its fundamental strengths and that the long boom will not end in the kind of bust that has shaken the technology-based economy around Boston.

“High technology really started here,” observes Joseph A. Wahed, chief economist at Wells Fargo Bank. “We have the largest venture capital group in the country in Silicon Valley. We have a very strong network of research universities. There’s a synergy that’s unparalleled anywhere, and as one technology matures, another takes over.”

It was the maturing of the minicomputer, and the gradual replacement of these centralized computer systems by desktop machines, that led to the slump in Massachusetts. But Silicon Valley, and the state’s other technology-rich regions such as Orange County and San Diego, are home to a broader variety of high-tech companies that sell a much wider mix of products.

Computer chip manufacturing, for example, is declining in California as Asian electronics giants continue their relentless assault, and 1990 was slow year worldwide. LSI Logic slipped to No. 40 on the growth list from No. 36 last year; Cypress Semiconductor fell to No. 55 from No. 17; Linear Technology dropped from No. 55 to No. 80; VLSI Technology declined from No. 68 to No. 84, and chip equipment vendor Applied Materials plunged from No. 11 to No. 60.

Yet companies such as Cadence Design still did well by focusing on chip design rather than fabrication. Similarly, even as the $25-billion U.S. personal computer industry slows to single-digit growth rates, companies such as Conner and Quantum have moved quickly to exploit the rapid growth in laptop and notebook-sized computers. PC software vendors--including Adobe, Autodesk, Software Publishing and even troubled Oracle Systems--have continued to grow rapidly in the face of flattening hardware sales.

“The growth in California won’t be in assembly or manufacturing but in the engineering, design and marketing side,” Rossi says. He adds that the high cost of capital in the United States and a general reluctance to invest in expensive, low-margin manufacturing ventures means that growth must come from these white-collar specializations.

“The skill-set here is in software, in integrated circuit design, in applied technologies,” he says. “If we can keep that highest level of value-added, we won’t lose out.”

Indeed, even the non-tech companies on The Growth 100 list are almost entirely service firms rather than manufacturing companies. Health-care, entertainment, retail and financial services companies take almost all the spots on The Growth 100 list not occupied by technology firms.

Although service firms such as Pacificare Health Systems, the Good Guys consumer electronics retail chain and video wholesaler Live Entertainment have posted excellent revenue growth, they have not been able to match their high-tech counterparts in profits. Conner and Quantum--ranked third and fourth in two-year average annual profit growth--increased profit even faster than revenue.

Conner provides a model for how companies in any sector might compete. Finis Conner, who left archrival Seagate Technologies to start his own company, attributes his company’s success to reversing the traditional product development chain.

Instead of designing, building and then selling a product, Conner consults with clients--the personal computer companies that need disk drives--about their needs. Then the product is designed and built. Fast turnaround on new products is assured by relying on suppliers rather than by building the pieces in-house.

In this respect, Conner resembles a design-and-marketing company more than a manufacturing firm. “It dramatically reduces the risk,” Conner says of this strategy. But to make it work “you have to have customers who are market leaders, you have to have the credibility that you can execute what you say you are going to do.”

Seagate, No. 32 on The Growth 100 list, takes the opposite approach and tries to produce most of its sub-assemblies in-house. With 1990 sales of $2.4 billion, Seagate had 40,019 employees, while Conner, with sales of $1.3 billion, had just 7,500.

The risk for Conner, of course, is that suppliers might not come up with critical components quickly enough--as is happening with its new, smaller disk drives. But Finis Conner is confident that he’s on the right track.

THE GROWTH 100

Ranked by two-year average annual sales growth.

2-year avg. annual sales 1990 ’89 growth revenue Rank rank Company as % ($ millions) 1 Conner Peripherals 128.3 1,337.6 2 6 Amgen* 106.3 298.7 3 2 L.A. Gear* 100.8 902.2 4 5 Silicon Valley Group* 94.0 184.3 5 Cadence Design Systems 85.7 231.4 6 35 Quantum Corp.* 85.6 716.3 7 9 Silicon Graphics* 65.9 419.8 8 ICN Biomedicals* 61.3 131.3 9 10 Teradata Corp.* 58.3 224.2 10 7 Sun Microsystems* 53.1 2,466.2 11 33 Com Systems 52.7 129.8 12 32 Pacificare Health Sys.* 51.1 969.7 13 49 Pyramid Technology* 50.1 179.7 14 71 Maxtor Corp.* 50.0 789.4 15 Chiron Corp. 48.4 78.5 16 19 Digital Microwave Corp.* 46.8 142.2 17 Herbalife International 46.8 137.8 18 12 Union Bank 46.3 1,686.4 19 Live Entertainment 45.2 742.5 20 14 Chips & Technologies* 44.0 293.4 21 Pathe Communications* ** 43.7 766.8 22 8 Adobe Systems* 42.2 168.7 23 69 Adaptec Inc.* 41.1 128.8 24 21 Centex Telemanagement 40.6 114.4 25 77 Good Guys* 40.3 294.0 26 51 FHP International* 39.5 980.4 27 Newport Pharmaceuticals 39.4 60.4 28 23 Nichols Institute 38.8 174.8 29 24 Varco International 38.8 130.9 30 25 Autodesk Inc.* 38.7 225.6 31 15 Software Publishing Corp.* 38.7 140.6 32 Seagate Technology* 38.1 2,413.2 33 22 Quiksilver* 37.4 91.2 34 Lam Research Corp.* 35.3 137.3 35 Salick Health Care Inc.* 35.2 69.7 36 13 Oracle Systems* 34.7 1,058.9 37 Unicare Financial Corp. 34.2 97.2 38 59 Komag Inc. 33.9 149.9 39 Intermark Inc.* ** 32.5 1,229.8 40 36 LSI Logic Corp. 31.5 655.5 41 85 Walt Disney Co.* 30.4 5,843.7 42 Carolco Pictures Inc. 30.2 269.1 43 30 Acuson Corp. 29.5 282.8 44 46 Imperial Bancorp 29.4 297.9 45 GTI Corp. 29.0 54.3 46 58 Boole & Babbage Inc.* 28.7 93.9 47 54 Amplicon Inc.* 28.5 158.3 48 Chevron Corp. 28.4 41,540.0 49 Psicor Inc.* 28.1 61.8 50 Avery Dennison Corp. 28.0 2,590.2 51 20 Everex Systems Inc.* 27.9 436.5 52 98 ICN Pharmaceuticals* 27.9 272.0 53 Dreyer’s Grand Ice Cream 27.8 308.3 54 87 Filenet Corp. 27.6 102.9 55 17 Cypress Semiconductor 27.1 225.2 56 76 Diagnostic Products Corp. 27.1 75.9 57 Charles Schwab Corp. 26.3 625.9 58 Mentor Corp.* 25.6 68.0 59 75 Consolidated Freightways 25.1 4,208.5 60 11 Applied Material 25.0 567.1 61 CVB Financial Corp. 24.8 58.9 62 45 Businessland Inc.* 24.6 1,353.6 63 Beeba’s Creations Inc.* 24.2 158.0 64 78 Anthem Electronics Inc. 24.2 408.2 65 61 Harper Group Inc. 24.1 435.9 66 Western Waste Industries 23.5 172.0 67 Fredericks of Hollywood* 23.1 98.6 68 60 Kaufman & Broad Home* 23.0 1,366.3 69 Golden West Financial 22.8 2,127.2 70 California Microwave* 22.5 145.9 71 86 Williams-Sonoma Inc.* 22.5 261.3 72 Nellcor Inc.* 22.2 142.6 73 47 Westcorp 22.0 346.2 74 53 KLA Instruments Corp.* 22.0 167.9 75 Mattel Inc. 21.9 1,470.6 76 Gap Inc.* 21.7 1,854.2 77 Sumitomo 21.5 500.1 78 63 Genentech Inc. 21.5 476.1 79 89 Firstfed Financial Corp. 21.4 298.4 80 55 Linear Technology Corp.* 21.4 75.6 81 Amer. Shared Hospital* 21.4 58.6 82 97 First National Corp. 21.3 65.0 83 McGrath Rent Corp. 21.2 52.3 84 68 VLSI Technology Inc. 21.2 324.8 85 Gottschalks Inc.* 21.1 287.5 86 16 Valid Logic Systems Inc. 20.9 158.5 87 Intl. Technology Corp.* 20.8 386.6 88 52 Ask Computer Systems* 20.7 207.5 89 84 Fluor Corp.* 20.5 7,446.3 90 82 Freymiller Trucking 20.4 85.2 91 Bio-Rad Labs 20.1 286.7 92 Datron Systems Inc./De* 19.7 53.3 93 Kasler Corp.* 19.3 152.9 94 48 Mercury General Corp. 19.3 528.3 95 Franklin Resources Inc.* 19.2 287.9 96 92 Tandem Computers Inc.* 19.1 1,865.9 97 Exar Corp.* 19.1 106.7 98 3 Informix Corp. 18.8 146.1 99 Fremont General Corp. 18.6 573.4 100 Bridgford Foods Corp.* 18.4 84.3

1990 income (loss) Rank ($ millions) 1 130.052 2 3.865 3 31.338 4 4.449 5 38.007 6 66.659 7 32.261 8 8.802 9 18.758 10 111.179 11 (1.261) 12 17.638 13 16.835 14 10.818 15 4.024 16 10.896 17 (2.382) 18 146.465 19 25.548 20 29.298 21 (141.231) 22 40.070 23 14.674 24 9.730 25 7.368 26 28.757 27 (5.426) 28 6.881 29 8.735 30 56.082 31 19.752 32 117.241 33 9.517 34 (8.785) 35 3.622 36 57.378 37 8.897 38 13.376 39 (67.556) 40 (32.950) 41 824.000 42 17.298 43 47.836 44 23.625 45 2.332 46 4.942 47 5.644 48 2,157.000 49 1.655 50 5.900 51 24.456 52 (26.675) 53 11.817 54 3.759 55 33.230 56 17.628 57 16.800 58 7.080 59 (40.100) 60 34.073 61 8.847 62 (24.113) 63 (3.399) 64 23.210 65 17.333 66 9.692 67 4.242 68 39.943 69 181.457 70 6.642 71 10.073 72 14.435 73 11.686 74 9.380 75 91.185 76 122.247 77 44.904 78 (98.031) 79 27.051 80 11.301 81 (2.634) 82 6.535 83 9.506 84 (12.740) 85 6.428 86 (37.978) 87 16.356 88 4.974 89 138.881 90 2.052 91 10.712 92 2.275 93 3.096 94 51.558 95 89.443 96 121.832 97 6.517 98 (23.123) 99 26.117 100 3.917

* See exceptions, page 55.

** See company notes, page 55.

Source: MZ Group. Certain historical data is from Standard & Poor’s Compustat Inc.