Do the violent gyrations of major technology stocks on national stock markets threaten storm damage to Southern California's small high-tech companies?
The answer is it's largely distant thunder, although there could be an echo in the cost of financing for the region's 3,000 computer equipment and service companies and its hundreds of biotech and medical instrument companies.
"If the public markets reduce their valuations of technology firms, private companies that need to raise fresh capital would have to give more stock warrants or other assurances to venture capital investors," says Jack Pike of CEO Coach, a consulting firm in San Juan Capistrano.
Undoubtedly, the change in market atmosphere has caused some companies to put off a public offering or delay a private financing, says Kimberly Valentine, a financial consultant with her own firm, KLV Enterprises, in Corona del Mar.
But most small technology companies are doing brisk business, and that offers a better indicator of the true state of the broader economy than does a gyrating stock market. Market cycles aren't the same as business cycles.
"Half our sales are overseas and our customers don't care about Wall Street," says Rod Waters, president of Florod Corp., a Gardena maker of laser cutting machinery. Orders haven't slowed for Florod. And that's a good sign for economic activity in general, because customers use laser tools to manufacture other products.
Florod, a company with 40 employees, about $5 million in annual revenue and 21 years' experience in laser technology, also uses a source of finance that is more secure than the stock market: "I turn to my customers" for partial payments on work in progress, Waters says.
QuickStart Technologies, an Irvine-based company that trains technical professionals in the use of Microsoft operating systems and software, finds that business is strong among its computer technology customers here and in Northern California.
"I suppose if their own sales were slowing they would cut back on training, but that hasn't happened," says QuickStart President Mitch Argon.
QuickStart--$7 million revenue and 65 employees in Irvine, Newport Beach, Santa Monica and Santa Clara--is now training professionals on the new Windows 95 operating system. And Argon looks forward to growing activity into 1997, as general corporate staff members get their training on the new system.
Financial values appear to be rising among the area's many privately held medical instrument companies. That's both a reflection of generally stronger prices for medical companies overall and the fact that large companies are buying up the smaller fry, says Thomas Fogarty, director of sales for Bio Medical Devices, an Irvine manufacturer of surgical instruments.
"Also, the medical device business is going well," reports Kevin Connors, chief executive of Vesica Medical, a San Clemente company. Vesica, which developed a technology to alleviate problems of female incontinence, was bought last year by Boston Scientific, which has made other acquisitions since then.
The upshot is that the current fluctuations in technology stocks do not signal a major shift in the economy nor even the beginning of a bear market.
"The technology selloff is a classic correction," says Kenneth Fisher of Fisher Investments in Woodside, Calif. "Technology
stocks will bounce back [indeed, many did Tuesday], although maybe not as much as they've fallen." Fisher thinks the bull market has six months to a year to run.
Indeed, investment advisers in the Los Angeles area were watching Tuesday's tech fluctuations with keen interest. They understood that investor sentiment was cooling on high-tech and they wanted to see where it would turn next.
Many thought retail stocks would get a play coming into the holiday season; others saw recently rising stock prices for Coca-Cola and Johnson & Johnson and concluded that consumer issues would be the new market darlings.
In any event, whatever industry is prospering at the moment, Southern California's tremendous variety of businesses should get some part of the action.
* MARKET BEAT: Some investors think tech shares have gotten cheap enough. D3