PairGain to Shift Most Manufacturing to Mexico

Tustin-based PairGain Technologies Inc., which has seen its profit margins squeezed this year by competitors, said Friday that it is moving most of its manufacturing operations to Mexico.

Company officials said that fewer than 100 of its 600 employees in Orange County would lose their jobs. PairGain has more than 800 employees worldwide.

The company said the transition, which began last month, would be completed by the middle of next year. PairGain will continue to manufacture some of its high-speed data transmission products in Tustin.

The company’s customers include telecommunications firms such as SBC Communications Inc. and Sprint and organizations with large data networks, including UCLA and Boeing Co.

PairGain employs about 270 workers in its operations department in Tustin, and the move of much of its manufacturing to Mexico will affect fewer than 100 workers, said George Assmus, chief operating officer.

“We’re still formalizing the plan, so it’s difficult to quote any numbers right now,” Assmus said. “I’m hoping it’s going to be nobody.”

The number of layoffs will depend largely on how quickly the company’s new product line, which is more complex and offers higher profit margins, is adopted by customers and requires ramped-up production.

So far, the company has made some sales but has not landed a major telecommunications client.

For the last year, PairGain has been trying to develop new product lines while competitors have entered its core market of digital subscriber line products, which Assmus said make up about 60% of the company’s revenue.

PairGain recently posted its first quarterly loss since 1995 and has seen four consecutive quarters of declining profits and revenue.

In October company officials described profit margins as hitting “a low point.”

Still, since the beginning of the year, PairGain’s stock has nearly doubled from $7.69 to Friday’s close of $15, which was off 63 cents, or 4%, in light Nasdaq trading.

Last month, PairGain said it would sell or spin off its microelectronics engineering group, which has 40 employees, by the end of December.

Industry experts said the plan to move manufacturing to Mexico, where production costs and wages are lower, was necessary to meet low-priced competition.

“It’s a very good move,” said Conrad Leifur, a financial analyst with U.S. Bancorp Piper Jaffray, who rates the company a “buy.”

“A lot of these products are commodities, and those kinds of businesses are best outsourced, from a manufacturing standpoint,” he said.

PairGain has contracted with SCI Systems Inc. of Huntsville, Ala., to make the PairGain products in Mexico. SCI already does some contract manufacturing for PairGain in Brazil.

PairGain is not the only Orange County company suffering from “commoditization.” Irvine-based Western Digital Corp. has seen eight consecutive quarterly losses, totaling nearly $1 billion, as cutthroat pricing has plagued the desktop-computer hard-drive industry.