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O.C. Stocks Soar in 1999 as Tech Sector Takes Off

TIMES STAFF WRITERS

Orange County’s fast-growing technology sector propelled local stocks to dizzying new heights this year, creating billions of dollars in new wealth for investors, executives and employees and shattering records for stock performance.

As they have across the nation, technology and Internet stocks emerged as the driving force behind the local economy.

In a county built up over decades by aerospace, real estate and tourism, the two-year surge in tech stocks has forced economists to reshape projections around the needs of the growing sector.

“This reflects the future growth path for the county’s economy,” said Anil Puri, co-director of the Institute for Economic and Environmental Studies at Cal State Fullerton. “The . . . high-technology sectors have been gathering momentum for several years, and you’re seeing the culmination of that trend.”

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The Bloomberg Orange County Index, which tracks 125 of the largest local public companies, surged a record 66% this year to 299.12, energized by such high fliers as Broadcom Corp. and QLogic Corp. In 1998, it rose 6.8%.

Six technology companies, led by Broadcom, now represent a third of the value of all companies on the index, and Broadcom alone accounts for 12%.

Tech companies also fueled the market for new Orange County stock offerings, which roared back to life this year with twice as many initial public offerings as last year--including the single best-performing new stock in county history.

Overall, 13 county companies raised more than $585 million in new stock offerings, producing an eye-popping average return of 89%.

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For a second straight year, the Internet was the rage. Having seen shareholders reap incredible gains in Internet-related companies in 1998, investors scrambled to stake their claim in almost every player.

“The Internet has been on fire,” said Byron Roth, chairman of Cruttenden Roth, a Newport Beach investment banker. He said the sector’s performance is reminiscent of the biotech craze in the early 1990s.

Orange County, with a reputation for fostering entrepreneurs and technology start-ups, has been a primary beneficiary of the trend--especially this year.

Nine of the 10 top-performing stocks were technology-related, and they rose an average of 673%. Eight of the 13 first-time stock offerings were made by technology or Internet companies, including Quest Software, which rose nearly 640% after its August debut.

Wall Street’s love affair with all things digital has enriched hundreds of executives and thousands of their employees and investors.

Broadcom co-founders Henry T. Nicholas III and Henry Samueli saw their holdings grow from about $1.2 billion each at the beginning of the year to $5.1 billion by Thursday’s close.

Vincent C. Smith, the 35-year-old chief executive of Quest, saw his 48% stake in the Irvine database software company grow from $855.4 million after its first day of trading to $1.9 billion by Thursday’s close.

The wealth is trickling down through the company ranks. Thanks to generous stock-option packages, Quest has created an estimated 150 millionaires and Broadcom has more than 500 multimillionaires.

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To be sure, the year also had its losers--50 companies saw their stocks fall in price--but tech stocks rose so sharply that they obliterated the performance of the losing stocks.

The county’s growing reliance upon technology stocks is apparent in the performance of the Bloomberg Orange County Index, which hit an all-time high of 299.12 on Thursday.

A year ago, the index closely mirrored the performance of the Russell 2000, a leading national index of small-company stocks. The similarities seemed to confirm that Orange County was a market dominated by companies valued by Wall Street at less than $1 billion.

But this year, the county index sharply outperformed the Russell 2000. Since the spring, it has closely tracked the Nasdaq, the widely watched measure of technology stocks.

Orange County’s best-performing stock in 1999 was StarBase Corp., a Santa Ana maker of software tools for building Web sites. Its stock jumped 1,355%, closing Thursday at $10.

The 98-person company has lost money every year since 1994, a total of nearly $7 million on revenue of $23.2 million.

Chairman William Stow said the stock was a combination of two things. “Our products are aimed at a broad market,” he said. “And Wall Street is starting to pay attention to us.”

Shares of two Costa Mesa companies, Emulex Corp. and QLogic Corp., continued the parallel upward paths that they began in July 1998 as the computer industry began to adopt their products.

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Emulex shares soared 860% this year; QLogic, which was spun off from Emulex in 1994, saw its stock rise 386%.

Both companies develop fibre channel technology, which speeds the transmission of data between computer servers and storage systems, an increasingly crucial task as the use of networks grows.

Another top performer was Research Engineers Inc., a Yorba Linda engineering software company. Its stock, which began the year below $5 and stayed around $10 for most of the year, soared 991% by year’s end, closing at $47.75.

Some tech companies faltered, none more than disk-drive maker Western Digital Corp. in Irvine. It lost $493 million--running its string of quarterly deficits to eight. Western also made massive job cuts both at its Irvine headquarters and its manufacturing plants in Asia, and endured its first-ever product recall. Western shares hit an all-time low $2.81 in November. They closed Thursday at $3.81, off 75% for the year.

But technology companies breathed new life into this year’s market of first-time stock offerings from Orange County companies.

Quest’s 639% run-up was the biggest ever for a new Orange County company, topping last year’s record 400% increase set by Broadcom. Quest’s stock debuted at $14 in August and closed at $103.50 Thursday. Wall Street is impressed by Quest’s steadily climbing profits and talented management team, analysts said. The company makes data-management software.

“They were in the right place at the right time,” said Tom Taulli, analyst at Internet.com in Newport Beach.

Another technology home run was TriZetto Group, whose shares jumped 436% after its October debut, closing Thursday at $48.25. The Newport Beach company provides data processing services to health care providers.

The dot-com suffix didn’t guarantee success. The highly anticipated offering from Autobytel.com proved to be a disappointment. Shares of the Irvine Internet car-buying service fell 35% from its offering price in Nasdaq market trading.

Autobytel fell victim to high expectations and fickle investor sentiment about online retailers. Its shares closed Thursday at $14.88, down from its $23 offering price.

Overall, the typical new offering raised about $45 million--about the same as last year--and ranged in size from $115 million for Acme Communications in Santa Ana, which operates television stations, to $9 million for Beta Oil & Gas in Newport Beach, a crude oil producer.

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Banner Year

The Bloomberg Orange County Index, which tracks the shares of 125 companies, soared 66% this year.

Jan. 1999: 180.47

Dec. 24, 1999: 299.12

Source: Bloomberg

Internet Energy

$100 invested in a technology-heavy index of Orange County County stocks was worth $159 at year’s end, outpacing every major market index except that Nasdaq Composite.

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Gainers % increase Thursday’s close 12-31-98 to 12-30-99 1. Starbase Corp. $10.00 1,355 2. Research Engineers 47.75 991 3. Emulex Corp. 96.00 860 4. Dense-Pac Micro 8.19 803 5. Conexant Systems 64.00 664

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Losers % decrease Thursday’s close 12-31-98 to 12-30-99 1. Pharmaprint Inc. 1.31 90 2. CKE Restaurants 5.81 80 3. MAI Systems 0.63 77 4. Bergen Brunswig 8.56 75 5. Western Digital 3.81 75

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Source: Bloomberg News *

Times staff writer Jonathan Gaw contributed to this story.


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