For High Tech, L.A.'s the Place

TIMES STAFF WRITER

Los Angeles County's broad range of software, telecommunications, aerospace and other high-tech firms produced nearly one out of every eight dollars generated in the local economy, making it the third-ranked community in a new study of the country's technology hotbeds.

In the study, "America's High-Tech Economy," released Tuesday by the Milken Institute in Santa Monica, San Jose easily captured the top spot, thanks to its location in the heart of Silicon Valley. Dallas, home to six of the nation's 20 largest telecommunications services companies, edged Los Angeles for No. 2 ranking.

California communities dominated the list of 50 high-tech centers: Orange County ranked No. 13, followed by Oakland at No. 14, San Diego at No. 17 and San Francisco at No. 22.

That bodes well for the Golden State. Technology is not only driving the current U.S. economic expansion but is expected to continue doing so for the next decade. Since 1991, the high-tech sector has grown four times as fast as the national economy as a whole, and cities with strong high-tech economies have benefited the most, according to the report.

"High-tech industries are critical in gauging the health of the U.S. economy," the report states. "They are determining which metropolitan areas are succeeding or failing. Without growth in high-tech sectors, metros will be left behind."

Nevertheless, an economy based on technology has its drawbacks, the report notes. Technology manufacturing sectors are vulnerable to downturns in the business cycle, a lesson Southern California learned from the aerospace industry contraction a decade ago.

Moreover, since high-tech employees earn more than most other workers, communities that rely on the industry must deal with the social consequences of income inequality, said Ross DeVol, director of regional studies at the Milken Institute and lead author of the study.

The study was based on government data from the Bureau of Labor Statistics and the Bureau of Economic Analysis that measured employment and output of high-tech firms in more than 300 U.S. cities. Its rankings are based on a combination of the regions' contributions to the nation's high-tech output and the degree to which each region has embraced technology industries.

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The study shows that high tech's role is bigger than previously thought, said Tom Lieser, executive director of the UCLA Anderson Forecast, which tracks the state economy.

"It underscores the importance of maintaining . . . a favorable climate" for high-tech businesses in Southern California, said Lieser, who was not involved in the study.

Technology companies in Los Angeles account for 12.3% of the county's economy, and produce 5.1% of the nation's total high-tech output, according to the study. By comparison, San Jose relies on technology for 37.2% of its economy, and the region accounts for 5.8% of the country's technology production.

Orange County relies on high-tech firms for 12.8% of its output and contributes 1.9% to total U.S. technology output. Overall, technology contributed about $1.5 trillion of the nation's $12.5-trillion gross domestic product in 1998, DeVol said.

Nationwide, the fastest-growing technology sectors have been telecommunications services and data processing and computer services, including Internet companies, DeVol said. In Los Angeles, those sectors are two of the biggest contributors to the local economy, with computer and data processing businesses accounting for 1.8% of the county's output and telecom kicking in 1.4%. Companies that produce aircraft and related parts are responsible for 1% of the total.

But the biggest element in L.A.'s technology mix is Hollywood, which is responsible for 4.8% of the county's economy. Without the contribution of the entertainment industry, Los Angeles would have ranked seventh in the survey.

DeVol said it would have been a mistake to ignore Hollywood.

"Anybody who knows anything about the entertainment industry understands it's very technologically intensive, with multimedia, animation, special effects and [computer and video] games."

Although the collapse of defense-related companies crippled Los Angeles' economy earlier this decade, commercial aerospace firms, like satellite maker Hughes Electronics in El Segundo, have contributed to a rebound, DeVol said. Many downsized workers redirected their talents into software and multimedia companies, he said.

Southern California's tech centers are maturing independently of their celebrated northern neighbor, DeVol said. Silicon Valley grew up around semiconductor technology, but the Southland's growth was spurred by the aerospace and entertainment industries. Orange County and San Diego share strengths in biotechnology, biomedical devices and telecommunications, he said.

The report identifies several important factors in determining a region's ability to attract and retain high-tech companies. The most crucial are the presence of research institutions and a skilled labor force. Southern California is blessed with such high-powered universities as Caltech, UCLA and USC, which produce not only engineering and science grads but inventions and ideas that can be turned into commercial enterprises, DeVol said.

The study stresses that would-be high-tech hotbeds can't rely on a strategy of merely "cloning Silicon Valley . . . because the proper DNA sequence is locked away somewhere on Sand Hill Road," a reference to the Menlo Park address of some of the largest venture capital firms in Northern California.

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High-Tech Meccas

The Milken Institute ranked U.S. metropolitan areas based on their overall contributions to the nation's high-tech output and the degree to which each region has embraced technology industries.

Milken Institute's Top Five Tech Areas

1. San Jose

Home to Silicon Valley, this region created the personal computer industry and leads the computer-networking industry. High-tech industries here are deep and broad.

2. Dallas

The city has high concentrations of seven of 14 high-tech industries and is home to six of the nation's 20 largest telecommunications services companies.

3. Los Angeles

In addition to software, telecommunications and aerospace firms, L.A. benefits from the high-tech aspects of entertainment.

4. Boston

This city boasts some of the country's leading universities and research institutions. Its high-tech prowess is spread across 11 industries.

5. Seattle

The city and surrounding region hosts technology heavyweights ranging from Boeing in aerospace to Microsoft in software.

The Rest of the Top 10

6. Washington, D.C.-Maryland-Virginia-W. Virginia

7. Albuquerque

8. Chicago

9. New York

10. Atlanta

Other California Areas in the Top 50

13. Orange County

14. Oakland

17. San Diego

22. San Francisco

37. Sacramento

Source: Milken Institute

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The California Factor

Metro area: San Jose

Percentage of area's output that comes from high tech: 37.2%

Area's contribution to total U.S. high-tech output: 5.8%

Employment: 279,060

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Metro area: Oakland

Percentage of area's output that comes from high tech: 13.0%

Area's contribution to total U.S. high-tech output: 1.6%

Employment: 90,690

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Metro area: Orange County

Percentage of area's output that comes from high tech: 12.8%

Area's contribution to total U.S. high-tech output: 1.9%

Employment: 123,440

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Metro area: San Diego

Percentage of area's output that comes from high tech: 12.5%

Area's contribution to total U.S. high-tech output: 1.4%

Employment: 104,360

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Metro area: Los Angeles

Percentage of area's output that comes from high tech: 12.3%

Area's contribution to total U.S. high-tech output: 5.1%

Employment: 402,140

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Metro area: Sacramento

Percentage of area's output that comes from high tech: 11.2%

Area's contribution to total U.S. high-tech output: 0.7%

Employment: 42,300

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Metro area: San Francisco

Percentage of area's output that comes from high tech: 10.2%

Area's contribution to total U.S. high-tech output: 1.45%

Employment: 91,200

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The Local Picture

Contribution of various high-tech industries to Los Angeles and Orange County economies: Computers and office equipment

Los Angeles economy: 0.3%

Orange County economy: 1.1%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Aircraft and parts

Los Angeles economy: 1.0%

Orange County economy: 0.4%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Guided missiles, space vehicles and parts

Los Angeles economy: 0.1%

Orange County economy: 0.2%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Engineering and architectural services

Los Angeles economy: 0.7%

Orange County economy: 1.2%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Search and navigation equipment

Los Angeles economy: 0.7%

Orange County economy: 0.4%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Electronic components and accessories

Los Angeles economy: 0.4%

Orange County economy: 1.7%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Measuring and controlling devices

Los Angeles economy: 0.1%

Orange County economy: 0.4%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Communications equipment

Los Angeles economy: 0.4%

Orange County economy: 0.5%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Telecommunications services

Los Angeles economy: 1.4%

Orange County economy: 3.5%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Motion pictures

Los Angeles economy: 4.8%

Orange County economy: 0.1%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Computer and data-processing services

Los Angeles economy: 1.8%

Orange County economy: 1.9%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Drugs and biotechnology

Los Angeles economy: 0.2%

Orange County economy: 0.6%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Medical equipment, instruments and supplies

Los Angeles economy: 0.1%

Orange County economy: 0.3%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Research and testing services

Los Angeles economy: 0.4%

Orange County economy: 0.2%

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Contribution of various high-tech industries to Los Angeles and Orange County economies: Total high-tech contributions

Los Angeles economy: 12.3*%

Orange County economy: 12.8*%

*Numbers do not add up to 100% because of rounding.

Source: Milken Institute

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