Expert Takes an Analytical Look at Area’s Transformation
From its origins in the defense industry, through expansion into multimedia, broad band and Internet communications, technology has quietly emerged over the past decade as a driving force in the Los Angeles economy. Few have watched the tech transformation closer than Rohit Shukla, head of the Los Angeles Regional Technology Alliance. Shukla sat down with The Times at his office at USC to talk about a recent alliance study that examined technology growth along the Ventura Freeway corridor in the San Fernando Valley and Ventura County, as well as benefits and pitfalls of doing business in this high-growth, high-stakes environment.
Question: How would you characterize the current state of the technology industry along the Ventura Freeway corridor?
Answer: It’s starting to get critical mass. This is not a surprise for those of us who have watched the evolution of the Valley over the last 10 years. It was a hotbed of activity at the time of the last aerospace boom. What you’re seeing right now is the effect of a 10-year period of retention, exploitation and deployment of those technologies.
Q: Any particular sectors?
A: There are trends in communications infrastructure and backbone technologies, optical systems, diodes and all of the things that go with light and optical communication technologies. There’s a reason why these companies have attracted venture capital. They’ve got very key and core technical talent as distinguished from other companies and not just in this area, but around the world.
Q: Any companies you see as leaders in the area and for what reason?
A: One of the great ones is Vitesse (in Camarillo). They’ve been so under-hyped that their actual performance actually insulates them from the huge rises and dips that have hit company after company. It’s sort of a plodding, consistent performance. The stock has not kept up, but they’ve got cash in hand, operating sense, discipline in their product line and pay attention to alliances and foreign markets.
Q: Any others?
A: In commercial communications technologies, there’s MRV Communications (Chatsworth), Accelerated Networks (Moorpark), Xylan (Calabasas)--those last two being the most recent entrants into a field that has been growing over the last two years. You also have growth in the biomedical device area because the U.S. Food and Drug Administration has become a lot less restrictive than it used to be so you have companies like MiniMed that will make a great mark for themselves.
Q: What are the biggest drawbacks for fast-growing companies?
A: There’s always going to be a challenge in an economy or in a time when the smallest bit of news becomes such a major story that it impacts people’s perceptions of a company. You had that happen to Emulex. Everything is about transactions right now, whether it’s news, analysis, trading or public relations. That’s a highly dangerous, volatile kind of path. And if you’re a high-growth company, you have absolutely no option but to take it.
Q: Why is that?
A: For some of the smaller companies that have just started and are experiencing explosive growth, it’s a problem they cannot avoid. They have to put themselves out there to make themselves visible to an investment public increasingly limited in their attention span and they’ve got to be able to attract the attention of analysts that follow that industry to show that they have something that distinguishes them from the crowd. But they also have to be very careful about not over-hyping what they do.
Q: What about a company like Soligen of Northridge, which had exploding revenues but couldn’t turn a profit?
A: In technology, you’re necessarily going to have large outlays that will have to be accommodated in your balance sheet. With the growth of those products, you’re going to get increasing numbers of people buying into it. That’s what’s happening.
These companies are making a lot of money in terms of revenue, but not making a lot of money in terms of profit at this point in time. Managing a company means being able to juggle those two things very carefully and to ensure that you have predictable profit downstream.
Q: Should a company like Soligen have gone public?
A: No. They went public at a time when there was a lot of money around and it was easy to take a gamble. The whole point of going public is to maximize growth and establish yourself as a market leader in a particular space.
They couldn’t prove to the investment public that their technology, superb though it is, was capable of translating into sustainable growth and predictable profit.
Q: Is fast growth necessarily good growth?
A: There’s great virtue to toiling in relative obscurity. In the long run, fast is not always necessarily the only thing to aspire to. But it’s important that you have fast in a time when lots of things are being developed. The pace of innovation itself suggests that you have to be ahead of the curve constantly, which means to a large extent, fast.
Q: Is the high growth in technology setting up a boom-and-bust cycle?
A: The boom-and-bust cycles, while not entirely a thing of the past, are not going to be as dramatic as they have been in years past. We’re more diversified. Our culture is more diversified in terms of being able to accept different kinds of employment opportunities, different kinds of growth patterns and different kinds of companies. It’s much more interesting than in the past. You don’t have large communities built around one employer like you did in the 1960s through the 1980s.
Q: Are there vulnerabilities?
A: Absolutely, at the cusp of all of these changes, with entertainment changing, with aerospace changing dramatically and new things coming in, there may be moments of time when the three are not completely in alignment, where the aerospace industry changes enough to have a huge downturn, where the new industries are not yet in place to be able to accommodate them.
Q: What are some other obstacles?
A: You’re trying to encourage the growth of clusters of companies that depend on each other, are somewhat interdependent both for talent and technology as well as markets. But there are so many municipalities in the corridor.
The second problem is infrastructure that simply limits the amount of growth that can be accommodated in a particular area.
Thirdly is the simple issue of housing. If you rip up the mountainsides to be able to accommodate all of these new entrants into the area, then you’re reducing the livability issue which attracted them in the first place.
Q: Ideally, what’s the best way to build a solid base of technology businesses?
A: One of the things that made the defense industry and makes the entertainment industry so incredibly pervasive in the region is that you have these clusters of companies. As programs [or projects] ended, the companies shed workers, but the workers always found employment.
That is good because new ideas come bubbling up from other programs that they were not intended for. You also have the opportunity of keeping these people in the [Los Angeles] basin, in the location by having these opportunities all around them.
Q: If you’re investing, where do you put your money?
A: First of all, look at the [company’s] outlays to see what they are doing with their money. Where is it going? If it’s going into continuing innovation or research, that’s great. Also good marketing. It’s not just advertising, trade shows or going out to these various places. It’s understanding how a particular customer is going to react and then follow that and have things available for that customer to easily adopt.
That’s not what it’s about in most of the companies that people talk about. It’s also cash-on-hand. You have to be able to insulate yourself from the vicissitudes of whole markets or opportunities collapsing around you. You can’t do that without a decent cash position.
Allied to that is your burn rate or how much money they are going through a month. That will tell how they are managing their people, their processes and customer interaction. Lastly, what are their employee costs and what is their productivity? The best companies are the ones that will give it to you readily. They want you to know.
