For Southland Tech Firms, What Slump?

Sabrina Kemeny, the chief executive of a Pasadena chip-design firm, could see the high-tech train wreck barreling toward her company. Slumping sales of personal computers meant less appetite for PC cameras, which in turn drove down demand for her firm’s flagship image-sensing chip.

It was a classic example of the cascading misfortune that has become the hallmark of the high-tech slump and sent California into an economic slowdown.

But Kemeny’s company, Photobit Corp., has weathered the downturn relatively unscathed. Chips for PC cameras make up just part of its business. Its most profitable contracts are with the entertainment, medical and industrial customers that can still afford the company’s custom-designed chips.

“This recession was really fast,” Kemeny said. “Everyone describes it as falling off a cliff. Having a high-end specialty product line really helped.”

While consumers and businesses have slashed spending on new high-tech gadgets, Southland tech firms are chugging along, saved largely by their focus on the nuts and bolts of technology that are needed even in down economic times.

From metal structures for airplanes to digital special effects for Hollywood, many products made by Southland companies have proved to be more resistant to recession than the goods produced in Silicon Valley and other high-tech hot spots.

“It’s not like if the economy is bad, producers say, ‘Let’s cut back on special effects,’ ” said Tom Lieser, senior economist with UCLA’s Anderson Business Forecast.

Many of the same factors that held Southern California back while Silicon Valley boomed are helping to counter the effects of a dizzying downturn.

Silicon Valley companies zoomed into the stratosphere, fueled by billions of dollars in venture capital and a seemingly insatiable demand from consumers and corporations for the latest inventions.

Southland companies, by contrast, had much less success eliciting funds from venture capitalists. So they turned to government grants and corporate contracts to fund their own research-and-development activities. Those customers are helping to insulate them from the tech slump.

In the midst of the downturn, Southern California’s high-tech sector has emerged as one of the few bright spots. Employment in business services, the category that includes software programmers and other engineers, has risen to 714,200 from 689,300 in the last year, according to state economic data. The number of jobs in communications, the sector that includes Internet service providers and other telecommunications services, increased by about 2,800 workers during the same period.

While industry giants from Lucent Technologies Inc. in Murray Hill, N.J., to Cisco Systems Inc. in San Jose have been forced to shed thousands of workers, makers of data and voice communications equipment in Southern California have managed to continue growing. Employment in that sector has risen by about 1,600 workers from San Diego to Ventura to the Inland Empire.

These numbers reflect the cumulative effect of thousands of tiny companies such as Syagen Technology Inc. The 5-year-old Tustin company has grown from five employees to 12 since January and plans to finish the year with a payroll of 20.

Syagen built itself up with $6 million in government grants from NASA, the Federal Aviation Administration, the National Science Foundation and other agencies. Founder Jack Syage used the money to turn his photoionization mass spectroscopy technology into devices that can detect chemical weapons on battlefields and identify trace bits of explosives on the clothing of suspected terrorists.

Syagen used the same mass spectroscopy technology to expand into biotechnology. The company’s new products let pharmaceutical makers perform molecular analysis of drug compounds about 10 times as fast as current methods.

Syagen never saw the explosive growth that propelled the countless dot-coms hawking pet food and gardening supplies. But research contracts have provided for steady growth. Sales are forecast to climb to $2.5 million this year from $1.5 million in 2000 and to $6 million in 2002, Syage said.

“We want to be around in a couple of years,” said Brent Evans, Syagen’s chief operating officer. “We always had a longer-term perspective than the dot-coms.”

The dot-com demise offers proof that the Tech Coast isn’t immune to the nationwide downturn. Flashy electronic-commerce ventures such as EToys Inc. that banked on grabbing consumers with huge discounts and multimillion-dollar Super Bowl ads flamed out here just as they did everywhere else.

The pain of plummeting sales at telecom giants Lucent, Nortel Networks Corp. and Alcatel has trickled down to the cluster of communications equipment upstarts in Southern California. Profits are drying up and stock prices are skidding at companies such as Newport Beach-based communications chip maker Conexant Systems Inc. and phone network supplier Accelerated Networks Inc. of Moorpark.

And nearly every attempt at creating profitable online entertainment also has failed, despite such deep-pocketed backers as Steven Spielberg, Microsoft co-founder Paul Allen and Intel Corp.

But amid the wreckage are companies such as Santa Monica’s Demografx Inc. Instead of creating entertainment, it focused on the underlying technology. Demografx is developing a method to compress digital video for movies, television and the Internet that improves upon the entertainment industry’s widely used MPEG-2 standard.

For five years, Demografx plugged along with corporate contracts and a handful of government grants. The funding carried the 13-year-old company until this May, when it raised $10 million in venture capital--smack in the middle of the tech doldrums.

Even if the economic slowdown deepens, it probably won’t be a wipeout for Southern California. It certainly won’t wreak as much havoc as the post-Cold War downsizing of the defense industry in the early 1990s, economists say.

Southern California’s dependence on aerospace has been reduced by more than half since then, with high-tech entertainment, telecommunications and biotechnology firms filling the void, said Ross DeVol, director of regional studies at the Milken Institute, an economic think tank in Santa Monica.

Along with international trade, business services and entertainment, technology is one of the pillars of Southern California’s diversified economy and is responsible for about 14% of the region’s output, according to DeVol’s research.

Southland tech firms haven’t grown as fast as they have in Silicon Valley, where tech accounts for a whopping 40% of the regional economy. But the foundation in Southern California is more stable and less vulnerable to cutbacks by consumers and businesses.

Ducommun, the oldest company in California, knows a little something about stability. Founded in 1849 by an Arkansas entrepreneur who sold picks and shovels to Gold Rush fortune-seekers, the company today focuses on the nuts and bolts of the aerospace market.

The Long Beach concern sells metal pieces for Boeing 737s, such as U-shaped fail-safe cords that strengthen the fuselage. If cutbacks in business spending translate into less corporate travel and fewer orders for Boeing jets, the effect wouldn’t trickle down to a supplier such as Ducommun until the end of 2002 at the soonest, Chief Executive Joseph Berenato said.

Even if such cuts came to pass, Ducommun would stay busy pressing sheets of metal into fuselage skins for Air Force cargo planes and building bright-orange fuel tanks for NASA’s fleet of space shuttles, which will be in operation for decades.

Ducommun’s 1,600 employees also build electromechanical switches, cockpit control panels, radar assemblies and metal pieces used in airplanes and Delta 2 rockets, among other items.

Berenato expects Ducommun’s annual sales to climb to $240 million this year, up from $166 million in 2000 and $146 million in 1999. The company recorded a $12.7-million profit last year, and its stock price is up 18% since January.

Photobit, with $20 million in annual sales and 94 employees, has built itself on a strategy of continuously widening its customer base--a requirement in this region in the aftermath of the aerospace meltdown a decade ago.

When the company was spun off from the Jet Propulsion Laboratory five years ago, it relied on highly specialized research contracts. Now its chips are making their way into digestible pills that can record images inside a patient’s body, car headlights that automatically adjust their brightness based on the amount of ambient light and motion sensors that give lifelike movements to animated characters.

“We’re selling products for 2002 now,” Kemeny said, “and 2002 looks real good.”