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Local Telecom Industry Positions Itself for Recovery

Local Telecom Industry Positions Itself for Recovery

Continued Innovation is Key Element Driving Technology

BY TYLER ORION

Special to the Business Journal

On a global scale, telecommunications is at the heart of the technology sector.

In its 2002-03 technology forecast, PricewaterhouseCoopers LLP identified trends in five key areas, all of which were either directly or indirectly linked with telecommunications, communications infrastructure or the software, electronics and enabling technologies that make it all work.

San Diego’s tech sector includes more than 500 telecommunications firms ranging from scrappy start-ups to major players. And while Qualcomm Inc., Cox Communications and Pacific Bell/SBC may be household names, we also support outposts of industry giants including Ericsson Wireless Communications, Texas Instruments, Motorola Broadband Communications Sector, Kyocera America, Kyocera Wireless Corp. and Sony.

Although the tech sector has been hard-hit this past year, and telecom has suffered dramatically, Marco Thompson, founder of the San Diego Telecom Council and local industry advocate, remains optimistic for the future. “The state of the industry is devastated. But in fact, San Diego has been much less affected than other major centers. While areas like Dallas/Richardson in Texas have lost as many as 50,000 to 100,000 jobs, our employment levels are down, maybe, 5-10 percent,” he said.

Thompson attributes this phenomenon in part to San Diego’s profile as an intellectual property and R & D; town. “The high value work is done here, and even with this downturn, companies have sustained only limited reductions in R & D; as compared to cuts in manufacturing.”

– Telecom Is A Complex Array Of Industries

The telecom industry is basically composed of three groups of businesses which encompass: voice/data/video; Internet technology; and wireless communications. San Diego has more than 150 firms in the broad voice/data/video category, which includes infrastructure, network components, telephone interconnect equipment, computer storage devices, digital video, data communications and predictive software products.

The Internet category of firms include Internet access providers, search engines, eCommerce providers, video technologies, broadcasting, usage and tracking firms. Wireless communications, which is probably the best-known of the telecom sectors locally, totals about 150 firms, which include satellite and microwave services and equipment in addition to the better-known sub-sectors of mobile communications, cellular and handheld devices and components.

According to the San Diego Association of Governments’ recently released indicators of sustainable competitiveness, San Diego’s technology sector overall grew significantly between 1991 and 1999. The telecommunications industry represents a slice of several of the clusters which Sandag studied separately , defense and transportation, computer and electronics manufacturing, software, computer services and communications.

However, during the nine-year period studied , the communications cluster alone represented a substantial source of local innovation, with 13.3 percent of all new patents filed. In terms of employment, the communications cluster grew from 10.5 percent of the technology sector in 1991 to 18.6 percent in 2000, where total employment in the tech sector was identified as 134,000. And between 1991 and 2000, communications firms in the aggregate showed an increase in average annual payroll of more than 50 percent, with employee wages increasing by more than 20 percent. So despite the current weakness in the sector, the telecommunications industry was a significant contributor to the growth of the San Diego economy over the past decade.

– The Downside Of The Tech Boom

The San Diego Telecom Council estimates that during the tech boom of the late ’90s there were between 80 and 100 new venture-backed start-ups launched throughout the county. “That number has dropped precipitously this year,” noted Thompson, “but I suspect that we still dwarf other telecom cities.”

The overbuilding of infrastructure during the dot-com glory days , and the subsequent and dramatic decrease in demand , hit capital equipment companies (infrastructure and “box” suppliers) hardest. The trickle-down effect of lost sales reverberated throughout the tech sector and telecom companies were seriously hurt.

The failure of new markets, such as the highly touted wireless Internet, to emerge at the pace of new product and service development was another large factor in the economic crash. When coupled with the corporate crisis in the public markets, 2002 has been a bleak year for the industry.

And while revenues and profits will eventually return, experts such as Thompson expect that the valuations of the late ’90s are not likely to rebound to their staggering pre-recession levels.

– Continued Innovation

For San Diego, however, there is an upside. If you have been following the headlines, there have been announcements of new financings, major contracts and international distribution deals recently. With a resurgence in defense business, satellites are hot again, and ultra wide bandwidth is a new up-and-coming technology which is progressing in its development here.

San Diego is also a leader in the emerging field of free space optics, with four firms that, according to Marco Thompson, are “contenders for global market leadership.” Thompson also believes that 2003 will be the year of bluetooth, a short-range wireless “connecting” technology.

San Diego has a dozen or more firms in this sector and several are poised for growth.

And the spirit of innovation over the past few years has attracted major industry players to San Diego. With the presence of firms like Ericsson and Nokia, San Diego is clearly on the radar screen for future corporate partnerships and alliances once the industry does begin to recover.

The region has a large number of privately held corporations that have received significant venture funding and corporate investment and are utilizing this downturn to quietly build value. And there are firms working in nanotechnology and other convergent technologies, pulling from local expertise in biotech, electronics and sensor technologies to create the breakthrough products of the future.

– Measuring Recovery

While it is difficult to see clearly, there are prospects for a gradual recovery. Some of the recent downsizing and re-focusing on real customer needs can be expected to strengthen company revenues for the survivors. Profits will return eventually , although most likely from re-launched companies with new logos and new stories to tell.

The prospects for the near-term are more likely to be positive on a company-specific, rather than industrywide basis. San Diego firms such as ProfitLine (voice & data services), AirFiber and Lightpointe (free space optics), Wireless Knowledge (data mobility), Novatel Wireless (wireless devices), Silicon Wave (next-generation radio chips), Widcomm (bluetooth and 802.11 wireless connectivity), ViaSat (digital communications and satellite tech), Peregrine Semiconductor (high performance integrated circuits) and Jabra Corp. (wireless headsets) are demonstrating promise. Other firms which are local industry favorites, but are not yet widely known, include Pulse-Link (ultra wide bandwidth technology), Continuous Computing Corp. (network platforms for telecom manufacturers), Entropic Communications (broadband semiconductor), Tarari (enterprise content processing), Viadux (high speed data, video and voice) and Magis Networks (wireless chipsets).

In short, San Diego is home to a wide range of telecom companies that are quietly adding value.

The vision of San Diego’s telecom destiny may not be terribly clear. But this is an industry of entrepreneurs , and entrepreneurs are known not only for innovation, but also for their optimism.

Orion is president and CEO of the San Diego Regional Technology Alliance.

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