The high tech boom may be coming to an end for some local companies, but for others, it seems to be only beginning.
While the past several months have produced plenty of signs of economic slowing in this key sector of the economy, a closer look reveals a much different picture, say some industry watchers.
Restructuring and layoffs have been going on for years within high-tech and related industries. It’s only recently made news because a national slowdown has become more evident, says Kevin Carroll, executive director of the local chapter of AeA, formerly called the American Electronics Association.
“Companies are maturing and making staffing changes all the time,” Carroll said. “At the height of the (high-tech) boom a few years ago, companies were restructuring and laying off people but you didn’t hear about it.”
Cliff Numark, president of the San Diego Regional Technology Alliance, said while it’s true some companies, particularly those in the Internet and e-commerce sector, are hurting, others within the same industries are growing rapidly and having a hard time finding the right people.
Startups with a business-to-consumer approach, and even several operating as business-to-business models, have seen capital funding sources dry up in recent months, forcing their closure or sale, “but that’s what happens in a capitalist system,” Numark said.
All things considered, reports suggesting San Diego’s high-tech industry is in trouble are blatantly unfounded, Carroll says.
“Yes, the market is slowing down but when you compare where we are today back to 18 months ago, we couldn’t keep up that pace. Companies are still growing, but instead of growing at 80 percent a year, they’re seeing 40 percent growth. Hey, 40 percent is pretty good.”
Judging from what is happening at four local firms, the boom that has propelled the local eoncomy in recent years is very much alive.
Rather than shrinking operations and staff, these companies are hiring, opening offices and seeing revenues balloon by double digits.
– Continuous Computing Corp.
Since the end of last year, there has been a flurry of hiring at Continuous Computing Corp. in Sorrento Valley. The job titles include a variety of engineers, software people, managers, quality control and support staff. The 3-year-old firm expects to reach about $35 million in revenues this year, more than double the $16 million it received last year, and way up from nearly $3 million in 1999, said CEO Ken Kalb.
The best is yet to come.
“Quite frankly, we’ve got about $100 million in the backlog of sales over the next 10 to 16 months,” Kalb says.
Continuous Computing is a supplier to some of the largest and fastest-growing telecommunications and computer companies in the world, including Alcatel, Ericsson, Lucent Technologies, Nokia and Cisco Systems.
It designs and makes voice-over packet platforms for telecommunications equipment manufacturers.
“It’s technology that allows the transmission of voice over digital packets as opposed to voice over analog circuits,” Kalb said.
Major telecom carriers such as AT & T;, Sprint and WorldCom realize if they are going to provide the type of enhanced communication features for wireless phones and other devices, they have to go digital. That move is driving huge investments in their infrastructure, he said.
Kalb, who also serves as chairman, was an early founder with five others. Together with friends and family, the group was able to raise about $1.4 million to get started. It subsequently attracted another $5 million from venture capital firms.
Don’t talk to Kalb about downsizing. The firm that was at 62 staffers by the end of its last fiscal year is now at 88 and the prospects for doubling that are pretty good.
Going public is more than a possibility. It’s a given and should happen within the next 12 months, Kalb said.
– Entropia Inc.
Entropia Inc. CEO Jim Madsen will be the first to say what his company does , distributed computing , isn’t that new, and has been around for about 30 years.
The concept harnesses the power of PCs during the times when they aren’t being used to create a network for calculating complex problems.
The difference today is there is a good deal more enabling technology that is transforming what was once a theoretical model into a real one, Madsen says.
Entropia’s network of connected computers have been used to discover new prime numbers, and in Web performance and monitoring. Perhaps more exciting is in the work the firm is conducting in helping screen candidate drug compounds used in the fight against AIDS.
The firm has only about five clients today, but has already harnessed more than 150,000 PCs in more than 40 countries, a network sufficient to handle 6 trillion calculations per second, making it equivalent to the second largest super computer on the planet, Madsen said.
While Madsen declined to reveal revenues, Entropia’s business plan has attracted plenty of capital. It recently closed a second round of investment funding totaling $24 million, bringing its cumulative total to about $30 million since it began that process last year.
“The fact that we raised more money than our next three competitors put together speaks both for the company and the potential of distributed computing,” he said.
From a starting point of its founder, Scott Kurowski, Entropia now has about 70 employees but it should double that figure by the end of this year, Madsen said.
Among the types of jobs being created are engineers, account sales personnel, professional services, and software support people.
“One of our biggest challenges is that we can’t seem to hire top quality people fast enough,” he said.
Unafraid of any stigma attached to the dot-com, the 2-year-old TargetSafety.com recently signed an agreement to provide its training services via the Internet to six facilities in Washington and Oregon owned by Foster Farms, the largest poultry company in the West.
TargetSafety’s business is supplying clients with mandated federal safety training through online access.
The federal Occupational Safety and Hazard Administration requires every employer to provide some type of safety training but the need is obviously more pronounced and tightly regulated in sectors where accidents are more likely to occur.
The beauty of the online courses is that employees can take the courses at their leisure, and time away from the jobs is reduced, said Dale Stein, executive vice president of sales and marketing.
Sure, there’s competition in this B2B vocational training sector, but Stein feels confident TargetSafety.com has secured a good foothold.
“We got a jump on the marketplace, and have some strong partnerships,” he said, referring to the National Fire Protection Association. The business also has a library of about 50 course offerings that are regularly updated and come with record-keeping services, Stein said.
From an initial capitalization of about $1 million from angel and individual investors, TargetSafety.com is on the verge of closing a first round of venture capital financing of about $2 million, he said.
Right now, the business has 15 employees, triple the number from about a year ago, but by the end of this year it should reach about 50 workers, Stein said.
The newly created jobs are in customer service, sales and marketing, Web design, course evaluators, and quality control.
Revenues are already flowing and exceeded $1 million during 2000, and should grow by more than 50 percent this year, Stein said.
– E-assist Global Solutions
Another business in that difficult e-commerce space, E-assist Global Solutions produces customer relationship management software that helps companies improve services to clients.
Incorporated in 1999, the firm closed its third round of venture capital financing in November, securing $27 million from a group of six VCs, including San Diego-based Enterprise Partners. That round brought E-assist’s cumulative funding to about $67 million.
CEO Dan Plashkes says the company has created a software application that allows its clients to optimize their e-commerce experience.
“We’re about getting e-service to catch up with e-commerce,” he said.
The company now has about 280 employees, compared to about 50 around a year ago, Plashkes said. This year, the firm should add another 75 employees. More than half the firm is composed of engineers and technical workers, he said.
E-assist expects to exceed last year’s revenues of about $7 million, and should reach profitability by the second quarter of 2002. The company has sufficient capital to easily take it to that point without exhausting its current monthly burn rate of about $3 million, he said.
E-assist has seven offices nationwide, and two outside the country in Toronto and London. An Asia office is planned to open soon in either Hong Kong or Singapore.
Why is E-assist apparently winning when similar B2B companies are failing?
“We’ve had the proper management from the day we started the company and there is a large market demand for what we do,” Plashkes said. “I think we have a good chance for being one of the great companies of San Diego.”