Only Flexible Firms Have Survived Change By CARLOS MARTINEZ Staff Reporter A one-time Defense Department supplier, Camarillo-based California Amplifier was among those technology firms able to adapt to the commercial market after the end of the Cold War lessened demand for military products. A maker of radio components for the U.S. armed forces, Cal Amp turned its attention to the satellite television and wireless markets, seeing its revenue grow from $79.4 million in 1999 to $117.1 million in 2000. But as the technology downturn took hold in 2001, the company’s leading customers began ordering less and less equipment. Sales plunged and the company’s future was in question. Cal Amp’s case was not unusual during this downturn. It was the kind of story repeated throughout the industry. But unlike many companies that failed, Cal Amp did not. It’s a survivor. Like many Valley area companies, it managed to change course and adapt to a new and difficult business environment once again. Being nimble and adapting to changing conditions seems to be the qualities most common in the local firms that managed to stay alive after the tech wreck it’s a quality that will help as the firms move into the uncertain future. Cal Amp’s ability to change was demonstrated first in 1990. That transformation from military to commercial supplier was made easier by the fact that its radio technology could be easily adapted to satellite use. But Cal Amp’s satellite television business began to stall by 1993 just as its wireless business began to grow. The wireless business allowed microwave communication between wireless cable television providers and their customers. But by 1998, the satellite business began booming again, thanks largely to legislation requiring satellite television providers to carry local stations. Last year, however, the company’s satellite sales began to falter once again as one of its biggest customers, financially-troubled WorldCom, canceled orders and reduced its spending. As a result, the company reduced its staff and sold a manufacturing plant to Illinois-based Andrew Corp. that year as once again, luckily, its wireless segment slowly improved sales. By developing next-generation wireless equipment for the wireless broadband industry, the company has helped stem some of its losses on the satellite side. But overall orders remain down and in May the company cut 50 percent of its staff leaving Cal Amp with 285 employees. While the satellite business continues to slump, its wireless sector continues to grow slowly, fueling any potential growth, said Rich Valera, an analyst with Needham & Co. in New York. Still, the company’s revenue remained flat, posting $5.2 million in net income on $100 million in sales last year. That compares to 2001 when it reported $4.5 million profit on $100.7 million in sales. Although sales declined, the company remained profitable until last quarter when it lost $1.1 million or $0.07 cents a share on $18.6 million in sales, compared to a $1.5 million profit or $0.10 per share on $22.5 million in sales. Much of the loss came as the company wrote down $825,000 in asset impairment charges for outdated and unsold equipment. The company says that sales will remain flat until the end of the year when customers replenish their inventories. Part of the company’s flat numbers were due to the cutbacks by financially troubled WorldCom which recently sold its wireless unit. Meanwhile, Cal Amp is making its move into the cell phone market with a number of new products using its RF or radio frequency technology. In July it rolled out a low-cost signal repeater that augments wireless signals into buildings. The company is currently in talks with unnamed service providers for potential deals for the product. Diodes Inc. Another local survivor, Diodes Inc. was just one of those small semiconductor companies in the 1990s quietly making its tiny chips for the computer, automotive and consumer electronics markets. But even before the tech downturn devastated the industry, Diodes was already transforming itself into a fully integrated semiconductor distributor and manufacturer. The company had been a distributor and reseller of products, with only 10 percent of its sales coming from products it made itself in the early 1990s. But that changed when the company decided to develop, manufacture and distribute its own products. By the time the downturn hit, the company was already making its own inexpensive chips at a state-of-the-art factory it acquired in Kansas City, while at the same time striking partnership deals in China. By shifting its efforts from the domestic market and into the Asian and European markets, Diodes reduced the impact of the drop in domestic sales. With Asia now accounting for 53 percent of all sales, the company’s entry into Asia has been successful, with growth expected to continue due largely to the construction of a new manufacturing plant in China and additional sales offices there, said Gary Mobley, an analyst for B. Riley & Co. “They are a low-cost manufacturer and therefore are better able to compete in price,” Mobley said. “It’s a volume business really. Those chips go for one to three cents apiece and with high volume it adds up.” Vitesse Semiconductor Corp. A down economy is nothing new to Vitesse Semiconductor’s bosses. The Camarillo-based chipmaker has undergone major shifts due to market pressures in past. So when the latest downturn hit the company hard, Vitesse shifted gears and began cutting back in a major way. By laying off nearly 600 people in the last two years, shuttering its foundry in Colorado Springs and eliminating its optical components unit, Vitesse has stemmed much of the bleeding. “They’ve had a history of turning things around so the precedent is there for them,” said analyst Arnab Chandra, of Lehman Brothers. By moving away from unprofitable optical components and into data storage chips, Vitesse CEO Lou Tomasetta says he’s optimistic about a turnaround. “We’re seeing growth with storage chips and we’re seeing some other good signs out there,” he said. The company which he helped start in 1987 has gone through other transformations. Having started out making supercomputer chips, the company moved into network processors and fiber optic devices for the telecommunications sector before those markets headed south. But the company’s move into data storage has already won over some on Wall Street. “They’re doing everything right so far in a difficult industry,” Chandra said. But last year Vitesse had its worst year ever. It lost $883.5 million on $162.4 million in sales compared to 2001 when it posted a $111.9 million loss on $384.1 million in sales. But sales are improving, says Richard Riker, vice president of sales and marketing. “Storage chips have really been our bright spot and that’s been steadily growing,” he said. Sales for its storage chips and Ethernet products over the last nine months have improved by 79 percent, to $82.3 million in revenue, compared to $24 million during the same period last year. Vitesse’s acquisition last month of New Jersey-based Ethernet and storage chips maker Multilink Technology Corp. will likely further bolster Vitesse’s presence in that market.
