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Sunday, January 13, 2002 - Page updated at 12:00 AM

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Oregon's downturn: State battered by slump in manufacturing

Seattle Times business reporter

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PORTLAND — Throughout the go-go 1990s, few places soared as high or as confidently as the Puget Sound region. Except, perhaps, Oregon's Willamette Valley.

From metropolitan Portland south to the confluence of the Willamette and McKenzie rivers, the valley took on a high-tech sheen. Factories making everything from computer chips to printers, from disk drives to the disks that went in them, sprouted like morels, raising hopes that Oregon would finally escape its feast-or-famine reliance on wood products.

That dream ended last year, as sliding chip prices and cutbacks on corporate capital spending hit Oregon's manufacturing base hard. Unemployment shot up from 4.2 percent in December 2000 to 7.5 percent in December 2001, making this the one state in the country whose economy is worse off than Washington's.

That meant Portland, rather than Seattle, earned the dubious distinction last weekend of serving as a stage for President Bush to show his concern for jobless workers and thump the tub for his economic-stimulus proposals.

In addition, as Oregon has grown into a second home for out-of-state companies, the state has lost a string of its biggest corporate citizens.

Five years ago, Washington and Oregon each had seven companies on the Fortune 500 list of the largest U.S. corporations. But while Washington's representation on the Fortune 500 grew to 11, Oregon's shrank to two: Four companies (PacifiCorp, U.S. Bancorp, Fred Meyer and Thrifty/Payless) were acquired, and one (Louisiana-Pacific) no longer is big enough to qualify.

Willamette Industries, one of Oregon's two remaining Fortune 500 companies, has spent more than a year fending off a hostile takeover bid from Federal Way-based Weyerhaeuser. (Nike is the state's other Fortune 500 company.)

And two of the state's largest utilities, PacifiCorp and Portland General Electric, were bought out in the late 1990s.

But Puget Sound-area residents may not have long to be smug. Chip prices have strengthened in the last month, leading some to predict a relatively swift turnaround for semiconductor makers. Some big employers, such as LSI Logic and IDT, have chosen to move jobs from elsewhere to Oregon.

The Sound area's future may look more like Oregon's present, with Boeing now based in Chicago and the company planning to lay off 22,000 workers. And the state will lose biotech star Immunex to California-based Amgen in a deal set to close later this year.

If the Puget Sound region, with its concentration of software and Internet companies, is the brains of the New Economy, Oregon is the muscle.

When Intel built its first chip plant in Portland's western suburbs in 1976, Oregon was still America's lumberyard. That started changing in the 1980s, when the forest-products business entered its long decline and high-tech manufacturing — semiconductors, display systems and printers — began to surge.

In part, said economist Joe Cortright of Portland-based Impresa Consulting, Oregon's development as a high-tech manufacturing center followed a national pattern.

Urban areas tend to develop clusters of certain industries, Cortright said, as companies attract suppliers and partners. Eventually, talent strikes out to found new companies: Locally, for example, the presence of Microsoft has helped make the Seattle area a national center for software development and Internet businesses.

Oregon's supply of cheap labor and developable land also lured high-tech plants. State and local government chipped in with lush tax incentives.

The results were especially evident in metro Portland. Intel expanded again and again, until 16,000 people worked in the west suburbs. The company is Oregon's largest private-sector employer, and it employs more people in Oregon than anywhere else in the world.

East of the city, LSI Logic and Fujitsu Microelectronics built huge chip plants in Gresham. Suppliers such as WaferTech and SEH America located across the Columbia River in Washington's Clark County.

"Every day, it seemed, another company was moving into the state," recalled Max Talbot, Gresham's economic-development director.

Boom spread beyond Portland

The boom wasn't entirely Portland-based. The Eugene-Springfield area, at the south end of the Willamette Valley, became home to Sony Disc Manufacturing, HMT Technology and Rosen Products, a maker of flat-panel TV screens for planes and minivans. Hyundai (now Hynix) Semiconductor built the first of three phases of a massive chip factory in west Eugene.

The boom was good for people such as April Cosgrove of Eugene. Cosgrove, 31, was unhappy working as a manager at PetSmart when her neighbor suggested she apply at Hyundai. Starting in May 1999 in an entry-level job, Cosgrove eventually became a process engineer, checking chip yields, running analyses and generally troubleshooting.

"We were able to purchase my husband's truck and start catching up on credit-card bills after I was promoted," she said. "The pay was better, I liked the working atmosphere, and it was definitely a more stable work schedule."

Hyundai also paid for her to finish her bachelor's degree from the University of Oregon.

By 1999, according to the state Office of Economic Analysis, high-tech manufacturing employed 4 percent of the work force but accounted for 22 percent of the gross state product — the total amount of goods and services produced in Oregon — compared with 3 percent a decade earlier. Lumber and wood products, the former mainstay, fell from 9.4 percent to 2.2 percent of the gross state product over the same period.

As acres of new housing developments sprouted on former pasturelands and sport-utility vehicles began crowding out pickups on the state's highways, however, some began complaining that Oregon was eroding the quality of life that helped it attract new industry in the first place.

A coalition of environmentalists and anti-growth activists in Eugene battled the Hyundai plant for years. State government studied ways to spread the new wealth beyond the Willamette Valley. In Washington County west of Portland, where Intel, IDT, Cypress Semiconductor, TriQuint Semiconductor and other manufacturers employed thousands of people, officials worried that government services could not keep pace with growth.

That led the county to strike a deal with Intel in May 1999 that seemed to turn the rules of economic development inside out: In exchange for lucrative tax breaks over the next 15 years, the computer-chip giant agreed to create no more than 1,000 new manufacturing jobs and to pay a penalty of $1,000 per worker per year if it did.

End of the boom

But Oregon's growth surge was already behind it, though few realized it at the time. The Asian financial crisis had cut into the demand for Oregon's exports, from microprocessors to marionberries. Soon after that crisis began to ease, state economist Tom Potiowsky said, the Federal Reserve Board began raising interest rates, which affected manufacturers sooner than other businesses.

"Manufacturing sectors, particularly durable-goods manufacturing, tend to be very cyclical," Potiowsky said.

"They boom when times are good and slump when times are bad, and their downturns are deeper than other parts of the economy."

Fujitsu, which once employed 1,000 people in Gresham, shut down its plant late last year. HMT Technology, which made hard-disk drives at its Eugene facility and employed nearly 1,000 people at its height, closed last spring. Hyundai, battered by plunging prices for its chips, put its expansion plans on hold and shut down the Eugene plant last summer for retooling and laid off 600 people, including Cosgrove.

Even mighty Intel has trimmed its local work force by 1,000 jobs, mainly in sidelines such as Internet media and high-tech toys.

There has been plenty of pain to go around, from heavy manufacturing (truck maker Freightliner let go 1,080 people last year) to food processing (Pictsweet Mushroom Farms of Salem phased out production in November, idling 317 workers).

Boeing's post-Sept. 11 layoffs have had ripples here, too: 300 of the 1,500 or so employees of a parts plant in Gresham have been let go.

Overall, Oregon lost 78,000 jobs between its August 2000 peak and December 2001.

The sharp falloff has led some Oregonians to wonder whether the state relies too heavily on high-tech manufacturing and on out-of-state businesses rather than homegrown ones.

Talbot, Gresham's economic-development chief, said the state needs more research and development jobs and "smart industries" such as biotechnology and software — jobs that aren't as easily sent overseas as manufacturing jobs.

Gresham and three other Portland suburbs recently announced plans to build the "Oregon Science and Technology Park" as a future home for "knowledge-based" companies.

"Quite frankly, we have not done a good job in this state of attracting those kinds of spinoffs," Talbot said.

But Cortright argues that Portland's concentration of high-tech manufacturers is a long-term asset, though he says they should focus as much as possible on high-value products rather than commodities like cheap memory chips.

"Economies aren't like stock portfolios," he said. "The places that seem to do the best are the ones that have a critical mass of industry."

The news is hardly all bleak. LSI announced a few months ago that it would move its research and development staff from California to Gresham. Symantec, a software maker, kept its 770 customer-support and technical-service workers in Lane County, moving from cramped space in downtown Eugene to a new 190,000-square-foot facility in neighboring Springfield.

And Oregonians don't seem unduly stressed over the economic downturn. That may be because, so far, this seems to be an ordinary recession, not the sort of grinding, soul-deadening slump that settled over the state in 1980 and didn't really let up for a decade.

"I remember when people couldn't paint their houses or re-roof," said Sue Prichard , a real-estate broker in Eugene. "They didn't have any extra money to do anything. People would go anywhere just to get a job."

In November, after almost four months, Cosgrove was called back to Hynix. She's spent the past two months learning the manufacturing processes for the plant's new line of chips; she'll help train the other workers as they're called back. Chip prices have moved higher over the past several weeks, brightening Hynix's outlook.

But there's a new uncertainty: The plant's South Korean parent is deep in negotiations with Boise chipmaker Micron Technology, which could result in anything from an asset sale to a joint venture to a full merger. That leaves the Eugene plant's future — and Cosgrove's — up in the air.

"I'm not really sure if it's going to be a positive thing or a negative," she said. "I just wish they'd decide — I'm ready to find out what happens."

Drew DeSilver can be reached at 206-464-3145 or ddesilver@seattletimes.com.

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