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Monday, October 20, 2003 - Page updated at 12:00 AM

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Tech's tumble could turn to rebuilding

Seattle Times technology reporter

If Captaris learned one thing in tough times, it was to fall out of love with its wares.

The Bellevue company had spent years pushing a product that combined e-mail, voice mail and faxes into one inbox. While the technology was compelling, it wasn't critical — especially to businesses that had all but stapled their wallets shut.

Captaris recently sold the division to focus on business information-delivery products, a move that has boded well for the company.

"As the economy tightens, you get maniacally close to your customer," Chief Executive Dave Anastasi said of its change in strategy. "You start looking at what you can do above and beyond."

Captaris isn't the only company that seemed to find its footing during an otherwise lackluster year for the region. Of the 37 public technology companies The Seattle Times analyzed — companies listed in the weekly Technology Scorecard of this section — the overwhelming majority improved their bottom line for the first half of the year vs. the same period a year ago. Nowhere are those gains more apparent than in the tech-heavy Nasdaq, which is up 50.3 percent for the 52-week period ending Friday.

Still, as companies report quarterly performance numbers this week, the question remains: Is the regional tech downturn in the rearview mirror yet? Looking at various indicators — financial results, jobs, investments, office space — the picture is mixed, although there seems to be a gradual, albeit slow, improvement.

Mike Galgon, chief strategy officer of Seattle-based aQuantive, an online advertising-services agency, said companies had a better chance turning the corner if they made hard decisions early on, and focused on important customers and products.

"We saw the bottom some five to six quarters ago and have been growing since," he said.

Only five of the public companies The Times examined reported actual profit growth — Cray, Amgen (which acquired Seattle's Immunex), Getty Images, Microsoft and Expedia (before it was fully acquired by InterActive) — but 17 others narrowed their losses, and six more turned losses into profits during the first six months of the year.

Companies also started adding jobs again. Kirkland-based Nextel Partners, which holds the exclusive right to sell Nextel's services in midsize markets, said it plans to add 300 employees by year's end, plus an additional 200 to 300 more in 2004. Smaller, private companies such as Seattle-based online jeweler BlueNile estimate 15 to 25 additional employees for the year.

Sluggish job market

While that's good news for an industry that two years ago had dot-com graveyard Web sites dedicated to tracking the carnage, it hasn't been enough to move the state's job market forward.

During the state's recession, which lasted from December 2000 to December 2002, the Seattle, Bellevue and Everett area lost a combined 83,800 nonfarm jobs, according to the state Employment Security Department.

If the job market hit a low point last December, it's been bumping along the bottom since. Only two technology-job sectors added workers since the recession's end, the most prominent of which was the software-publishers category, which includes Microsoft.

The Redmond company added 3,847 jobs for the fiscal year ended June 30. While it doesn't break out employment figures via location, at least half of those new employees work in Redmond, a company spokeswoman said.

But those jobs were offset by cuts from other companies. As a whole, the software-publishers category has added 1,417 jobs since December 2002.

(Other companies that use the Internet as a means to do business — such as Amazon.com, Expedia.com and aQuantive — aren't factored into state technology-job figures. Rather, they're reflected in categories such as retail or transportation services.)

Contracting, not hiring

Tech companies such as Avidian have balanced workloads by hiring contractors instead of full-time employees. The software-development company said it plans to hire seven to eight contractors this year and 10 to 15 in 2004. Its projections for adding full-time employees next year: three to five, if times are good.

"The need to grow at warp speed and add new employees has diminished," Avidian Chief Executive James Wong said in response to a Times survey.

The labor pool may grow smaller still as technology companies move many coding jobs offshore, according to Tony Nash, research director at Portland-based New Economy Strategies.

Nash said the software industry has reached a level of maturity to where offshoring trends will start to mirror what happened in the garment industry 30 years ago, when the advent of ocean containers allowed companies to move production overseas and still meet tight deadlines.

"What I believe will happen, over the next five years, is we'll have mostly software-architecture jobs here," he said. "The emerging economies will take over the production-line coding and maintenance and later-version development."

For now, state labor economist Roberta Pauer said the overall economy has recouped some, but computer-system design companies and telecommunications companies continue to cut payrolls — a significant point since those companies represent business investment to a large degree.

Businesses remain cautious, she said, because of weakness in the national economy, markets abroad and cuts at Boeing. The state unemployment rate, at 7.6 percent, ranks third in the nation.

"This has not been a company town for 30 years, but Boeing is still a dampening factor," she said. "If you're a business and you're holding back on expansion and telecom and computer plans, you're being prudent."

Suresh Kotha, who teaches business strategy at the University of Washington, said companies moved out of a period where they made massive investments in information technology and are "taking a breather."

The UW, for instance, still runs its network of computers on the Microsoft Windows 2000 operating system, not the updated version, Windows XP. "These are incremental steps," Kotha said of tech spending. "There's no need to rush out and buy. It's kind of muddling along."

Another recovery factor — venture capital in local startups — is muddling along, too. Venture capitalists invested $206.1 million in 40 deals for the first half of the year, according to the PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree Survey. Those companies invested $568.3 million in 110 deals for all of 2002.

Office-vacancy rates also remain high in Seattle and Bellevue, although sublease space available — much of it managed by dot-coms locked into long-term contracts — has tapered off.

In Seattle, available sublease space peaked in the first quarter of the year at 1.9 million square feet and dropped to 1.5 million square feet in the third quarter. In Bellevue, similar available space declined in the last three months of 2002 and has remained around 250,000 square feet.

Whatever the case, sublease space remains a drain on the bottom line: Companies must pay for the unneeded space if they can't secure a leasor, or pay a hefty sum to break the contract.

Seattle-based RealNetworks took a $7.1 million hit in the second quarter for excess office facilities.

However, business seems to have picked up for companies such as Captaris, but not without some tough decisions.

Shrinking and chopping

In the past month, Captaris sold off two divisions, including its combined e-mail, voice-mail and fax technology. Some employees were cut as part of the sales. Staff size has shrunk to 350 from 504 three years ago.

Captaris has focused on its RightFax software line, which allows other businesses to receive and administer faxes and other important documents via e-mail.

That product has shown year-over-year growth for seven out of the past eight quarters. Roughly 93 of the Fortune 100 companies use it, the company said.

Meantime, Captaris has continued to expand overseas: 20 percent of its business comes from 40 countries outside North America.

CEO Anastasi said the company would like information-technology spending to pick up, but he's not allowing it to restrict its progress. Captaris is thriving, not surviving, he said — a point that is underscored by how its stock price has nearly doubled since the beginning of the year to $7.09.

"We've instilled a winning attitude, that you can be successful within a tough economic downturn," he said. "We're moving forward."

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com

Copyright © 2003 The Seattle Times Company

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