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A Red-Ink Year for High-Tech Stocks : Industry Shakeout Sent Prices Tumbling for County Firms

January 03, 1985|ROBERT HANLEY | Times Staff Writer

For many stockholders of Orange County-based companies, especially high-technology firms, 1984 was lettered with red ink.

Although some local companies fared well during the year, stock-price drops were more dramatic than the rises. Many issues ushered in the new year with prices that were half what they were at the beginning of 1984. High-tech firms were especially hard hit as the contractions of shakeout and consolidation in the industry left their mark.

"We are going through a severe period of economic Darwinism," said Peter Stearns, a high-tech analyst with Wheat First Securities in Richmond, Va. "I think the problem right now is excessive confusion among investors as to who is going to survive."

Many stocks were vastly overrated during the high-tech boom years of 1982 and 1983, analysts say, blaming the drops in part on jittery investors who bolted for the door at the first sign of trouble.

But Wall Street smiled on three Orange County health care companies: Lake Forest-based Westworld Community Healthcare Inc., Santa Ana-based Greatwest Hospitals Inc., and Comprehensive Care Corp. of Newport Beach. Those three saw rises in their stock prices ranging from 9% to 50%.

A few high-tech issues escaped what one analyst called a "slaughter" in the industry, but most companies were worse for the wear at year's end. Few broke even. Western Digital Corp. of Newport Beach, one of Orange County's largest high-tech companies, closed the year at $8.63, just a fraction lower than its 1984 opening price of $8.88

Among Orange County's winners was EECO Inc. of Santa Ana. EECO posted a modest 9.8% gain in stock value during the 12-month period, going to $15.25 from $13.88, making it a rarity among high-tech issues.

Another Orange County winner was Swedlow Inc., a Garden Grove manufacturer of acrylic and armor products for military and commercial aerospace applications. Swedlow stock sold for $9.25 a share Jan. 3, 1984, and rose 27% for the year to close at $11.75 Monday.

The news was far worse at Datatron Inc. in Garden Grove, Wespercorp of Tustin and Emulex Corp. of Costa Mesa, however. All three high-tech companies saw their stocks drop at least 61.5% from 1984 opening prices.

Other Orange County losers were Applied Circuit Technology Inc. of Anaheim and Quality Systems Inc. of Tustin. Applied Circuit's stock plunged more than 87% during the year to $1.44 from $11.50. Quality Systems, a supplier of computer systems for dental offices, had its stock drop 83.1% to $2.50 a share Monday from $14.75 last January.

Large Blocs Traded

Datatron, a manufacturer of high-tech test equipment and computer peripherals, saw its stock plummet more than 99%, to 22 cents a share at the close of over-the-counter trading Monday from $2.38 a share last Jan. 3.

Harry Pope, Datatron's chief financial officer, blamed the drop on several factors, including large blocs of stock being traded by former company officials in 1984, which he said drove its price down and the current computer industry shake-out.

Datatron, Pope said, acquired a subsidiary in 1983 to distribute microcomputers, but aggressive marketing by IBM caught the industry--and Datatron--by surprise. "Our sales went to about 50% almost instantly in May and June," he said. "We're just a symptom; it also happened to the industry."

Since then, Pope said, Datatron has abandoned microcomputer sales and has elected to concentrate on add-ons and "enhancement products" instead.

The key to Datatron's survival, Pope believes, is to find a specialty that is too small for IBM to be interested in. "For IBM to enter any market is like throwing the rock of Gibraltar into a swimming pool," he said. "Even if the rock misses you, the wave will carry you over the fence."

Wespercorp, a manufacturer of computer peripherals, is another company that got socked on Wall Street. Its stock dropped to 88 cents a share from its Jan. 3, 1984, close of $8.75.

Two years of losses brought Wespercorp to the brink of bankruptcy in late 1984, but a recently agreed-to bail-out package, including a $2-million line of credit from Union Bank, has staved off Chapter 11 and given the company a new lease on life. Wespercorp officials admit however, that profits are still a long way in the future.

One local high-tech company whose stock took a drubbing in 1984 despite healthy profitability was Costa Mesa-based Emulex Corp. Emulex stock was selling in February for $20.75 a share after a 2-for-1 split but closed down to $8 a share Monday in over-the-counter trading.

Although 1984 revenues continued their upward movement, lower earnings for Emulex, coupled with investor nervousness, triggered heavy trading more than once during 1984, driving the company's stock downward, said Malcolm Green, Emulex's chief financial officer.

"We have always been a profitable company," he said. "But because we were only good and profitable instead of super profitable as we have been historically, confidence levels fell lower than was justified."

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