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Orange County Firms See Slow Growth in '85

April 21, 1985|BRUCE HOROVITZ | Times Staff Writer

Carmello Santoro, president of Silicon Systems, was looking for big things for 1985. In September, he had visions of 50% profit growth for the year ahead.

Now, he says, those visions were a mirage.

Santoro says he'll be happy to get his Tustin-based computer electronics firm out of fiscal 1985 with flat earnings. With a general lethargy in the personal computer business and increased competition from abroad, "we've had six months of nothing but depressing news," Santoro said.

Although Santoro's case may be an extreme example, a growing number of Orange County executives say the recovery is side-stepping their companies. "Grow slow" seems to be latest motto of the normally explosive local banking industry and many area executives--from retailers to defense contractors--have scratched 1985 as a big growth year.

Many say they would be tickled just to get through 1985 showing some profit.

The biggest roadblock is general economic uncertainty. With a cloudy outlook, executives are slow to order materials, make products and hire workers. Proposed tax reform also has many executives twiddling their corporate thumbs in 1985, as do continued high interest rates.

One thing is certain: Foreign competition has never been stronger, and this has forced prices down, eating away at profit margins.

Although there are some notable exceptions, 1985 is generally viewed as a year to gear up for what is hoped will be a more favorable 1986.

California Employment Development Department officials said the plunge in Orange County's unemployment is over. Although the rate of unemployment dropped about a third in 1984, it is expected to stay virtually stagnant this year. More than 29,000 county residents dropped off the unemployment rolls in 1984. But the tally of unemployed is expected to be cut by fewer than 2,000 in 1985.

This is tough stuff for many firms to swallow.

And Santoro's Silicon Systems is a case in point. Company profits jumped 150% between 1983 and 1984. All appeared rosy. But massive cancellations of orders began pouring in late last year, and the company has been forced to clamp severe restrictions on corporate travel and thin 40 employees from its 650-person payroll. Santoro said it took years to assemble a skilled semiconductor work force. "I'm very hesitant to go through with a massive ax."

Smith International Inc., however, has not been at all hesitant to tighten its ranks as the oil-service business continues to shrink. Since January, the Newport Beach company has laid off nearly 1,000 of its 8,000 workers. Most of those handed pink slips were from the tool division in Irvine.

Late last year Smith projected that U.S. domestic oil drilling would fall 13% in 1985 because of soft oil prices. "Things are going just about as we had feared they would," said Paul Russell, a Smith vice president. "We hope further layoffs will not be required, but no company can make unequivocal promises." As a cost savings measure, last month the company moved its headquarters to smaller offices.

Orange County's biggest employer, Hughes Aircraft Co.'s Ground Systems Group, is facing a year dotted with question marks. With the company up for sale, the 14,300 workers at its local division in Fullerton are wondering what the future holds, and possible cuts in defense spending are making Hughes officials jittery.

Indeed, the gravy days at Hughes appear to be over. "We're not looking for the phenomenal growth that we saw seven years ago," a company spokesman said. In fact, growth has slowed markedly. The value of new contracts, which jumped 212% in 1978 and 25% last year, is expected to rise just 8% this year.

Although the company recently signed a $24-million contract to build torpedoes for the Navy and is negotiating with the Air Force on a $1-billion contract to build satellite platforms, it lost out on some major defense contracts last year when it was under-bid by competitors.

Just four months ago Fluor Corp. Chairman David S. Tappan Jr. cited growing order backlogs when he pronounced, "The economic recovery has finally reached our industry."

But now Fluor's future is uncertain. On one hand, orders for the first quarter of 1985 are up nearly 100% compared with the same 1984 period. On the other hand, the Irvine construction and engineering company posted a $32.6-million loss for the first quarter as the continued decline in energy prices and high interest rates have taken a toll.

Cuts in the company's 1985 capital spending will be far deeper than had been expected even a few months ago. In November, Fluor said 1985 capital spending would be chopped 47% compared with 1984. In a revised statement, Fluor now says high interest rates have forced a 65% drop in capital spending plans for the year.

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