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THE TIMES 100: THE BEST COMPANIES IN CALIFORNIA : INDUSTRY REPORT CARD : STABILITY, AND DRAMA : Amid Steady Progress, High-Tech Stole the Show

April 24, 1988|BRUCE KEPPEL | Times Staff Writer

There was plenty of drama in California business last year. Industries saw their fortunes reversed, for better and for worse. But overall, 1987 was a year of steady progress in the state's economy.

First, the drama and the volatility: High-tech firms rebounded impressively from oversupply problems and low prices in 1986. Profits more than quadrupled to account for 17% of the $12.1 billion in total profits reported by the 989 enterprises included in The Times 100 survey. A year earlier, the sector accounted for a meager 4% of the total.

Energy companies also scored a significant boost in profits, as oil prices began a rebound that showed up richly on the bottom line because of previous severe cost cutting. Revenues increased 19% last year, as they had in 1986. Profits among the state's energy companies accounted for 22% of the total 1987 earnings recorded by the 989 firms surveyed compared to only 13% the previous year.

The story was entirely different for banking firms--especially at BankAmerica--which took a beating as they faced hundreds of millions of dollars in bad loans, particularly to financially strapped developing countries. Financial service companies generally saw revenues increase slightly, but accounted for 21% of the $367.4-billion total for all 989 firms, down from 22%. Financial service profits, however, dwindled to a mere third of 1986 earnings.

Despite the sometimes queasy up-and-down motion in certain segments, the California economy as a whole demonstrated the steady strength that is a natural outgrowth of its unusually broad mix of business activity. Profits were stable for the giant utilities, retail and wholesale companies and the aerospace and defense industries, among other areas.

Such a sector-by-sector analysis provides a three-dimensional picture of the California economy that is superior to simple listings of the state's largest companies, observed Larry J. Kimbell, director of UCLA's Business Forecasting Project.

"Size-oriented lists rank the giants among us, which are really multinational companies that happen to be located here, even if they only do a small fraction of their business in the state," Kimbell explained. "And companies included in size rankings tend to be slower-growing, well-established companies.

"But the real growth--and if you want to see the innovations and real technological leadership--that comes from much smaller firms, and these other rankings tend to pull these out. So rankings on return on equity are indicative more of the future direction of the economy and not just a body count and history."

The top-ranking Times 100 companies, measured in terms of profitability, do not include the state's best-known names, but rather firms such as Franklin Resources, an investment management firm in San Mateo, and Rexon, a Culver City maker of computer storage products. And other leaders make and sell soaps and cosmetics, women's clothing, specialty chemical products, pharmaceuticals and computer software.

Meanwhile, Chevron, Arco, Pacific Telesis and Southern California Edison naturally dominate the rankings of sales and total profits. Such enterprises constitute the state's "economic backbone," suggested Kevin Colosimo of MZ Group, the San Francisco consulting firm that conducted The Times 100 survey.

But even this backbone economy is remarkably varied, observed Pauline Sweezey, chief economist for the state Department of Finance. And some industries are almost always doing well enough that the California economy enjoys a high degree of stability--compared, for example, to oil-dependent Texas.

So, despite the energy sector's big earnings drop in 1986, profits for all industrial, financial and service companies actually increased that year, however slightly--totaling $11.9 billion, compared to $11.8 billion in 1985. Then, last year, oil profits helped total profits advance, if modestly, despite the misfortunes of the banking industry.

Size and diversity of the state's business base provide firm but fertile ground for new enterprises to take root, economist Sweezey said.

"The very large businesses--the utilities and oil companies, for example--are very stable in terms of employment and in terms of sales," she said. "They are very solid elements of the economy. Smaller businesses tend to have a lot more volatility."

That volatility is demonstrated by the performance of high-tech firms, whose aggregate sales grew last year by 31.2%. Not surprisingly this sector is marked by many relatively small companies. There were 255 high-tech companies, dividing sales of $37.1 billion and profits of slightly more than $2 billion. Similarly, 67 electronics firms together generated more than $5 billion in sales and $96.7 million in profits (up from virtually nothing in 1986 and $35 million in 1985).

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