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O.C. Software Industry Sizzles : 300 Firms Arise Over Past Decade, Expand Amid Recession

November 15, 1992|DEAN TAKAHASHI | TIMES STAFF WRITER

Software sales are expected to grow 10.4% to $7.4 billion worldwide in 1993 from $6.7 billion in 1992, according to market researcher Dataquest Inc. in San Jose. PC sales are expected to grow at a slower 6.7% rate, to $49 billion.

"These days, consumers will spend more money on software than on hardware over the life of their computer," Jenkins said, similar to the idea of a music lover spending more for compact discs than for the compact disc player.

Veteran hardware companies, unwilling to give up their reputation for driving the state of the art in the computer industry, have reacted by introducing their own blends of software advances.

Western Digital last week announced that it had developed a computer chip technology that performs the functions of anti-virus software. The hardware, in the form of a set of computer chips, detects computer coding that acts like a virus and protects a hard disk drive's data from damage.

The anti-virus technology represents a hybrid of hardware and software functions that will become more popular in the future, said Charles Haggerty, Western Digital president.

During the past several years, FileNet Corp., Archive Corp., Emulex Corp. and Micro Technology Inc. have also begun making transitions from hardware-only products to those that also include software. Emulex in Costa Mesa began a transition to software two years ago when Robert N. Stephens, a former executive at Western Digital, took over as chief executive.

The company shed hundreds of its production workers, moved much of its manufacturing to Puerto Rico and acquired a 35-employee software company in Bellevue, Wash., to break into the network software market.

Now, software and hardware are interlaced in much of the company's products for both the computer chip markets and the networking industry, which has emerged to tie corporate PCs together in information networks.

"Today, you start with the solutions the customer wants and then decide how much of the product is in hardware and how much is in software," Stephens said. "The types of things that change often you keep in software."

Of 130 engineers working at Emulex today, 65 are software programmers. Stephens said he attempted some retraining, but without success. That meant some longtime Emulex workers had to be let go. It's also nearly impossible to hire former defense industry workers to do the work, according to Stephens.

"The reality is competitive forces will not allow you to retrain workers as much as you would like," he said. "We hire some college graduates, but we have to hire experienced people. The temptation is to say that hardware isn't profitable, let's go to software. It's a lot more meaty than that."

Isicad Inc. in Anaheim completed its transformation into a software publisher this year.

Originally a manufacturer of high-quality graphics computer workstations, the company revamped its strategy over the past five years and now produces software for computer-aided design.

The switch brought growth to Isicad. The company employs 300 people, including 100 in Irvine, or more than triple the number it had in 1987. Sales are about $40 million, compared to less than $20 million in 1987.

"We started the switch to software in 1987 and I'm damn glad we did it," said John Arnold, president. "If you look at the erosion of prices in hardware, it was really a no-brainer to see that we had to get out."

The company's greatest gamble was choosing the best of several available operating environments, or basic software system necessary to run computer applications. In 1990, Arnold branched out from Unix and invested in developing software for Microsoft's Windows platform for PCs. The transition was complete this April, and last week Isicad released its first Windows design software.

Despite the conversion to software product lines by hardware firms, the county's software industry remains considerably smaller than the concentrations of such firms in Silicon Valley, or the San Jose area, which is home to hundreds of software firms. The Seattle area, which gave birth to industry giant Microsoft Corp., and the Boston area also outshine the county.

However, Orange County companies don't have to worry about big software companies snapping up all the best job candidates, said David Samuels, chief executive of State of the Art Inc., the Irvine accounting software company. And the county has managed to attract additional software companies. Magic Software Enterprises Inc., a subsidiary of an Israeli company, moved to Irvine last year as part of an expansion into the U.S. market.

The company has 31 employees and plans to expand to 50 by the end of 1993. David Assia, chief executive of the parent company, said his firm chose Orange County over Silicon Valley and Boston because it found expenses would actually be lower here. Surprisingly, no local officials courted his company, Assia said.

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