Computer Industry's Bright Future Dims : Layoffs Become Commonplace at High-Tech Firms in 'Floppy Valley'

By JAMES BATES

Nov. 5, 1985 12 AM PT

Times Staff Writer

As recently as two years ago, the area stretching from the West San Fernando Valley into southern Ventura County was viewed as something of a precocious little brother to Northern California’s Silicon Valley.

It was hardly in the same league as Silicon Valley. But a handful of local companies, among them Tandon and Vector Graphic, emerged from the garages and kitchen tables of a cluster of bedroom communities to become some of the computer industry’s brightest stars.

The area even got its own high-tech nickname, “Floppy Valley,” as in floppy disk drives. With a concentration of companies making drives, a key part of a personal computer’s memory system, the area became the center of the nation’s disk drive industry.

But the promise of a robust, steadily growing computer industry in the area is fading--a fact made most painfully clear by layoffs. Rarely does a month go by without a layoff announcement. Companies that once were highly profitable and that routinely doubled in size every year are now showing huge losses or facing the prospect of losses, and their workers are paying the price.

Payrolls Cut by 4,000

Six firms that were among the largest and healthiest in the area--Tandon, Dataproducts, Computer Memories, Informatics, Memorex and Micro Peripherals--have cut their local payrolls by about 4,000 since early 1984. Many of those jobs appear to be gone permanently because companies have shifted operations overseas, primarily to the Far East, where products are made much more cheaply.

An assembly job that pays $5 to $6 an hour in Chatsworth typically pays only $1 an hour in Singapore, according to figures supplied by the Singapore Economic Development Board in Los Angeles. Moreover, component prices, which often account for as much as 90% of the expense of making a disk drive, cost up to 40% less in Singapore than in the United States, the board says.

“Some of those jobs will never come back,” said Irene Bauske, state Employment Development Department (EDD) labor analyst for Los Angeles County, referring to high-tech employment in the Valley area. “It’s very possible that the level for the industry will never be as high again as it was two years ago.”

The slumping employment at local computer equipment companies is a symptom of a painful retrenchment throughout the industry. Companies are suffering from soft demand, sagging prices, a glut of manufacturers and fierce foreign competition, especially from Japan.

Estimates Difficult

Estimating the extent of computer industry layoffs in the Valley area is complicated. Some companies have cut their staffs quietly in small increments, and others have nearly disappeared.

Vector Graphic, once a fast-growing personal computer company in Thousand Oaks, now employs fewer than 40, down from 425 in 1982. Micro Peripherals, a disk drive firm that once employed 500 in Chatsworth, is liquidating.

Economic statistics for the San Fernando Valley area also are scarce. State officials, however, estimate that the number of workers in office, computing and accounting-equipment manufacturing in Los Angeles County--most of whom work in the Valley or South Bay areas--has steadily fallen since reaching a high of 24,500 in 1983. In September, the number of workers employed in that sector of the economy stood at 21,600, according to statistics released by the state last week.

The number of layoffs hardly puts the Valley in the same class with “Rust Belt” communities in the Northeast and Midwest that have been devastated by layoffs in heavy industries such as steel. Although several thousand computer-industry jobs have been eliminated, employment and industry officials say that the layoffs have not caused widespread problems in the Valley because its economy is diverse and healthy enough to absorb most of the impact.

Indeed, they say, employment in service fields such as retailing and health care far outnumbers computer-related jobs. In Los Angeles County, there are more than 600,000 people employed in retail jobs, including restaurant workers.

“There haven’t been enough layoffs to make a visual effect,” said James Heaney, district administrator for the EDD office in the Valley.

Some Firms Healthy

Employment officials add that some technology companies, especially those in aerospace and defense, are very healthy. Northrop, for example, which employs more than 2,100 at its Ventura division in Newbury Park, is planning to add 250 workers there by next year.

And, from a historical perspective, the computer-industry layoffs are small contrasted with the aerospace layoffs that pummeled the Valley in the late 1960s and early 1970s. In 1970 alone, nearly 200,000 aerospace workers in Southern California were out of work because of cuts in defense and space programs.

The loss of computer-industry jobs has a substantial effect on the local economy, however, rippling into various other businesses. Larry J. Kimball, a UCLA associate professor who heads the school’s business forecasting department, says that, as a rule of thumb, the dollars generated by one high-technology job pay for two jobs in service industries such as retailing.

The computer-equipment companies’ suppliers also are hurt by the so-called ripple effect of the industry slump.

Long-Term Contracts

One example is Computer Optical Products, a 2-year-old Chatsworth firm that makes parts used in disk drives.

Because it had long-term contracts with companies such as Computer Memories, the firm didn’t start feeling the financial pinch until August, Computer Optical President Kees Van Der Pool said. The firm cut its work force from a high of 80 in July to 55 now and recently opened a plant in Hong Kong. Van Der Pool said the company must make its products overseas because “you can’t compete manufacturing in Chatsworth” with Japanese companies who enjoy lower production costs.

“We rode the boom and made a lot of money,” Van Der Pool said. “Now, we see the inevitable happening. We see the move offshore and see the Japanese competition rearing its ugly head.”

Some computer-industry workers find it hard to get new jobs, especially those in less skilled positions. Memorex officials estimate that as many as 95% of the professional workers at the Westlake Village plant, which it phased out over the first half of the year, have found work.

Lower Success Rate

But the success rate for hourly employees, who made up about two-thirds of the 710 workers once at the plant, is about 70%, the company said. Most of those who found jobs got them in Southern California, Memorex said.

State unemployment officials also report that the market is especially tight for computer-industry workers. “I had a client at my desk recently who had been an electronics technician in the computer peripherals field,” said Harriet Baer, who counsels technology workers for the EDD in Van Nuys. “He said he’s never seen the market this dry.”

Those prospects have workers such as Vernon Atkinson bracing for a long period without work. Atkinson, who has worked in quality control and marketing for computer industry firms for 16 years, was dismissed in late August from Pertec Peripherals in Chatsworth.

Recognizing that he might not find work immediately, Atkinson put his 1983 Ford Mustang up for sale and his family on a tight budget. They no longer eat out, he said, and have cut spending on luxuries such as desserts and rented videocassettes.

Some Jobs Pay Less

Some workers find that the available jobs pay less. Joseph Lloyd, who was fired last month as manager of product marketing at Computer Memories in Chatsworth, said he is getting about two job interviews a week but doesn’t expect to find a comparable job until at least January.

“There seems to be jobs out there. A couple of employers are interested in me, but they don’t want to pay the money. They all seem to want to see what the economy is going to do,” Lloyd said.

Besides the retrenching by some firms, sluggish growth at their relatively successful counterparts has tightened the industry’s job market. Datafusion, a small Calabasas-based company that makes data storage and retrieval systems used in defense intelligence work, was expecting its sales to triple this year to $3.5 million as it started selling its products to private industry.

But the company has found customers reluctant to spend, Datafusion President Richard Bird said. The firm now expects sales this year to be only about $1.5 million, he said, a slight increase from a year earlier.

Since the end of World War II, the Valley has been the home to technology companies, especially aerospace and defense firms that were attracted because of the availability of land and the Southern California climate and life style.

Attractive Labor Pool

For many of the same reasons, computer-industry firms were attracted to the area in the 1970s and early 1980s. The large numbers of engineers and technical workers already in the area provided an attractive labor pool. After the first companies began operating, new ones were spun off as workers left to start their own ventures.

A special problem for local companies came about with the evolution of the disk drive business into one that hinges heavily on the price of the equipment, rather than the quality of its technology.

George Crandall, a partner with Brentwood Associates in Los Angeles, one of the nation’s largest venture-capital firms, said disk drives have become more like commodities than highly sophisticated products because of the slowdown in technological change and the emergence of standard kinds of equipment. As a result, customers simply want the cheapest disk drives available.

That, in turn, paves the way for foreign competitors with low labor and supply costs to enter the business.

Micropolis Doing Well

To Crandall, that partly explains why the problems for the disk drive firms seemed to hit the Valley so quickly. He and industry officials also say it explains why a company such as Micropolis, a Chatsworth disk drive maker, is doing well despite the industry downturn. By continuing to upgrade its products--sophisticated, high-capacity disk drives--the company prevents foreign competitors from taking away its market.

Because of the foreign competition, industry experts say, the area’s computer industry will shift its focus to research and development, marketing and servicing. That, they say, will mean fewer employees.

Crandall, the venture capitalist, said that, in retrospect, many of the domestic disk drive companies and the venture-capital firms that backed them failed to recognize the need to invest big in plants and equipment. Had they done so, he said, they might have fared better against Japanese manufacturers.

David Hornbeck, director of business research at California State University, Northridge, said many companies added scores of workers based on what now appear to be naive, overly optimistic growth forecasts made in the early 1980s for the personal computer industry.

“Sure they’ve laid people off. But at the same time you could argue that they probably shouldn’t have hired a lot of these people,” he said.

HIGH-TECH LAYOFFS

Here are some major job reductions announced since early 1984 by computer industry companies based in the San Fernando Valley and in southern Ventura County.

Autologic (automated typesetting equipment)

June, 1985: 50 in Newbury Park.

Computer Memories (disk drives)

December, 1984: 100 in Chatsworth.

July, 1985: 177 in Chatsworth.

August, 1985: 160, mostly in Chatsworth.

Datametrics (printers used in the defense industry)

September, 1985: 60 in Chatsworth. Dataproducts (personal computer printers)

1984: 200 in Massachusets; 500 in Europe.

May-July, 1985: 100 in San Fernando Valley and 300 in Irvine.

July, 1985: 250 in San Jose.

October, 1985: 200 in Puerto Rico.