Orange County Soars in Exports of High-Tech : Foreign trade: While much of the industry stumbles, county firms seem to be thriving in the international market.

IRVINE —  After months of fussing, Gene Lulast week finally kicked off a grueling, seven-day “road show” to the financial capitals of Europe to get the needed boost for Advanced Logic Research Inc.’s pending public stock offering.

Lu, 35, says he detests marketing, but this trip could be ALR’s ticket to the global market. By raising $30 million through the offering, the Irvine personal computer maker hopes to finance a major international expansion and set up sales offices in Western Europe and the Pacific Rim, where demand for PCs is strong. And its new status as a public company should enhance ALR’s image with its foreign customers, who accounted for 21% of the company’s sales last year.

ALR now has sales offices in Singapore and London and plans to open a Munich office later this year in anticipation of plans by the 12 nations of the European Economic Community to integrate their economies.

It is not easy for high-technology companies to export. In an effort to prevent restricted technology from falling into the wrong hands, the U.S. government studiously tracks the final destination and intended use of high-tech exports.

Despite this hurdle, ALR and many other local companies seem to be thriving in the international market at a time when much of the rest of the high-tech industry is stumbling.

In fact, Orange County was the only area in the nation--including Northern California’s better-known Silicon Valley--to post an increase in export-license applications in 1989, government trade figures show. The applications are an indicator of future overseas sales.

And, just as impressively, the value of Orange County high-tech exports skyrocketed last year to $6.2 billion--a 67% jump from $3.7 billion in 1988.

The data suggests that Orange County companies are on the cutting edge of technology, said Michael Liikala, who heads the Bureau of Export Administration’s western regional office in Newport Beach.

More importantly, the figures show that local firms are increasingly active in international trade, he added. And analysts said they see no reason why the county’s export success shouldn’t continue well into the 21st Century.

“A lot of the start-up companies here have grown and matured with the county, and that’s the reason why they’re looking to the global market to expand,” said Phil Schimel, who follows the local electronics industry for KPMG Peat Marwick, a Costa Mesa accounting firm.

Take AST Research Inc., for instance. After nearly a decade, the Irvine firm has become one of the top five manufacturers of IBM-compatible personal computers in the nation. And as AST has grown, so has its international business--up from 8% of total sales five years ago to 35% last year.

Many of the county’s largest technology firms now receive “a significant portion of their annual worldwide revenue” from abroad, Schimel said, citing the examples of Western Digital Corp., MAI Basic Four Inc. and Beckman Instruments. Foreign sales accounted for roughly half of Western Digital and Beckman’s business last year, while MAI did about 55% of its business abroad.

The county’s high-tech industry is mostly composed of relatively small, young and nimble companies that react quickly to market changes. Many of these firms produce products for certain specialized markets at home and abroad. Moreover, the county--as a gateway to booming Pacific Rim trade--has been coached early on the lessons of fierce competition from Japan and the growing economic might of South Korea, Taiwan, Hong Kong and Singapore. Also, the international background of some of the top executives that settled in the county further fueled the interest in global trading.

For one thing, younger managers and smaller companies tend to adjust more rapidly to changes in the international business environment than their older, bigger counterparts. And this pool of relatively young management teams has been one of the major forces of change in the county, according to Jeff Kilpatrick, president of Newport Securities, a Costa Mesa investment firm. And they have been a factor that fed the growth of export-license applications in the county, he said.

Because many Orange County companies thrive by catering to certain niches in the world market, they have become especially sensitive to shifting market demand and technology. This has pushed the companies to explore advanced technology, such as high-speed computers, to survive the tough competition from larger, better-financed companies like International Business Machines, Apple Computer and others.

“Orange County companies manufacture very unique high-technology products for very specific applications,” Kilpatrick said. This includes products made by Archive, which is the largest manufacturer of quarter-inch tape-drive systems used as a backup device to store computer data. The county is also home to a host of companies, including Emulex Corp. and Distributed Logic Corp., that make enhancement products for computers made by Digital Equipment Corp., which has customers worldwide.

Also, the presence of major aerospace companies, such as Rockwell International Corp. and Hughes Aircraft Co., has served as the magnet for these companies to settle in the county, Kilpatrick pointed out.

A number of founders of Orange County’s largest high-tech businesses are foreign-born: for example, ALR’s Lu, a native of Taiwan; AST co-founders Safi Qureshey and Tom Yuen, natives of Pakistan and Hong Kong, respectively, and CMS Enhancements Inc. founder Jim Farooquee, also a Pakistani native.

“Having come from a foreign culture, we are much more sensitive to the international markets and we have a more global view of the market,” Qureshey said. “You understand how the world works, you’re more open and receptive to changes. And this has prepared us for international competition.”

James Doti, a Chapman College economics professor and spokesman for the university’s Center for Economic Research, said the county’s extremely expensive land costs are an incentive to local companies to expand their business overseas. “The people who live here must be more productive in order to generate higher income to support the higher housing prices,” he said. “And they look for opportunities to sell abroad.”

A survey of key executives from 750 U.S. electronics companies indicated that the industry will face increasing foreign competition and will have to look overseas to fuel its growth in 1990s.

The survey found that “virtually all of the chief executives of companies in the electronics industry believe globalization is absolutely critical in the 1990s,” said Stephen Almassy, national director of computer industry services at the accounting firm of Ernst & Young, which conducted the survey.

Many Orange County companies have been exporting for years and are keenly aware of the need to do business overseas, Kilpatrick said. But globalizing the operations of small companies will not come easy, he added, and many may have to go public--like ALR--to finance this expansion.

“We have one of the most highly educated populations in the country because high-tech companies in the area demand sophisticated employees,” Kilpatrick said. “They are extremely up-to-date with what’s going on in the world and with technological advances in their special areas.”

Department of Commerce officials attributed the nationwide slowdown in export-license applications to an easing of restrictions on the type of personal computer technology that can be shipped abroad without a license. For example, PCs powered by the industry-standard Intel Corp.’s 286 microchip no longer require a license.

“Because we have decontrolled a number of lower-end products, California high-tech companies, as an example, were able to benefit from it,” said Liikala, the Commerce Department official. “That’s the reason why license applications have dropped in other counties in California and in the rest of the nation.”

In Orange County, however, the easing of export laws did not have as big an impact as in other parts of the country.

“When the Commerce Department decontrolled the export of 286-based computers in 1989, many Orange County computer makers had already begun producing” computers that used more advanced chips such as the Intel 386 and 486, said Greg Shortell, vice president-international of Emulex Corp., a Costa Mesa computer products manufacturer.

This means that companies producing 286 personal computers can ship their product abroad more quickly, with much less government red tape. But companies hoping to export higher-powered computers will still need Commerce Department approval.

California companies not only have been leaders in developing new technology, they have also accounted for one-third of all export-license applications. Although the dollar value of export-license applications was up last year, the total number of applications fell to 82,000 from 96,000 in 1989. In that year, California firms filed 23,569 applications, down from 26,539 a year earlier, Commerce Department figures show.

In California, the Los Angeles area suffered the largest drop in applications, from 3,568 in 1988 to 2,836 in 1989.

Overall, Commerce’s move to ease restrictions of high-tech exports to the overseas market as a result of a thaw in East-West relations has boosted the export of U.S. electronics products in the last two years, according to the Electronic Industries Assn.’s office in Irvine. U.S. exports of electronics products reached $65.2 billion in 1989, up from $55.5 billion in 1988, the association reported last week.

Dirk Eastman, Western Digital’s senior vice president for worldwide sales, said the county’s export success signals a growing international acceptance of locally produced electronics goods.

Some local computer executives say their overseas business has picked up, in part, because of the weaker U.S. dollar. This “makes our product affordable and, like us, a number of the companies have increased the breadth of their products,” said Frederick Judd, chief financial officer of CMS Enhancements Inc. in Tustin, a supplier of disk drives and other personal-computer products.

Judd said that 15%, or $22 million, of the company’s total revenue in 1989 came from the foreign market.

Because many Orange County companies have been exporting their high-tech products for years, they have kept abreast of changes abroad and are ready for the changes now emerging in the EEC, Eastern Europe and the Pacific Rim.

“The most promising markets we see in the Pacific Rim countries are Japan, Taiwan, South Korea and Singapore,” said Shortell of Emulex. “We see Spain and Italy as the fastest-growing markets,” where many companies have been automating their manufacturing plants.

Liikala, the Commerce Department official, expects local companies to remain in the vanguard of leading-edge technology in the years ahead.

“With signs pointing to increased East-West trade, I expect the county’s companies to be even more active in international trade,” he said.

Orange County’s High-Tech Exports Soar Value of Orange County Exports, By Major Sector. In millions of dollars: Led by explosive growth in the computer and electronics sector, exports of high technology by Orange County firms have more than tripled in value since 1987-surpassing both Los Angeles and San Francisco. More than 9% of the country’s high-tech exports last year were from the electronics sector, up from 88% in 1987, according to export license applications filed with the U.S. Commerce Department. California Export License Applications, 1989 In percent of all applications and billions of dollars per region: Los Angeles: 12% $4.7 Orange County: 14% $6.2 San Jose: 38% $22.2 San Francisco: 20% $4.8 Other: 16% 1987: 26,950 1988: 26,539 1989: 23, 569 Orange County Exports Value of export license in billions of dollars: 1987: 2.03 1988: 3.72 1989: 6.20 Computers/ Electronics Lasers. High-speed computers. Missile guidance and tracking systems. Telecommunications equipment capable of high transmission rates. 1987: 1,760.0 1988: 3,560.0 1989: 6,030.0 Chemicals / Metal Alloys Titanium alloys. Superconducting materials. Chemicals used in etching circuitry. Kevlar, used in bullet-proof vests, and similar materials. 1987: 16.4 1988: 6.1 1989: 6,030.0 Industrial Equipment Computer controlled machine tools. Machinery used in manufacturing jet engines. Manufacturing and testing equipment for optical fiber and cables. 1987: 121.6 1988: 74.5 1989: 47.2 Transportation Equipment Military aircraft, helicopters and parts. Civil aircraft with jet, turboprop or turboshaft engines, and the engines themselves. Inertial navigation systems. 1987: 52.7 1988: 57.4 1989: 81.8