As part of a growing industry-wide battle to cope with runaway film production, Arleta-based special effects firm MastersFX Inc. has opened a second studio in Vancouver, B.C. The fact that nearly half of the company’s expected $2 million in revenue this year will come from U.S. production companies doing business in Canada made the decision easy, said Todd Masters, MastersFX Inc. owner and president. “You can’t ignore the fact that so much business is done in Canada,” said Masters. Before setting up the office, Masters and his staff have commuted frequently between Los Angeles and Vancouver to do business. At this point, 15 of his 50-person staff work in Canada. Masters’ move north is only the latest in a continuing migration by companies, both large and small, trying to hang on to business, even as production is headed away from Hollywood. Already, some of Hollywood’s biggest studios and related firms have gone north to take advantage of the low taxes and the cheap labor, said Karen Constine, director of the California Film Commission. Studios like Sony Pictures, Paramount Pictures and the Walt Disney Co., and foundations of the film industry like Woodland Hills-based motion picture camera maker Panavision Inc. have all opened facilities in Canada in recent years. Los Angeles-based Lions Gate Entertainment Inc. built its own film studio with nearly a dozen soundstages in Vancouver where the weaker Canadian dollar buys more than the U.S. dollar. Smaller companies that constitute the backbone of the Valley film industry are also finding the move inevitable. Companies like Kushner-Locke Co., Gekko Film Corp., Atlantis Alliance Group and Levy-Kramer Productions all now operate second offices in Vancouver or other parts of Canada. “It’s basic economics. You get these budgets that just won’t allow you to shoot in L.A.,” said Tim Kramer, a partner with Levy-Kramer Productions in Los Angeles, who last year opened a permanent production office in Toronto. According to a 2000 study commissioned by the Directors Guild of America and the Screen Actors Guild, American-financed film and TV productions done outside Los Angeles resulted in a $10.8 billion loss to the U.S. in 1998. That dwarfs a similar figure of $2 billion in 1990. The study showed that Canada accounted for 18 percent of all runaway productions. Mark DesRochers, director of the British Columbia Film Commission, said L.A.-based production activity in his Canadian province has grown tenfold in the last 10 years. “Companies find it much easier and less expensive to come work here,” DesRochers said. Panavision, for instance, established its first office in Canada in 1978 and opened two others in the early 1990s, said Jeff Flowers, general manager of the company’s Vancouver office. Paramount Pictures, Universal and Sony Pictures all opened studio facilities in Canada in the 1990s. “Production has been growing every year and it’s clear that Canada is very cost-effective for companies coming here,” Flowers said. MastersFX vice president Sean Taylor estimates the company spent about $100,000 to open its Vancouver office, which handles work for HBO’s drama series, “Six Feet Under.” “But we have a lot going for us, with a lot of contacts and referrals. It’s really about the people you know.” Not every Hollywood firm, however, is headed north. And some that have are already back in the San Fernando Valley. Burbank-based XFX Inc. opened a Vancouver office in 1997, only to close it in 1999 because the volume of business coming its way didn’t justify the expense. “It just didn’t work out,” said Taylor, a former technician with the firm. Companies like Burbank’s Jim Henson Productions, which makes the Muppet films and runs a creature and makeup shop for “Sesame Street” and other shows, said they have no plans to open an office north of the border. MastersFX, which specializes in rubber creatures and digital animation, was established by Masters in 1986, with $250,000 in revenue that first year and $1.8 million last year. Masters said his enhanced presence in Vancouver should help boost what has so far been a flat year revenue-wise. “It’s been a really dry summer for a lot of filmmakers. There was a lot of production last year because of the threat of the writers strike, but it dropped off this summer and it hasn’t really come back. But we’ve been fortunate and we’ve managed to get a few television series going that allow us to have consistent production,” he said. Besides HBO’s “Six Feet Under,” MastersFX’s biggest projects have been the Sci-Fi Channel’s “Farscape” and the “Star Trek” series of films. The company’s Canadian facility, which opened last month, features a creature shop that makes rubber monsters, computer work stations for digital animation and administrative offices, much like its main office in Arleta. Masters said the move also gives producers a chance to use high-end creature and makeup effects without having to return to Los Angeles. “There are shops up there that are still in the ’80s and that’s because they don’t do stuff as regularly as we do, so their skill and level of understanding the materials and the types of effects don’t seem to be up to par,” he said.

Linux, the upstart free computer operating system, is gaining a following among production and post-production companies. Thanks to a major marketing push, it is bumping two well-established competitors, Microsoft’s Windows NT program, and SGI, formerly Silicone Graphics Inc., in some cases to second-place status in the market. “People are ripping out their NT file servers and putting in Linux all over town,” said Demian P. Sellfors, CEO of Glendale-based Media Temple Inc., a firm that manages Web sites for production companies. Studios, post-production firms and other effects companies that had previously relied on SGI and Windows for their computer operating systems have been moving toward Linux. Among those making the switch are Pixar Animation Studios Inc., producers of 1998’s computer-animated “Toy Story,” and George Lucas’ Industrial Light and Magic. Typically, production houses use Windows NT and SGI for the most complicated computer animation in movies such as “Toy Story” and “Shrek.” Linux, however, may allow them to run systems faster and with less likelihood of crashing at inconvenient moments. Unlike Windows NT, Microsoft’s business operating system, Linux is “open-sourced,” meaning its source code and workings can be accessed and reprogrammed to suit a user’s needs. Created 10 years ago by Linus Torvalds, the program, the so-called “Linux kernel,” was made available to anyone for free. Torvalds invited programmers to add to the “kernel” as long as they did not charge customers anything for it, thus prompting thousands of programmers to enhance Linux and advance it to its current stage. Beginning with 1998’s blockbuster “Titanic” and moving on to this summer’s “Shrek,” Linux is responsible for a growing number of effects-laden films. Experts like Sellfors say the trend won’t soon end. IBM Corp., whose presence in Hollywood has been negligible in recent years, is banking on its new Linux Digital Studio package to break SGI’s tech stranglehold. Big Blue’s Digital Studio package features workstations, server computers and data storage equipment, meant to give technicians a Linux-powered tech “solution” in one package. IBM’s push into Hollywood was to be expected, said Greg Estes, SGI’s vice president of corporate marketing. “Every 18 months or so, IBM is targeting the entertainment industry,” he said, “and we’re able to beat these guys in a fair fight. I’m not surprised to have IBM pitching Linux now. We still expect to be able to win.” Like their competitors, SGI has made the move to Linux for customers who demand it, but the company continues to use its IRIX operating system for most of its computers. While many of the smaller post-production companies have gone to Linux, the big studios have remained with SGI’s IRIX-based computers. Sony Pictures, Universal Studios, the Walt Disney Co. and Warner Bros. Studios continue to use SGI and their state-of-the-art computers and equipment. “But there are a lot of people who use SGI who want to investigate Linux, and our strategy is to provide Linux if they want it and to continue to be the computer company for the entertainment industry,” Estes said. Charles McCaskill, director of information technology for Burbank-based Film Roman Inc., said Linux is popular because it offers a lower cost, flexibility and reliability. “You want that reliability because you don’t want it to crash when you’re in a critical period in your work. And you can customize it to your needs,” he said, adding that he left Windows NT for Linux two years ago. “It doesn’t surprise me that all our major customers say they’re going to switch to Linux,” said Karina Bessoudo, marketing director for Burbank-based software firm Toon Boom Technologies Inc., which supplies animation software for area postproduction firms. Because the system is free and no single company owns a patent on the system, it is easily accessible and its functions can be continuously customized, said Todd Laclair, a computer effects technician with Dream Theater in Sherman Oaks. As a version of the UNIX operating system, Linux is more difficult to manage than Microsoft Windows, but is easier to customize and configure, Laclair said. “Linux is a more difficult platform to administer. With Windows, it’s much more intuitive and you can fudge your way around it and figure something out,” he said. Andrew Neff, an analyst with Bear Stearns, says IBM’s move into Hollywood could prove successful given Linux’s popularity among smaller post-production firms. Neff said IBM’s commitment to spend $1 billion on Linux initiatives for Hollywood and other markets this year and SGI’s declining market share could give Big Blue an opportunity to seize a chunk of the entertainment market. In March, SGI reported that revenue last year for workstations used by post-production and other firms dropped by 23 percent, with the company posting an overall net loss of $829.5 million on revenue of $2.33 billion, compared to a $53 million net profit on $2.73 billion in revenue a year earlier. IBM’s workstation director, Doug Oathout, says Linux’s ability to link a slew of computers in a cluster that works at fast speeds is one of its greatest advantages. Such a cluster of Linux computers created many of the images of the doomed ship in the film “Titanic,” along with a number of special effects images for “The Perfect Storm” and “Jurassic Park.” “It’s not the perfect program, though it’s close,” Oathout said. “Animators who work with 3-D graphics just love Linux.”

Advertising Encino advertising agency Inter/Media has named Kathryne Amendola Moore vice president. Erin M. Barr has been promoted from vice president, client services to senior vice president, client services and Michelle Zygelman has been promoted from account executive to vice president/account supervisor. Moore joins the firm after having served as a consultant for a half dozen direct response advertisers. She will concentrate on securing and managing clients in the education and service industries. Previously, she was vice president and account services director for Drummund Advertising Inc., where she was responsible for creative development, media buying and business development. Barr will oversee the account supervisor management team and all other aspects of client services. He has 11 years of advertising experience focused on direct response. Prior to joining Inter/Media, he was an account manager for Hawthorne Direct. Zygelman has been with Inter/Media Advertising throughout her advertising career as an account coordinator. As vice president/account supervisor, she will oversee more than $20 million in billings annually for a client list that includes Wellquest, Emson and IndyMac Bank. Consulting Kelly Lowell has joined Leighton and Associates as manager of business development at its Santa Clarita and Westlake Village offices. Lowell will develop new business opportunities and establish relationships with engineering firms with which to partner. Before joining Leighton, she was a manager of business development for RNL Design. In addition, she had been an integral part of the business development group at the international engineering consulting firms of Law/Crandall and Arcadis-Geraghty & Miller. Lois Damrow was named vice president of business development for M Squared Inc. Damrow will be responsible for building relationships with health care, consumer products and automotive companies. Previously, she was business development manager for Cruel World. Employment Services Westlake Village-based Robert Half International Inc. has appointed Donna Farrugia as Ventura County regional manager. She will oversee operations in the company’s Westlake Village, Woodland Hills, Santa Barbara and Oxnard offices. Farrugia joined the company in 1999 as San Fernando Valley area manager. Previously, she was global services marketing and business development manager for Imation Corp. Law Brent A. Reinke has been appointed partner in the Business Solutions Group for Crosby Heafey. He was formerly the managing director for Clarke and Trevethick. Reinke will manage the areas of mergers and acquisitions, advising emerging growth companies, corporate securities and finance, and the formation and capitalization of start-up businesses. Insurance John J. Nelson has been elected to the board of the National Association of Health Underwriters, a professional organization for employee benefits specialists. Nelson is a principal with Warner Pacific Insurance Services. Education Cal State Northridge has reappointed Kim Greenhalgh as chair of the department of business law to another three-year term. He coordinates the department’s activities, prepares class schedules, assigns faculty to classes, hires full- and part-time professors and advises students. Retail JoAnne Brosi was named general manager of the Glendale Galleria. Brosi will oversee and manage all aspects of the 1.5-million-square-foot regional shopping center, owned and managed by Donahue Schriber. Earlier in her career, she served as merchandise manager for J.W. Robinson department stores for 12 years. Most recently, Brosi worked as a real estate analyst for the city of Santa Monica, where she was responsible for leasing city-owned real estate, including the Santa Monica Pier. Real Estate Michael L. Sander was appointed general manager for Robinson Ranch, a 36-hole golf facility in Santa Clarita. Sander is a golf professional with over 16 years experience in the golf industry. Prior to joining the company, he was a general manager and director of golf for Marriott’s golf facilities.

Price cutting, elimination of business segments, employee reductions and compensation adjustments. As the dramatic sales slide continues, these are the newest tools in the management arsenal along the 101 Technology Corridor. Many companies, particularly in the telecommunications sector, are facing sales declines of 50 percent or more compared to last year and, with no end to the downward spiral in sight, managers are scrambling to bring costs in line with the new revenue levels. Such cost-cutting is standard operating procedure, but what’s different about these cutbacks is they are coming amid a wholesale rethinking of basic business models. Instead of asking, “Can we make these widgets with fewer people?” CEOs and CFOs are redefining the company’s core businesses and objectives and asking, “What do we need to get there?” For some, that means spending a nickel to save a dime. For others, it means abandoning marginal businesses or those the company can’t excel at in order to put limited resources where they will do the most good. “We are tightening our focus,” said Gwen Carlson, a spokeswoman for Conexant Systems Inc., which employs about 450 workers at its Newbury Park facility. “We have identified three areas that we are channeling our resources to.” Consider these developments: & #711; Conexant discontinued its CMOS manufacturing process in favor of more specialized semiconductor manufacturing technology that is not as widely available. The company also divested a manufacturing division that did not target the three business areas where it is placing its focus: mobile communications, Internet infrastructure and broadband access. & #711; Chatsworth-based semiconductor company Luminent Inc. beefed up its sales resources while moving much of its manufacturing offshore. & #711; NetZero Inc., founded on the idea of offering free Internet service, overhauled its business model entirely, switching its focus to a subscriber-paid service from an advertiser-supported one. & #711; Accelerated Networks Inc. is focusing on its core products, no longer designing customized features clients request without a signed purchase order in hand. To be sure, layoffs have also played a major role in most companies’ cost-cutting policies. NetZero, whose officials declined to be interviewed for this story, eliminated 26 percent of its workforce. Luminent laid off 600 workers in the second quarter. Conexant slashed its workforce by 450, a portion of those at its Newbury Park facility. But staff reductions can be a double-edged sword for tech companies. On the one hand, companies say, at least privately, that many workers were hired on at exorbitant salaries because of technical expertise that, it turns out, is not as important as business seasoning. “We had guys in here 28 years old making $100,000 with very little experience,” said one manager who did not want to speak on the record. “There may have been a shortage of guys who could design an HTLM page, but there wasn’t a shortage of guys who know how to meet a payroll.” At the same time, many of these firms live and die by their ability to provide the next new thing. Cutting back on that brain trust can lead to larger problems down the road. “The quickest and easiest way for a company to improve the bottom line is layoffs,” said Ed Pollock, a spokesman for Luminent. “But that’s probably the least desirable way. You may be able to trim some fat, but you almost always tend to cut into some muscle as well, so you cut into the capability of the company.” One way to keep the talent they are certain they’ll need when the economy turns around is to curtail compensation spending. “I think one of the things that companies are focusing on is the people,” said Robert J. Pearlman, partner and technology practice leader for Grant Thornton, an accounting and consulting firm. “I believe you’re going to see, for the rest of this year, raises and cash compensation slowing down. So, where maybe you saw raises in the 10 percent to 15 percent range, this year you might see 4 percent or 5 percent or less.” Still, for many tech companies the real culprits are inventories, which have ballooned in the sales slump, and the non-stop R & D; efforts, which, executives say, is now running well ahead of the demand. “We’ve got it, we’re ahead of the market,” said Joe Vogel, vice president for product management and technology at Accelerated. “We have limited resources and we have to focus those resources where the dollars are going to be on the sales side.” Before, Accelerated engineers would happily design extra bells and whistles for customers, only to find that orders did not follow. When new management took over earlier this year, the company returned to its core competencies. “We focused on essential product features and functionality rather than things that were on a customer’s wish list,” said Vogel. “We were able to define our products and we stopped being all things to all people.” Most companies have dropped prices to help reduce inventories that began to pile up when the large telecom firms stopped ordering. Some have also stepped up their sales efforts. Luminent, for example, has added sales rep organizations on both the West and East Coast. “There’s still business out there,” said Pollack. “But where it might have been easy to get the business, you have to work a little harder at it. We’ve made a change in the way we approach selling, and we’re seeing that to be successful. If you have more people knocking on doors, you’ll sell more.”

JewelryFactory.com Year Founded: 1999 Core Business: Online retail jewelry Revenue in 2000: $875,000 Number of Employees in 2000: 5 Goal: To build up retail business. Driving Force: Demand for fine jewelry and convenience Bruce spiegel turned the jewelry factory into jewelryfactory.com two years ago and is still hoping the trip from bricks and mortar to the internet is a safe one Every dot-com retailer has a story to tell about where they came from. Not that many, however, have roots as deep as JewelryFactory.com’s. But you can trace the lineage of the two-year-old North Hollywood-based company all the way back to 1975 and a small office in downtown Los Angeles’ jewelry district. That’s the intimate community of wholesale and retail jewelers that has seen its industry morph along with the personal computer, the Internet and online shopping. The Jewelry Factory, the brick and mortar version, was founded by Bruce Spiegel’s father Sam that year. Ben took over the company in 1985, just in time to witness the decline of the wholesale jewelry industry in central Los Angeles as the risks of doing business began to drive long-time businesses out of the city and into safer areas. “A worker of ours was attacked downtown and I said, ‘That’s it, this is no place for us to do business anymore,”‘ said Spiegel. So he moved the wholesale business to the Valley. At the same time he established a by-appointment-only retail store in an otherwise nondescript industrial office park Business took a downturn turn shortly thereafter along with the rest of the Southern California economy as the company’s largest, and for all intents and purposes, only wholesale customer went belly up. That’s when Spiegel decided to broaden the scope of the business. “We learned the lesson the hard way that we were doing most of our business with one customer, and that just wasn’t going to work anymore,” said Spiegel. The company recovered, slowly, but it’s a very different company today. Now, instead of one wholesale customer, Spiegel works with many spread out across the country. The bulk of his revenues come from the manufacturing and distribution of gold and silver medical identification bracelets, In addition, the company also manufactures jewelry and commemorative items for the National Hot Rod Association, for which Jewelry Factory has exclusive licensing rights. “What we did was we turned the company from relying on one wholesaler to a bunch of different entities and it’s gotten us through beautifully,” said Spiegel. Along came the Internet, and Spiegel began offering gold and silver jewelry on line. “I was very skeptical at first. I believed it was going to be good, but I was still skeptical,” said Spiegel. “I didn’t want to just build an online store. I wanted it to be stronger than that.” So, with the help of Los Angeles-based iNet Web Solutions he built a Web site that included partnerships with other wholesalers around the country. That spelled the end of the old Jewelry Factory and the new JewelryFactory.com. Four months later, Spiegel sold his first diamond on line. “I couldn’t believe it,” said Spiegel. “That’s when I knew that there was a real market for this, that people would trust us to send them exactly what it was they saw on line, even if they didn’t get to see it first.” Barbara Friedman, owner of Barbara Friedman & Associates, an accounting firm in Encino, did business face to face with Spiegel for about three years before she took the plunge and pulled up his Web site. She said she wasn’t a die-hard online shopper and, had she not already done business with Spiegel in person, she likely would not have bothered with his Web site. “I was really impressed,” said Friedman, who went on line for a gift for a girlfriend. “I do a lot of catalogue shopping and I usually don’t like going on line, but with the jewelry it was much easier. The gift came wrapped in about two days and it was exactly the size, color and quality it was supposed to be.” Revenues for JewelryFactory.com for 2000 were $875,000. Spiegel said he anticipates those numbers to dip because of the economic slowdown. The site offers a link where customers can design their own engagement rings, another that offers a free ring sizing kit, and another specializing in children’s jewelry. As with so many dot-com success stories, Spiegel’s “jewelry place in cyberspace” had a relatively good chance for survival because of the company’s history, contacts and word-of-mouth support already in place before the first customer clicked through. But that doesn’t mean Spiegel won’t have to keep the content fresh and his eye on the market, especially when everywhere he’s looked in the last 18 months, dot-com death marches have become regularly scheduled events in the tech sector. Bob Bowker, co-founder of iNet, agreed. “There is no such thing as brand loyalty on the Internet,” said Bowker. “The Internet has never been and should never be anything other than one spoke in a business plan. In the seven years we’ve been doing this, we’ve found most successes are those businesses that already had an inventory of products and fulfillment procedures in place.” “The brick and mortar isn’t the determining factor, but it’s important,” said Bowker. “But what works is a company like Bruce’s that already knows how to get around, has suppliers in place, and has distribution in place.” Spiegel said most customers are men because they find the Internet takes the guesswork out of shopping, and second, relieves the agony of pacing a jewelry showroom. “What I’m learning about the online end of our business is that men just really don’t like shopping for jewelry, especially engagement rings. You should see the men’s faces when they come into our showroom,” said Spiegel. “They don’t really want to be there. That’s the women getting them in there. So when it comes to gifts, they love the option and the privacy of going on line.”

While terrorists were somewhere putting the final touches on their plan to use two highjacked 767s to kill thousands and permanently alter the New York skyline, Matt Walton was in Manhattan wrapping up a deal with his new client: New York City’s Office of Emergency Management. Four days later the OEM’s headquarters inside the World Trade Center Building 7 were reduced to rubble as a result of the collapse of Towers 1 and 2 next door, making a victim of the very agency created to provide emergency public assistance to the city. Fortunately, the building had been completely evacuated before it was toppled, and fortunately the agency had just signed a contract with Walton’s company, Canoga Park-based E Team Inc. E Team makes a Web-based suite of tools designed to allow multiple agencies or departments to coordinate relief and recovery efforts during emergencies such as fires, earthquakes, riots and the once unthinkable here on American soil large-scale acts of terrorism. The technology gives emergency event coordinators at all levels of government and large, private firms a way to plug in to a shared network of emergency management information, accessing what Walton, the firm’s president and CEO, calls a “whiteboard in the sky.” For example, as the OEM worked with local relief and emergency medical representatives last week to search for and pull victims from the wreckage of the Twin Towers, they were using E Team software to find out which hospitals were open and how many wounded they could take on. Emergency relief personnel out in the field can use the technology right from their laptops or hand-held computers to communicate with colleagues about the status of a critical event. That includes, for instance, finding out where the biggest stockpile of stretchers are located and who can get them there the fastest. They even have access to detailed maps of the disaster site right down to the tiniest alley. “We are talking about being able to access information on everything from blood supplies to blankets to bulldozers,” said Walton. The E Team core technology was originally developed in 1985 by a now-defunct Westlake Village defense contractor called Illusion as the first wireless Internet-based network for the U.S. military. Then came the Northridge Earthquake in 1994 and it became apparent the same applications could be used in civilian rescue efforts. That was the company’s first commercial application and public success story. “It seemed to us that a natural disaster, particularly one of this kind we now have on our hands, is very much like a war,” said Walton, who served as Ilusion’s vice president for strategy. Then as the aerospace and defense industry slowly began to slip from the radar screen, the nation became obsessed with preparations for Y2K. Walton spun off E Team from Illusion in 1998 and the city of Los Angeles recruited it for a trial run to see how well the system would work should all hell break lose at midnight on Dec. 31, 1999. “We were looking for something that was commercially off the shelf, or something we could get for a cheap price with a license and if technology changed we could get an upgrade without much trouble,” said Ellis Stanley, the general manager of the Los Angeles Emergency Preparedness Department. Stanley served in the same capacity he has with L.A. for the Atlanta-Fulton County (Ga.) Emergency Management Agency during the 1996 Summer Olympics, during which a bomb exploded, killing one person and injuring 111. He said he wished he had the E Team tools then to help aid workers during the aftermath of that event. Stanley said his next step is to build a system that would link every downtown building so the city could communicate with businesses during an emergency. But that won’t come easily. Companies are often reticent to share information about their infrastructures, particularly their emergency procedures, said Stanley. “With E Team, we know we have a tool that would make that possible, but what we have to do is change our attitudes and our rules between what’s proprietary and what’s sensitive,” he said. “As a community there are some things we should agree that should be shared.” E Team was used by the city to manage events during the National Democratic Convention in July of last year and will also be used by the Utah Olympic Public Safety Command for the 2002 Winter Games. Other clients include the U.S. Department of Transportation, Toyota of North America, Warner Bros. Studios, the states of Arizona, Louisiana, West Virginia and Utah, and some Valley-based companies Walton declined to name. Naturally, officials from New York’s OEM department were not unavailable for comment. Annual licenses for the E Team application cost $400, and the tools are accessed through Microsoft Internet Explorer or Netscape Navigator. Layers of participation vary depending on the number of Internet-connected computers the licensee has. Stanley said the city of Los Angeles has about 250 licensed users on line now who are hooked up to eight different servers. Walton declined to disclose revenues for the privately held company, but Stanley said the city has spent upwards of $200,000 on the E Team so far. Like most Americans, Walton learned of last Tuesday’s attack on television. The immediate reaction, he said, was very personal, given the new and close relationship with OEM staff. Then came the shock of realizing that the events unfolding will likely prove to be his company’s biggest test putting it in a rather reluctant position to enjoy its success. “We set out to develop a system to deal with the unthinkable, not really ever realizing that we would one day actually deal with something so unthinkable,” said Walton.

Business in the San Fernando Valley ground to a halt last Tuesday following the news that hijacked planes had crashed into the World Trade Center in New York and the Pentagon in Washington D.C. People who were at work that day talked to the Business Journal about what happened to them and the people around them. Bruce Ackerman President and CEO, Economic Alliance of the San Fernando Valley (On the morning of Sept. 11, the Economic Alliance expected a crowd of about 200 at a previously scheduled “2020 Vision” event at the Airtel Plaza Hotel. Eventually, 170 people attended the meeting.) (Civic Center Group director) Bob Scott called me at home early that morning and I had heard nothing about (the attack). At first, I thought he was just trying to get my attention. When it finally sunk in, I thought, “Am I dreaming? Maybe I’m going to wake up.” I said, we’ve got to go ahead. There was no question in my mind. First, so many people were planning to be there. We had worked so long and so hard and it seemed like the right thing to do was to go ahead. Second, people in crisis like to be together. What would we have done if we’d canceled? Ten minutes later everyone would have been in front of a TV. That would have been informative, but it’s not the best use of time. Everybody appreciated having an opportunity to be together. It was the right thing to do and I think people enjoyed being there. Jo Anne Brosi General manager, Glendale Galleria In support of our major retailers who chose to open to accommodate customers’ needs, the Glendale Galleria operated during shortened business hours on Tuesday. However, we fully supported the decisions of a number of retailers within the center who chose not to operate their businesses on that day. The shopping center is now fully open and operational. We anticipate that it will be some time before we have a clear understanding of the impact this tragic occurrence will have on our business. David Gershwin Communications deputy for City Councilman Alex Padilla My family lives in Washington D.C., so the first thing I did was call them and see how they were doing. Then we had to go straight to the emergency operations center, where I spent the entire day. It was like being in an underground bunker, where you certainly felt safe, although one disadvantage was you were unable to see daylight. My pager was blinking off my belt and we were burning down phone lines all day. Martin M. Cooper President, Cooper Communications Inc. A friend and former employee of mine has or should I say, had his office in the World Trade Center. I cannot reach him, as many cannot reach those they know, love and care about. On a day like that, it is easy, and normal, to give into feelings of fear, anger, frustration, helplessness and hatred. For the first time, we have been attacked by an enemy we cannot clearly identify, adding to those feelings. On this terrible day, it seemed appropriate to revisit some of Winston Churchill’s thoughts, some of them during the height of the German attacks on London during World War II: “For myself, I am an optimist it does not seem to be much use being anything else.” “The first victory we have to win is to avoid a battle; the second, if we cannot avoid it, is to win it.” Joe McClure Owner, Montrose Travel It was a very sad, difficult and hectic day for us. We had hundreds of customers literally stranded around the country that we just couldn’t get home because of the flight restrictions. Mel Kohn Partner, Kirsch Kohn & Bridge I felt (last Tuesday) was a national day of tragedy and everybody on our staff should have the opportunity to deal with it the way they would want. It was early and we tried to contact as many people as we could so they could stay home. We had a staff meeting with those who stayed and had a moment of silence and then we closed early. We wanted to let everyone deal with it in their own way. I’m supposed to be in Redwood City today, but that’s canceled. That just means we’ll have another meeting another time. It just pales in comparison to this human tragedy. We’re an accounting firm and corporate returns are due (today), so we’re busy, but it’s difficult to work after this tragedy. Sharrin Summers Public relations manager, Hollywood Records We were all in a state of shock wondering what to do. It hit people hard, especially the ones who have family in New York. Fortunately, all their family members were accounted for. Disney (Hollywood’s parent company) told everyone that if they felt they needed to go home they could, and that helped a lot of people to cope. Not many people were left, but there’s not much to do when something like that happens. We have some artists on the road that have to fly to different markets and how are they going to get back? It’s one of those questions that we had to resolve since there were no flights. A lot of events and concerts had to be canceled and only today (last Wednesday) are we working on getting things rescheduled and finding transportation for these artists. As PR people, we have to be sensitive to this. It’s inappropriate to call the New York media to pitch them about interviewing one of our bands. So, as far as we’re concerned, it’s definitely not business as usual. Tyree Wieder President, Los Angeles Valley College We did have a few issues on Tuesday. In the morning, my staff usually comes in between 7 and 8 a.m. By 8, they had already been getting phone calls from faculty and students asking if we were holding classes that day. My response was yes. We didn’t see any reason why we should stop everything. I was on my way downtown to a meeting and I thought, “No, I’d better go back to campus, just walk around and answer questions.” We asked our college sheriff’s department to put on additional officers, just for the extra visibility. There were initially a lot of rumors and concerns, like a plane had been hijacked and was headed to L.A. I said the reality is most likely the San Fernando Valley would not be the target. It was more of a day for myself and the rest of the staff to reassure people. The biggest thing is that people were rattled. This was something that’s just not supposed to happen Phil Lichtenberger Vice president, Holl Technologies Everybody was upset. People were walking around dazed, it seemed. I think we all knew that we wouldn’t be conducting very much business. We had one person who needed to go home and shore things up there with the family, but otherwise everyone was able to stay and work. Most of the meetings scheduled for the day didn’t happen, so my time was spent catching up on other work. When something like this happens, people need to talk and we encouraged that. We take the approach that we hire human beings and, when a national crisis like that hits, there has to be a grieving process and we have to support our employees, so it’s important to let them have that time. I have a feeling that this will be etched in everyone’s mind like the Kennedy assassination. Young people today don’t have anything like that, so this will be the important event that they’ll never forget. Robert “Bud” Ovrom Burbank city manager I have made a point of walking through the mall and other stores in town and there are certainly far fewer people, and a distinct somberness on the faces of those who are shopping. However, I am confident consumer confidence and overall morale will soon improve. It might not be the politically correct thing to say, but I fully expect there will be a great burst of patriotic zeal when we start to strike back at the terrorists who were responsible and the nations who harbor them. Americans always rally together when faced with a common enemy. Jose Garcia Owner, Tacos Real Restaurant Everyone was quiet all day listening to the television (after the attacks). I knew business would be bad. The lunch crowd was really small and even they were quiet, watching the news reports. When they saw the replays of the crash, it was hard. You could see how everyone was affected. There were a lot of sad people. I just told everyone to go home afterward. There was not going to be any business. It was no use to stay open with no customers. Business is still bad today (Wednesday). You just want to go home and be with your family. Steve Schultz Senior vice president, MiniMed Inc. We closed our facility at 9 o’clock (in the morning) out of respect for the events that were occurring and for our employees who were understandably upset. We also shut down our Florida facility early and sent our employees there home. People here were understandably concerned about what was happening, they were listening to news and following it very closely. We felt this terrible tragedy and its impact on people was more important than keeping our employees here. It’s an unspeakable tragedy. I could not compare this to anything. We’re certainly serving our patients as best we can, but I don’t see how any of us could return to normal after such a tragedy. Claire Smith Communications manager, Sunkist Growers Inc. The word surreal was used a lot and it was appropriate. But we tried to do some business. People listened to the news and tried to do some work, but it’s hard not to feel a deep shock and sadness about it. People were talking and you had a very sad feeling. We kept normal hours and tried to do some work despite everything. A lot of the people I needed to speak to, I couldn’t get on the phone, so in that sense, it was a very difficult day. People are still in shock and still wondering about what’s going to happen next and nobody really knows. You try to reassure people and you try to talk to them, but there are no answers. Everyone here was impacted. Gina Guarino Leasing agent, Douglas Emmett Co. We didn’t close any of our buildings. We stayed open. A lot of the tenants wanted to talk about it and come in and chat and have coffee and basically pour their hearts out. We have a lot of New Yorkers here, especially me being one, and I did have family members who were in the World Trade Center, my aunt and my cousin, who are in the hospital and fine. So we’re kind of dealing with people and their emotions. I’m glad we were open to service the clients and help them out in time of crisis and tragedy. You have to put forward a smile and be there for everyone else. People were scared. There was a lot of handholding. You try to find out where your family is. Manhattan had no phone service, so I didn’t find out until the next day. My aunt worked on the seventh floor. There was a day care center on the third floor. My heart goes out to every person.

The San Fernando Valley’s low-risk, slow-growth high-tech industry may lag behind the go-go dot-com mentality and intense computer soft- and hardware focus of Silicon Valley. But its 101 Tech Corridor is clearly, albeit slowly, emerging as an economic hub in its own right. And, while an economic slowdown has belted the San Francisco Bay area harder than almost any metropolitan region in the United States, the Valley’s tech corridor has remained relatively insulated and appears poised for significant growth over the next decade. But there are other, more tangible reasons why some of the Valley’s tech firms say doing business here instead of in Silicon Valley has its advantages. Among them: – Commercial lease prices for research and development properties are roughly four times higher in Silicon Valley than they are here. – The average median home price in Silicon Valley is nearly double that of a home in the San Fernando Valley. – The focus in the 101 Corridor is on more stable, back-end products expected to generate more jobs in the future. According to a report released last year by the Los Angeles Regional Technology Alliance (LARTA) called “How Green is Our Valley,” the 101 Corridor is home to 600 technology-related companies, which employ about 115,000 workers. Chatsworth has the highest number of tech firms at 108 with 8,574 workers, according to the report. And Silicon Valley may have roughly 4,000 IT-related firms but, since its birth following the demise of the defense and aerospace industry roughly two decades ago, the 101 Corridor, stretching from Sherman Oaks to the Conejo Valley in Ventura County, has managed to reinvent itself as a tech player to be reckoned with. In 2000 the region ranked 46th out of all metropolitan areas in the country in terms of technology output, according to the LARTA report, offering a litany of perks that even Silicon Valley, the so-called technology epicenter of the world, had long touted as its primary attractions. The 101 Corridor is now considered home to a concentrated, highly educated and fast-growing labor pool. Bolstering that reputation is Cal State Channel Islands, a new state university campus in Ventura County with an emphasis on technology, expected to begin admitting students in 2002. While the domino effect of failed Internet ventures and sharp cuts in tech spending by big U.S. firms has resulted in layoffs at long-established Silicon Valley giants like Hewlett-Packard, Intel Corp. and Cisco Systems Inc., the San Fernando Valley has so far managed to avoid deep cuts. Some industry experts say the 101 Corridor’s concentration on back-end tech products has kept companies here afloat in tough times and will help set the stage for a quick recovery. “Companies have been setting up their businesses here in the San Fernando Valley and along the 101 Corridor for the last two decades because of a strong concentration of labor. That’s very crucial,” said Victor Hwang, chief operating officer of LARTA. “But the sort of slow and steady growth of the 101 Corridor is actually proving to be a much better way of doing business for the long term. “In many ways this area has done much better throughout the downturn than the Silicon Valley, because the companies up there are willing to take big chances and big risks, while the tech companies here in contrast are those which seem a little slower. But in reality they are just busy building a strong base of customers over time.” Office vacancy rates in the Silicon Valley are reported to be hovering at the 10 percent level, while here they are closer to 4 percent. And, according to Bing Heckman, vice president for CB Richard Ellis in San Jose, leases for typical research and development properties shot up from $1.80 to about $5 per square foot between 1999 and 2000 in Silicon Valley suburbs like Sunnyvale and Mountainview. The average lease price for similar property in the Conejo Valley, where the bulk of the 101 Corridor’s R & D; companies are located, was 89 cents per square foot at the end of the second quarter, according to Colliers Seeley. In Santa Clara County, the median home price was reported to have hit $505,000 at the start of this year. Single-family homes in the 101 Corridor, on the other hand, have also remained at affordable levels with a median price in 2000 of $291,000, according to the LARTA report. Quality of life issues, like affordable housing, but also the proximity to a large metropolitan city, temperate weather and room to grow were big draws for West Hills-based ValueClick Inc., which decided against Silicon Valley last year when it moved its headquarters from Santa Barbara to West Hills. Elise Arthurs, the company’s vice president of global marketing, said her firm also looked at Las Vegas before making the move south. She said the decision was made to protect long-term employees from having to relocate. “We wanted to offer our employees in Santa Barbara the opportunity to hold onto their jobs and do the commute,” Arthurs said. “We didn’t retain every one of them, but many of them are still here. I think there are about five of us who make the commute each morning.” ValueClick has roughly 200 employees world wide, with roughly 80 in its Valley office. ValueClick does have a sales office in Silicon Valley, as well as in New York, but Arthurs said the Valley made better sense as a home base because its tech cluster is still just getting started. “We could have become another Silicon story, but we really think there is room to grow here,” she said. Zuma Networks in West Hills is one of about 25 tech startups incubated over the last few years by Chatsworth-based MRV Communications. According to Russ Hertzberg, vice president of marketing for Zuma, his company has grown to 80 employees since it began in 1999. He said it’s been MRV’s strategy all along to shun both the dot-com bubble world of Silicon Valley and high-risk, fast-paced business models. “We never really thought that the big dot-com rage was a reality for very long,” said Hertzberg. “We are in it for the long run at Zuma and the long run at MRV. Some of the cycles are beyond our control, but we hunker down and focus on what it takes to build a strong company.” “We also like this area a lot because of the talent pool which is much less expensive than in Silicon and there is a long history of businesses here that have worked on the back end of the infrastructure of telecommunications and IT technology,” said Hertzberg. “So we see it as a hotbed for growth.” But the area has issues to contend with, simply by virtue of its geographical layout and its relatively early stage of development. One key concern among businesses interviewed for the LARTA report was the fact that unlike the concentrated region of Silicon, the 101 Corridor is really a cluster of several different tech communities ranging from biomedicine and electronics manufacturing to computer software and hardware development and telecommunications. “Our biggest challenge is communication between the different clusters,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corp. “Because we are really a tech sector made up of many different clusters or groups of different environments, we end up needing to work much harder to develop a sense of community.” There are also technical limits here yet to overcome: traffic along the 101 Corridor is already in overload and, although telecommunications capabilities are improving rapidly, many companies at the west end of the Valley say they still are having trouble getting reliable high-speed Internet access. And, the demand for commercial space along the 101 Corridor is expected to result in an inevitable increase in demand for residential space, which could drive up home prices. As a result, the 101 Corridor will have to find a way to balance the “green” effect with the decrease in available housing and office space, Kyser said. On the plus side, Kyser predicted the cost of doing business here will actually decrease over the next five years as new technologies come on line that are expected to make tech-related manufacturing more cost-efficient, particularly in the area of telecommunications. And many of those technological advances, Kyser said, are expected to be made by Valley-based companies. In addition, Kyser said, The Boeing Co. has just signed a 20-year, $25 billion contract to build sophisticated reconnaissance aircraft for the military, and part of President George W. Bush’s spending plan calls for increased funding for military research. Those and related projects, said Kyser, are expected to create a trickle-down effect in terms of jobs in research and development. And, because the Conejo Valley is home to the bulk of Southern California-based R & D; firms, the 101 Corridor is expected to be a key player. “We are predicting that those needs for research and development will filter through over about a five- to 10-year period and that has enormous implications for the Valley tech sector,” said Kyser.

With some exceptions, those dot-coms still feeding off venture capital funding and limping toward profitability are likely to be providing a service- or information-based product as opposed to bringing fresh peaches or Barbie dolls to your doorstep, a la Webvan.com (formerly homegrocer.com) or eToys.com two of many high profile web e-tailers that fell victim to the tanked tech market over the last year. The implication is that e-tailers simultaneously overspent and underestimated their customers’ need to touch and smell a product before they buy it. But when it comes to information on products such as mortgage loans, or those offering some kind of service, it appears as if more and more of those customers are relying on Web-based entities for help. Direct your Internet browser to www.disobey.com, click on “ghost sites,” scan the growing list of defunct dot-coms and it’s clear the fever-pitch drive to get on the dot-com gravy train has ground to a halt. Venture capital for Internet startups is generally unheard of these days, unless the company is linked to a well-established brick-and-mortar entity right out of the box, or is within spitting distance of an initial public offering. For instance, Woodland Hills-based WMC Mortgage Corp., is a local success story, albeit a success story with a twist. Last year WMC shut down all 38 of its brick-and-mortar shops and hit the information superhighway (remember that term?) as a re-invented wholly Internet-based lender. The move allowed the company to cut staffing by 66 percent, shrinking operating costs and increasing revenues. And because WMC went on line with an off-line company already in place, it did not have to create a customer base out of thin air. “We had people two months after we did this saying, ‘You guys are idiots,”‘ said James Walker, WMC’s vice president and chief technology officer. “In fact, they said worse than that. But what the Web-based model has done is it’s made us a more nimble company. It cuts down the communication lines and increases the accuracy.” WMC reported record sales for August at $130 million and a 7-percent increase in loan applications, representing $465 million in business. Sales for the same month in 2000 were $24.5 million, representing $185 million in business. Walker said his customers used to wait three or four days for approval of a loan application. Using an online underwriting program and the new e-business model, the wait today is often more like 10 minutes. “The old business model required a significantly higher number of sales reps, who all did less business than our Web-based sales reps,” said Walker.” “Our Web-based model does upwards of four times what we did under the traditional model.” Kim Pillon, an Internet analyst with Nielsen/Net Ratings in Milpitas, which partners with Media Research and AC/Nielsen to track Web domain traffic, said, “What we are finding is that it’s really all about convenience. Instead of waiting three or four days for shipping of a product to the doorstep, we are seeing that a huge number of users are going on line to do their research for retail items, then going out and buying them in person.” Pillon said for every retail dollar spent on line during the month of July, 99 cents was spent off line as a result of online browsing. Among the top dot-coms Pillon tracks is a very busy Westlake Village-based Homestore.com, an Internet real estate services company, which her firm has identified as the leading Internet company in the homes and real estate category for the last 23 consecutive months. Click count for Homestore in July was 3.3 million, compared to 815,000 in July 2000. “What is driving that site is the fact that they have an important service to offer, which has helped them create a strong brand name and build up strategic partnerships (and funding) to support the business model,” Pillon said. But unlike the heady days when dot-com fever seemed to mean an online concept scribbled on a cocktail napkin was enough to get a VC to whip out his or her checkbook, today most business plans that do not have a built-in customer base simply won’t be taken seriously. “What I’ve seen is that during the course of the last 18 months the bar has been raised for everyone in terms of what a company needs to already have accomplished before obtaining funding,” said Peter Hartz, founder of Woodland Hills-based FortuneLab, LLC, which funds and acts as an incubator for small startups. Hartz said he’s received many applications for funding from dot-com startups since his company opened in July of 2000, but so far he’s stayed away from them. “We looked at 420 deals before we picked our first one, including a ton of dot-com ideas,” said Hartz. “But the ones that are of particular interest to us are those that have a natural customer base. If they use the Internet at all as part of their business model, it’s only being used as a tool. The Internet just can’t be relied on as the primary engine. Those days are over.” Brian Napack can relate. The founder and president of Glendale-based ThinkBox Inc., which runs ThinkBox.com, a children’s educational web site, said his company, which did business strictly on the Internet when he started it in 1998, has had to get creative to keep its funding coming because of the shift in attitude toward online ventures. “Our initial investors won’t even think of funding us now,” said Napack. But because ThinkBox creates online educational playgrounds for children using popular animated characters, the site has what Napack called an “emotional pull.” And because the company is educationally driven, it has a core of customers, parents and educators, and has managed to attract a new breed of online investors. “We’ve gone to the source of our audience for capital, a large educational company (which he wouldn’t identify), where we know there is going to be both an interest in the business as an investment, but also a willingness to make a commitment to our goal. “We are not yet profitable, which has a consequence in that we continue to need the benevolent application of capital, or, plainly put, we need dough,” said Napack. “But traditional VC monies are almost gone for companies like ours. They are being made, but they are being made at a company’s later stages.” During the height of the dot-com gold rush, traditional VC’s didn’t bat an eye at a 20-percent return on their investments. But given the initial returns dot-coms paid, largely because of IPOs, they now expect much more. Recently they have come to expect closer to a 1,000-percent return on their initial investment, said Napack. As a result, many online companies that looked promising simply couldn’t manage to generate returns fast enough to keep the funding coming. “Consequently, what’s happened is I’ve seen little companies all over the Valley have to shut down, even though they were good companies,” said Napack. Dave Berkus, of Arcadia-based Kodiak Ventures, is one of ThinkBox’s private investors. He also invested heavily in the now defunct Sherman-Oaks-based Word of Net.com, an online Web traffic tracking service that closed in June. Berkus said ThinkBox was an excellent example of an online venture that, from the start, stood a strong chance of success because it had a natural customer base getting off the ground: parents and children, and it provides a tangible service with market credibility that those customers need and respect. He said Webvan and eToys failed because they built out too quickly and couldn’t support the weight of their own infrastructure once they were in full swing. Instead of creating an online entity from the ground up, Berkus suggested Webvan and other failed e-tailers would have done better to partner with brick-and-mortar companies offering related services or products. “Had Webvan had a partnership with someone like a Safeway, for example, where it used the warehouses and the delivery trucks already in operation, they would have had a stronger customer base out of the box,” said Berkus.

Summary Business: Electronic components Headquarters: Newbury Park CEO: John D. Poe Market Cap: $2.5 billion Dividend Yield: N/A Total Liabilities: $424.8 million P/E: 51.7 Long-Term Debt: $397.3 million *Semtech Corp. does not pay dividends Newbury Park-based semiconductor and chipmaker Semtech Corp. figured to take another financial beating when its preliminary second-quarter numbers came out last month. But when it beat analysts’ earnings expectations by 1 cent per share, Semtech officials felt they were on to something, thanks largely to an increase in orders during the second half of the quarter. “During these difficult market conditions, Semtech has benefited from a diverse product offering and a balanced mix of end markets,” said Jack Poe, company chairman and CEO, after the company announced it thinks it will beat analysts’ earnings estimates in the quarter ending July 29. Analysts polled by Thomson Financial/First Call had projected earnings of 7 cents a share on estimated revenue of $39 million. The new numbers gave the company’s stock a 17-percent boost, jumping $3.33 to $33.53 a share the day they were released, Aug. 22. Semtech closed at $36.71 on Sept. 10, the last day of trading before the markets closed because of the World Trade Center disaster. Its 52-week high is $58.50, its 52-week low $15. According to its preliminary figures, the company earned $6.1 million in net income on revenue of $40.5 million in the second quarter, compared to $13.7 million in net income on revenue of $60.6 million in the same quarter last year. Although earnings and sales are well below last year, Semtech’s Poe said a pick-up in business during the second half of the quarter gives him reason for optimism in the third quarter. Semtech estimates sales for the third quarter will range somewhere between $41.7 million and $42.6 million, with projected earnings of 8 to 9 cents per share. Louis Gerhardy, an equity analyst with Morgan Stanley Dean Witter in San Francisco, predicted the company will top $42.5 million in sales in the third quarter, with earnings of 9 cents a share and a $40 target stock price by year’s end. “The seasonal uptake of the PC market should benefit them and should drive sales,” said Gerhardy, noting that the company makes many of the chips and semiconductors used in PCs, laptop computers and other devices in the telecommunications field. The company reported increased sales for its products used in notebook computers, personal digital assistants, mobile telephones and computer gaming systems. Semtech also makes computer chips, power supplies, computer keyboard encoders and related electronic components. The company’s revenue has declined in the past year due to fewer orders resulting from large customer inventories and the downturn in the PC and telecom markets, Gerhardy said. Semtech, however, responded by cutting back its workforce through the sale of its silicon wafer-making facility in Santa Clara in March and replacing its production by using manufacturing subcontractors. Joseph Osha, a Merrill Lynch equities analyst, said the worst of the tech downturn is over and semiconductor firms like Semtech should see a recovery within six to 12 months. Previously high inventory levels among tech customers are declining, resulting in a slight increase in orders, he said. “Once we see reduced inventory, we can expect orders to return to normal,” Osha said. Among Semtech’s top customers are Compaq Computer Corp., IBM Corp., Honeywell International Inc. and Germany’s Siemens A.G. Both Gerhardy’s and Osha’s comments were made before last week’s World Trade Center disaster. Gerhardy said that because of Semtech’s large presence in the PC market, its recovery will likely depend on consumer interest, which appeared to be rebounding before last week’s events. “We expect semiconductors to stop declining in the September-to-October time frame, but we won’t expect growth in that area until the second quarter of next year,” Gerhardy said.