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.

These days word spreads fast. Emotions lag a little behind. Those of us already awake and tuned into the news at about a quarter until 6 last Tuesday morning were among the first to hear about the World Trade Center disaster. Less than three hours later, the Economic Alliance of the San Fernando Valley convened a long-planned, much anticipated “Vision 2020” event at the Airtel Plaza Hotel. Somewhere around 170 of the 200 people who had RSVPed showed up. Of the 25 to 30 who were scheduled to speak or appear on one panel or the other, only two canceled at the last minute and they were city officials whose work called for them to change plans. None of which means anybody’s heart was in or mind was on what they had come there that morning planning to do. Later on, Economic Alliance President Bruce Ackerman told me that when he learned of the disaster from one of the main forces behind the visioning process, Bob Scott of the Civic Center Group, he said, “I thought Bob was trying to get my attention.” I have a feeling he really meant he thought his friend was trying to pull a joke on him, but he didn’t want to see that kind of sentiment attached to his name in a newspaper column (which is fair enough). Nevertheless, Ackerman went on to tell me he hardly hesitated before deciding to go on with the event. “If we’d cancelled, 10 minutes later everyone would have been in front of a TV,” he said. “That would have been informative, but it’s not the best use of time.” Which is not to say there was a lot of whole-hearted planning for the future of the San Fernando Valley going on that morning either but everybody has to be somewhere. I think most people at the Airtel Plaza that morning were like me: They knew what had happened in New York but they couldn’t believe it and didn’t know how to act even if they were starting to see it was true. Minutes before I got into the car to head to the hotel last Tuesday morning I watched a live picture of the second 110-story tower of the Wall Trade Center fall down. But my mind played the same trick on me as others: Business as usual. Once at “Vision 2020,” we listened to the speakers with half a mind at best, slipping out one by one as it dawned slowly on people that there were probably other places to be, other people to be with. The rest of the day, in offices and stores and plants all over the Valley, only the steeliest among us proceeded with much enthusiasm for their jobs. Most had something close to the wide open stare that typically follows an earthquakes. By Wednesday, the next day, our emotions began to take over. Human faces attached themselves to the emotions provoked by events of the preceding day. While the identities of those killed in the buildings were still mostly unknown, those on planes headed to Los Angeles and, in some cases home to the Valley, were known. By then we knew that among them were a man whose family in Chatsworth was waiting for him, a well-known CFO of one of the Valley’s biggest companies, the producer of “Frasier.” We learned that, as most suspected, radical Islamic terrorists were likely responsible. That provoked another kind of emotion, one less appropriate in a community as culturally diverse as the Valley is. That morning I witnessed an unpleasant confrontation between an overwrought customer and a clerk at a convenience store near my home in Encino. A number of businesses along that stretch of Ventura Boulevard are owned or staffed by people who live nearby. The fact they are often Iranian Jews or Pakistanis, not Islamic terrorists, is meaningless to some: The resemblance is close enough. Late on Tuesday evening, most of us watching television saw City Council President Alex Padilla’s appearance at a press conference. Because Mayor James Hahn was trapped in Washington D.C. by the shutdown of the country’s airline industry, the 28-year-old from Pacoima whose youth captured our imagination two years ago when he was first elected to office was the acting mayor of the second largest city in the United States. He spoke with confidence to the city about the precautions taken to make sure New York’s fate would not fall upon Los Angeles. And when he had spoken his peace in English, he said it all over again in Spanish. He spoke in two languages to a city that tries to accept its reality, sometimes relishes it and attempts to move on. This is a city where many languages are spoken, where there are many ways of understanding the same message and where the need and desire to move forward supercedes antiquated ideas of who is an American. America, and indeed American business, dwells on the past just long enough to learn which parts of it needs to change, and then moves on past disaster, tragedy and bigotry. Michael Hart is editor of the San Fernando Valley Business Journal He can be reached at [email protected].

After decades of poorly planned, poorly executed sardine-can style housing developments in Southern California, residents are rightly alarmed by out-of-control growth. Recognizing the importance of managed growth, local leaders have placed prudent restrictions on housing developments throughout the state. A recent state Department of Housing and Community Development study, “Raising the Roof,” details how California’s strict building permit process has exacerbated the state’s housing shortage. According to the Southern California Association of Governments, our region needs more than 250,000 new housing units by 2006, over 50,000 per year. Unfortunately, the Los Angeles Times recently reported, fewer than 10,000 new home permits were issued last year. Has the pendulum swung too far? The state’s study suggests that our inability to provide sufficient housing threatens our region’s long-term economic health. Clearly, the availability and cost of housing for employees is a top criterion for companies looking to build or expand in our area. For every six jobs created in California, estimates are we are providing only one additional housing unit. Scarcely more than a third of area residents qualify for a loan on a median price house. This is a recipe for long-term economic trouble. The “Raising the Roof” report concluded that much of the housing problem is the “result of political pressure, particularly at the local level.” Indeed, under the banner of protecting metropolitan areas from further urban sprawl, a raft of politicians and environmental extremists have joined the no-growth bandwagon, filing dozens of lawsuits, but offering few ideas on how to address our urgent housing needs. William Fulton, a regional planning expert, described the phenomenon in a recent Daily News article as “NIMD Not In My District.” One of the most obvious examples in our area is the Ahmanson Ranch, which has become a favorite whipping boy of both NIMBYs and NIMDs. Despite the fact it has a substantial affordable housing component (22 percent of the units) and has won national recognition for design and resource preservation plans, Ahmanson Ranch has been delayed for nearly a decade by deleterious lawsuits and political maneuvering. Although 10 years ago Ahmanson Ranch worked to preserve more than 10,000 acres of project-related land as open space and is working closely with state and federal agencies to protect natural resources and water quality, opponents now claim the development threatens the environment. After winning an award from the Association of Environmental Professionals for its species protection plans, Ahmanson Ranch supporters wonder whether they can ever do enough for the hard-core no-growth crowd. Indeed, with former U.S. Interior Secretary Bruce Babbitt on the Ahmanson Ranch environmental team, you can be sure environmental protection receives close attention. This cynical, alarmist rhetoric helps raise money for protests and legal fees, but it does nothing to resolve our housing crisis or the real environmental issues. Ahmanson Ranch officials are committed to building an environmentally sensitive project and extremists cannot forever say build it “somewhere else.” As Babbitt says, “We’ve got two choices: one is no more housing and the other is to do it right.” My guess is that sooner or later the no-growth political gravy train will grind to a halt. Common sense will prevail. We are far better off with well-conceived, environmentally sensitive master-planned communities than the alternative: a patchwork of small housing projects that may escape public attention, but continue to feed sprawl without delivering quality housing that would improve our quality of life. I just hope that quality builders will have the patience to keep doing it right. Keith Richman is a Republican California state assemblyman representing the 38th District, which includes the Northwest San Fernando Valley and southern Ventura County.

Ready for His Close-up Real estate developer Gerald Katell has a second career going. Katell, president of Katell Properties and perhaps best known in the San Fernando Valley for his efforts to develop what was then a highly controversial project, Warner Ridge (which he has since sold to Legacy Partners), recently snagged a brief role in The Retrievers, a made-for-television movie with Robert Hayes (Airplane!) and Mel Harris (thirtysomething) that just premiered on Animal Planet. The 60-year-old developer began taking acting classes last year at The Larry Moss Studio (the school Helen Hunt thanked when she accepted her Oscar for As Good As It Gets) after a friend took him along to another acting class and coaxed him into doing a scene. That led to a small part in the yet-to-be-released, low-budget Space Girls and an audition for the prestigious acting studio. Now Katell has his own stash of head shots and is looking around for an agent. Katell hasn’t given up his day job but, he says, “with the slow economy, we’re not starting anything new anyway.” Does his newly culled acting experience help with those community planning meetings? The budding thespian hasn’t actually had to attend any since he took up the craft but, he adds, “maybe the meetings on Warner Ridge helped with the acting.” Can Al Mann Cut Back? In June, shortly after it was announced Medtronic Inc. would buy MiniMed Inc. and Medical Research Group, the companies’ founder and chairman, Alfred E. Mann, joked that, with fewer responsibilities, he “might take a weekend off.” Well, the $3.8 billion deal closed just before Labor Day and last week Mann said, “I’m semi-retired now, so I’m going to cut back to an 80-hour week. “And that’s only because the Patent Office rejected my last patent for a 48-hour week.”

When you’ve been through earthquakes, riots, fires and a Y2K scare, how much more can you prepare? The monstrous attack on the World Trade Center struck fear in the hearts of everyone, and those who manage public spaces malls and stores or large corporations charged with the workday welfare of thousands are no exception. But most say the procedures in place for other disasters will hold them in good stead no matter what the threat. They are not planning any additional security measures, though some are revisiting their procedures to make sure they are up to date. “Certainly, we’re taking a close look at making sure our security is adequate to protect our people and maintain a safe place for them to work,” said John K. Mitchell, a spokesman for Rocketdyne Propulsion & Power. “This means implementing very carefully procedures that are already in place.” Indeed, what many officials learned following the World Trade Center disaster was that the security measures already in place served them well. Panorama Mall, one of several local shopping centers that did not open for business on the day of the attack, was able to use its telephone contact records to advise all the mall’s tenants of its decision to close on very short notice, said Louise Marquez, general manager of the mall. “I really believe that we have emergency procedures that are well thought out,” said Marquez, general manager for the Macerich Co. property. “We’ve established some real secure procedures relative to any emergency anytime, and they don’t necessarily have to be revisited.” The decision to close the Panorama Mall, along with all the Macerich centers, was made not because of security reasons, but as a gesture of respect to the tragedy that had taken place, said Marquez. Westfield’s Shoppingtown at Topanga and neighboring Promenade at Woodland Hills also closed. Officials declined to comment, but a security guard stationed at the Topanga mall said he had been placed on a 12-hour shift because of the events in New York. At The Commons at Calabasas, one of three Caruso Affiliated Holdings centers in the San Fernando and Conejo valleys, local law enforcement maintained a strong presence following the attack in New York, the result of a longstanding relationship the mall has cultivated, said Shirlee Kingsley, vice president and general manager for the Commons as well as The Promenade at Westlake Village and The Encino Marketplace. Health Net Inc., which oversees its operating divisions from its Woodland Hills headquarters, also found its disaster contingency plans effective, said Lisa Haines, a spokeswoman for the company. Health Net was able to quickly run a check to make sure none of its employees were on any of the hijacked planes and account for New York employees who worked well north of the site of the disaster but were evacuated nonetheless. Still, Haines said, the attack on the trade center encouraged her to revisit her communications programs, and she did identify areas that needed updating. “One thing I needed to update is who is the current Web developer,” said Haines. “Who do I need to call to get stuff on the Web site?” Health Net maintains an 800 number for employees who need emergency assistance. But Haines said she wants to be certain that, with far-flung offices, employees could also access emergency information on the company’s Web site. While management of large offices or public spaces is made more daunting in the aftermath of the attack in New York, officials said they felt fairly removed from terrorist threats because of their location in the San Fernando Valley. “I believe most mall companies recognize that we are very large, public gathering places and, because of that, there’s a vulnerability just because of what we are,’ said Marquez. “But when it comes to national terrorism, I don’t see myself as a target. If they want to make a statement, they’re going to hit a building that’s highly recognized as a place of authority.”

Yet another new retail name is about to hang a shingle in the San Fernando Valley. Stein Mart Inc., a junior department store that discounts first-run designer brands, has just leased the site of a former UA Theater in Granada Hills and will begin a remodeling effort shortly. Stein Mart, a $1.3 billion company that currently operates about 230 stores in 28 states, will build a 30,000-square-foot unit in Granada Village at Chatsworth and Zelzah avenues. The shopping center also contains a TJ Maxx, Ralphs and Rite Aid unit. Stein Mart currently operates nine stores in Southern California, including one in Valencia, but the current move is the beginning of a larger push into the area likely to include other Valley locations. “We’re looking for numerous locations in the Southern California marketplace,” said Wally Limburg, a partner with Strategic Retail Advisors, a Newport Beach-based real estate brokerage and consultancy specializing in retail real estate. Limburg said he is actively seeking more than 10 additional sites. Stein Mart, with headquarters in Jacksonville, Fla., chose the Granada Hills location because of the demographics, Limburg said. “They felt the demos of that area were conducive to their merchandise and the types of people they feel will shop at Stein Mart,” he said. The stores carry men’s, women’s and children’s apparel, accessories, gifts and shoes. Unlike other discounters, they do not use secondary labels or styles made specifically for the chain, focusing instead on current merchandise sold in better department and specialty stores, said Limburg. Stein Mart will shell out about $1.6 million, more than $50 a square foot, to renovate the former theater, an amount that is close to the replacement cost of the facility, said Chris Wilson, president of Wilson Commercial Real Estate, who represented the landlord, National Retail Partners, along with Coleen Kirnan of Kirnan Commercial Real Estate. “What we’re finding is to convert these old theater buildings to regular retail uses is turning out to be the most expensive retrofit of anything I can think of,” Wilson said. “Usually, if you have a 30,000-square-foot building, the retrofit is probably about $20 or $25 a square foot.” Stein Mart is expected to open in spring 2002. Chris Auer, who recently left Strategic Retail Partners, represented Stein Mart in the deal. Van Nuys Sale Executives of JB Marketing, video game distributors, have acquired a 10,856-square-foot industrial facility in Van Nuys for $937,000. With the move, the company will be expanding its headquarters and warehousing space threefold, according to Bob Hoyer of Delphi Business Properties, which represented the buyers, operating as SHM Holdings, in the deal. Luke Staubitz, Harvey Beesen and Melissa Lee of The Klabin Co., represented the seller, RLH Property Group. Thousand Oaks Lease American Recovery Service Inc., a commercial collection agency, has leased new offices at Hillside Corporate Center in Thousand Oaks. The five-year lease for 14,898 square feet of space is valued at $1.93 million. Carlo Brignardello of Cresa Partners represented the tenant. Michael Slater at CB Richard Ellis represented the landlord, Arden Realty Inc. Tourney’s New ACT Tourney Pointe, the beleaguered office complex in Valencia, has a new tenant. ACT Litigation is relocating from the San Fernando Valley to a 15,400-square-foot office in the center. The five-year lease is valued at $1.43 million. Tourney Pointe, a 219,000-square-foot office building, has a vacancy rate of 40 percent. Doug Sonderegger of CB Richard Ellis represented the tenant. CB’s Deron White and Jim Lindvall, a broker with Grubb & Ellis, represented the landlord, Arden Reality Inc. L.A. Law Bremer & Whyte LLP, a law firm that specializes in defending insurance companies and those they insure, has opened its first San Fernando Valley office in the LNR Warner Center complex. Bremer & Whyte leased 6,933 square feet of space at the complex at 21271 Burbank Blvd. The new office will house about 15 workers. The firm is headquartered in Newport Beach. Tony Principe, executive vice president at Westcord Commercial Real Estate Services, represented the tenant. Bank on More Union Bank of California leased 4,415 square feet of retail space at 3887 E. Thousand Oaks Blvd. in Westlake Village. The value of the 15-year lease is in excess of $2.8 million. Union Bank’s freestanding Westlake Village location is part of an expansion throughout California, according to Craig A. Poletti, vice president of the bank. The company is planning to renovate the building and will assume occupancy this fall. David Powell, a broker with NAI Capital Commercial, represented the tenant. The landlord, The Robert Weil Trust, was represented by Cheryl Richmond, Marc Riches and Cory Richmond, also of NAI. Housing Forecast Speakers at a Ventura County real estate conference sponsored by Chicago Title told the audience gathered in Westlake Village on Sept. 6 that, while the area had not suffered the same commercial real estate downturn that some other California regions were enduring, lack of housing was posing a significant economic threat to the region. “Something needs to be done about the problem now before things worsen,” said Mark Schniepp, director for the California Economic Forecast and the featured speaker at the conference. Senior reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].

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Ready to take advantage of foundering Internet service providers, some of the first people to see the potential there four years ago, Ronald Burr and his three co-founders of NetZero Inc., say they are back with a new startup that will speed up the growth of broadband technology. Burr, who left NetZero in July as it struggled with mounting losses, says his Westlake Village-based Layer2 Networks Inc. has acquired at bargain-basement prices millions of dollars worth of hardware from failed dot-coms and ISPs to create a network of dedicated connections to the Internet’s so-called backbone, existing telephone networks. “Companies that go into broadband just didn’t have the capital to build this second layer and that’s where we come in,” Burr said, referring to layer 2 or the segment of the Internet service provider network which connects to the local telephone network main circuits. “I felt this was a great opportunity and a new challenge,” said Burr, of his departure from NetZero. “There wasn’t much entrepreneurship involved in NetZero anymore. It was just management and I wanted to do something else.” Burr’s exit came as NetZero estimated it would lose $205.4 million during 2001 on revenue of $57.2 million, compared to a $91.3 million net loss on $55.4 million in revenue in 1999. In June, the company laid off 26 percent of its workforce, or 66 people, to reduce costs in preparation for a pending merger with another one-time free Internet service provider, Juno Online Services Inc. At the same time, NetZero introduced a subscriber-based service to bolster its revenue. “They’re going to be one of the few ISPs still standing when the dust clears,” Burr affirmed. With at least $20 million of venture capital to work with (Burr would not disclose the names of his investors), Layer2 is scouring bankruptcy auctions looking for used equipment offered by failed telecoms and ISPs for pennies on the dollar. “An aggregate router box that costs $200,000, I bought for $25,000, and so on. It’s much cheaper than if you bought it brand new and a lot of it is still in boxes, brand new,” he said. The router box is the main hardware used to connect the Internet user network to the Internet backbone. Burr, who hopes to begin building the network in January, is now seeking contracts for the service from telecoms and ISPs still in business. Accompanying Burr from NetZero were Stacy Haitsuka, Harold R. MacKenzie and Marwan Zebian, all now top executives with the new company. Broadband has been touted as the next generation of the Internet, marrying cable television, telephone service and the Internet with one connection. Burr said the new company would install the hardware and lease the circuits from telephone companies in cities like Los Angeles, Houston, Chicago and New York, establishing a network of high speed connectors to telephone circuits that allow high bandwidth. These connections would then be leased to broadband firms or ISPs for an unspecified monthly fee. “In the past, companies would have to spend millions on the hardware alone, and it just got too expensive for a lot of companies,” Burr said. Mark Davidson, a consultant with Davidson Associates, said Burr’s new firm could take advantage of the declining cost of bandwidth access. “You had costs as high as $150,000 to $200,000 a month for an OC3 line a year ago, but now that’s going for $8,000 to $9,000,” he said. An OC3 line is capable of carrying 100 T1 lines, or high-speed lines that carry a maximum 1.5 megabytes of information per second. Digital Subscriber Lines, by comparison, carry 400 to 500 kilobytes per second. David Smith, vice president of Internet strategy for the telecommunications consulting firm Garnet Inc. of Stamford, Conn., said efforts to speed up the availability of broadband have been spotty and may not pick up until 2003 or later. “I’m not sure what it’s going to take to see significant growth there,” he said, adding that AT & T; has made strides in setting up its broadband network around the country since it acquired cable television provider MediaOne Inc. in 1999. Smith, however, said he was unsure what impact Layer2 would have on the broadband industry. Jim Delany, CEO of Woodland Hills-based ISP, Broadband Highway Inc., said Layer2 could indeed speed up the advent of broadband if Burr’s business plan is solid. “It’s a question of whether they’ll have the customers and whether they can do this and make it pay for them,” Delany said. “Broadband hasn’t taken off because it’s too expensive for the end customer and for the company to spend a tremendous amount on equipment.” But Layer2’s Burr says the key to success is his company’s acquisition of used equipment, or so-called gray market equipment, much of which, he says, remains in unopened boxes. “We don’t have the expense that other companies would have had,” he said. With initial startup costs of $20 million to build the network, Burr hopes to alleviate what he calls the “bottleneck” that’s been stifling the expansion of broadband development. “People just couldn’t afford all that hardware,” he said. Total costs for the network, however, were not disclosed, but Davidson said it could cost “hundreds of millions” to serve the nation’s top markets. Burr, however, says a number of unnamed ISPs have expressed interest in the service that would bring broadband to thousands in Southern California. “They like it because they don’t have to commit any capital risk and it completely simplifies their commitment to broadband,” he said.

With a sluggish economy in place, many companies are cutting their expenses and staffs to make ends meet. Others are rethinking core business plans, some are expanding their sales forces. So, the San Fernando Valley Business Journal asks: “What are you doing to improve your company’s position in this economic slowdown?” David S. Burr President and CEO Pacific Coast Cabling Chatsworth We believe this slowdown to be temporary. We are focused on the future and know that we will bounce back from this sluggish period soon. As a company that provides the full spectrum of voice, video and data communications infrastructure technologies, Pacific Coast Cabling is assured that business is out there and will continue to be available to us. Right now, we are tightening our focus as a business. We are more clearly defining our markets. In addition, we are strengthening our sales efforts. Unlike many companies out there in our space, we continue to hire personnel and do not foresee any layoffs in the near future. Iraj Borbor Dean DeVry Institute of Technology West Hills With the economy slowing down, some people are looking for new jobs, whereas others are seeking greater job stability. In such a climate, a bachelor’s degree at DeVry is viewed by many as a valuable asset opening doors for new career opportunities. Accordingly, our focus right now is on expanding our course offerings and programs to meet student demand. We are also continually working with the business community to enhance and adopt our curriculum to ensure our graduates are ready for the evolving needs of the marketplace. Robert Brown President The Comdyn Group Calabasas The slowdown began last August when the dot-com, or dot-bomb, went down. Our customers cut their expenses by minimizing their orders with us. The reason for this is due to fear from our cyclical economy. It affected us greatly. We decreased our purchases, minimized projects, put a freeze on hiring new staff and warranted a salary pay cut. We are keeping our powder dry and feel very optimistic about the economy. Currently, we are keeping a close staff, attending seminars for new information in the technology industry and enhancing our sales strategy and motivating my staff to sell, sell, sell. In a volatile economy, we must prepare, adapt, adjust and position ourselves to obtain a competitive edge. Jim Delany CEO Broadband Highway Inc. Woodland Hills It has affected us drastically. We had to decrease some of our resources and concentrate on improving a profitable model. Our main focus is to perfect our deployment and procedures to obtain revenues. To accomplish our goals, we’re currently targeting the Southern California area. By concentrating in the small areas of Southern California and changing our business plan, we can improve our return on investment. Our company is engaged in a service-oriented sector where we can focus our expertise in the Internet business.