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Thursday, March 1, 2001

A Force Emerges

By Aaron Baca
Journal Staff Writer
    More than five years ago Thomas Brennan and Robert Ryan figured they were onto something.
    They figured they could take a valuable optical technology out of Sandia National Laboratories, plant it in the world of business, create a slew of new jobs and make serious money at the same time.
    And since then, that small tech company and others like it have turned into a growing portion of New Mexico's economy.
    The fastest-growing of them 40 to be exact have grown from about 2,000 employees generating $468 million in revenues three years ago to nearly 5,000 jobs today with almost $700 million in annual revenues.
    Those companies the New Mexico Flying 40 will be recognized for their rapid growth during a black-tie banquet on March 13 at the New Mexico Museum of Natural History.
    The Flying 40 have been singled out as a group partly because the companies' singular economic contributions often go unrecognized.
    But if the Flying 40 were a single company, the money and jobs it produced in 2000 would make folks start thinking there was a new Intel chipmaking plant in Albuquerque.
    Spread out, however, over dozens of different companies, that kind of money and those kinds of jobs turn into an economic picture that many believe is a glimpse of New Mexico's future.
    "The energy in the community with regards to ... technology business formation has reached almost a cascade," Brennan says. "There is almost enough management talent and capital seeking to come to New Mexico now that we're reaching a point where technology has almost achieved critical mass."
'Near critical mass'
    New Mexico's technology scene can't yet be described with the term critical mass. If it could, economic developers would be out of jobs already.
    But "near critical mass" is a term that is popping up more and more.
    "We may not be there yet, but we're damned close," says Sherman McCorkle, president of Technology Ventures Corp. in Albuquerque. "I see more and more self-generation in technology. There's certainly more diversity than there was six years ago. There's a business climate that's beginning to sustain itself.
    "That's extremely healthy."
    More than anyone, McCorkle is the one who likes to add up the revenues generated by the fastest-growing technology companies and the number of jobs they have created.
    TVC, after all, was founded by Lockheed Martin in 1993 to help new technology-related businesses in New Mexico.
    In recent years, "They have a bigger impact than the bigger companies," McCorkle says. "If you look at the big companies over the last five years Intel, Honeywell and Philips Semiconductors compare how many jobs they've created. The little companies have done more. They are a bigger part of the economy."
    The Flying 40 list showed a collection of companies with revenues in 1997 of $468 million. In three years that figure has climbed nearly 50 percent. And the number of jobs has more than doubled from about 2,000 in 1997.
    Combine the new smaller, high-tech firms and the large technology manufacturing firms, and the numbers seem to indicate a new power is emerging.
    In the last year, the New Mexico Department of Labor showed an increase of about 600 jobs from December 1999 to December 2000 in the city's manufacturing sector. Statewide, that figure grew by more than 1,000 jobs.
    Other industries remain an important part of the state's economic fiber.
    But "our economic future is not in agriculture," McCorkle contends. "It's not in mining, and it's not in oil and gas. It's here in these technology companies."
    Economic development officers agree.
    "Albuquerque grew up as a consumer-oriented economy," says Albuquerque Economic Development Officer Erik Pfeiffer. "But the future of economic development is in this new manufacturing base that we're trying to attract."
    New Jersey-based Emcore, the company that bought Micro Optical Devices from Brennan and Ryan, "is the prototype," Pfeiffer says.
    However, there are obstacles.
    A recent study by the Milken Institute of Santa Monica, Calif., concludes that Albuquerque has not reached its potential as a technology business center.
    The report cites heavy government regulation, a burdensome tax structure and lack of action by state and local policy-makers as obstacles to technology development in Albuquerque.
    The Milken study isn't the only one to note these obstacles. Company leaders even some of those on this year's Flying 40 say that regulations and taxes in New Mexico make doing business here harder than in other states.
Overcoming obstacles
    SBS chairman and CEO Christopher J. Amenson agrees the business climate could be improved. But that does not mean business can't be done here.
    "You can serve the world from here," Amenson says. "In our case, we're a global company that makes products for industries that don't operate under New Mexico's business environment."
    He said many of the obstacles that exist are often greatest for small startup firms.
    SBS, which tops this year's Flying 40 list, makes embedded computer products for the telecommunications and aerospace industries, as well as for automated control equipment.
    Amenson says issues such as those identified in the Milken study do make doing business harder in New Mexico. But he says the Flying 40 companies are examples of what kind of growth more companies could experience if the state had a friendlier tone for businesses.
    "SBS started here because our founders wanted to start a company in the physical environment in which they wanted to retire," Amenson says. "In fact, however, two of the founders have moved from New Mexico prior to liquidating much of their shareholdings in order to avoid the oppressive New Mexico income tax.
    "SBS remains here for no other reason than because there is a cost to move elsewhere," he adds. "And to incur that cost, there must be another, coincidental, business reason to move."
    Despite the obstacles, the Flying 40 represent why companies can succeed, Brennan says.
    Many of the companies on this year's list produce what are termed "enabling technologies," which means they make the guts of such things as the Internet, telecommuni-cations networks and optical systems, Brennan says.
    Because of that, the demand for products made here is remarkably high, despite slowdowns in bigger technology industries such as consumer computers or the demise of the dot-com companies in the past year, he says.
    "I see that portion of the (Flying 40) list that actually fits into this enabling technology as dramatically increasing," Brennan says.
    The Milken study reaches a similar conclusion.
    "Emerging technology communities may be able to prosper by focusing on the necessary ... tasks of fulfillment, data-entry, assembly and technical support" divisions of technology, the study states.
A niche
    The "enabling" aspects of technology are where Albuquerque seems to be developing a variety of talents, McCorkle says.
    The Flying 40, if taken as an example of Albuquerque and New Mexico's emerging strengths, show the increase in demand for those enabling technologies.
    A sampling of the companies on the list goes like this:
    * MIOX Corp. the developer of a new process for disinfecting municipal and industrial water supplies. The company has more than 700 systems operating worldwide. Its systems can treat from 5,000 to more than 100 million gallons of water per day. MIOX employs 32 people and had revenues in 2000 of about $4 million.
    * CVI Laser Corp. a manufacturer of high-quality laser optics. CVI has developed techniques for cost-effective optical coatings and now makes products for telecommunications, semiconductor and consumer uses. CVI employs about 400 people in offices around the county and had revenues of about $31 million in 2000.
    * Sagebrush Technology Inc. develops motion control devices for the aerospace, medical and wireless communications industries. The company was founded in 1991, employs nearly 30 people and had 2000 revenues of about $2.7 million.
    * Optomec Inc. uses lasers and proprietary CAD software to directly form finished 3-dimensional products used in injection-mold testing and biomedical prosthetics. The company employs 36 people and had 2000 revenues of about $6 million.
    * Beta Corp. International serves government and private-sector clients as an environmental and engineering-risk assessment consultant. Beta Corp. has 40 employees and had revenues of nearly $4 million in 2000.
    * General Technology Corp. provides contract electronic manufacturing services for the aerospace, avionics and telecommunications industries. GTC makes electronic and electromechanical devices that its customers design. The company employs about 150 people and had 2000 revenues of more than $20 million.
    The companies on this year's list of Flying 40 are as diverse as those listed above. The variety is a sign that in addition to industry clusters developing in the state, the technology industry is also growing into new areas, McCorkle says.
    "That's one of the little-known strengths of our economic base," he says. "The diversity of the technology companies here isn't reliant on a single industry."
    Technology clustering is an idea that's being promoted by the nonprofit Next Generation Economy Initiative.
    Among the clusters being promoted are four technology groups: optics, electronics, biomedical and information technology services.
    The Next Generation group was founded under a federal grant to research ways to improve central New Mexico's economy with an emphasis on growing new technologies here.
    Clustering simply refers to a grouping of companies in similar industries.
    Brennan says the diversity of companies already here is at least one indication of the number of new technologies investors recognize as viable businesses.
    "I think people are starting to catch the wind here," he says. "The technologies in New Mexico are dramatically undervalued. Investors are beginning to look for more deals here because of that."
    Investors, he said, are beginning to bring more angel and venture capital investment to the state in hopes of making generous profits because the technology has not been highly valued in the past.
    Brennan himself has left Emcore to create a business focused on helping startups and commercializing lab technology.
    The technology trend here, Emcore's Robert Ryan says, will be one of growth.
    "It's real," he says, describing the growing business by technology firms. "Compared to 5 or 10 years ago, Albuquerque has changed.
    "Emcore didn't have to come here and spend money," he adds. "The company was willing to make a tremendous investment here based on a good technology. What's developing here is a solid, high-tech manufacturing business."
    New Mexico economic developers always have looked to attract technology companies to the state, but efforts have notably increased in recent years.
    Gov. Gary Johnson and Secretary of the state Economic Development Department John Garcia traveled in December to Silicon Valley promoting the state as the "next new place to do business" to high-tech firms.