2007 industry report: electronics

Tar Heel techies try to get boom to echo
By Irwin Speizer

The buzz

TREND: The state's electronics sector is slowly rebounding from the dot-com collapse of 2001.

OUTLOOK: More venture funding and a base of experienced executives should help stoke startups and expansions.

In the world of high-tech electronics, sometimes there's no such thing as a straight line. Take Motricity, the fast-growing Durham-based provider of technology that lets people get games, graphics and tunes on cell phones. Over the last year, the company seemed to fast-forward and reverse at the same time.

In April, it announced it had secured $40 million in venture capital. In July, it bought GoldPocket Wireless, an interactive-services company whose clients include The Apprentice and Big Brother television shows. In August, it snagged $32 million more venture funding, bringing to $152 million the amount raised since its formation in 2001. "We more than quadrupled our customer base," says Noreen Allen, vice president of marketing. "It's been really busy."

But while growing, Motricity began shrinking. In October, it announced it was cutting 10 of its 425 jobs as it reorganized to reduce expenses. In December, it said 50 more jobs would go, about half of them at its headquarters, where 375 work. "We had to bring in a ton of employees to help get those new customers launched," Allen says. "You have this ramp-up period where a lot of work is required, and then you are able to scale back."

As a whole, the industry is ramping up in North Carolina after several years of scaling back since the dot-com bust of 2001 - when makers of computer and electronic products cut more than 10,000 jobs statewide. Employment started inching up in 2005 and continued last year. Through November, it was about 39,700, up 900 from the beginning of the year.

Bolstered by favorable reviews - in September, the Silicon Valley Leadership Group ranked Research Triangle Park the nation's most desirable technology hub - the state continues to attract tech companies. "We are seeing tech companies relocating to North Carolina from other parts of the country to escape higher operating costs," says Mark Vitner, senior economist at Charlotte-based Wachovia.

Case in point: Network Appliance, a Sunnyvale, Calif.-based maker of data-storage software and hardware. It moved some operations to Durham in 2000. In 2004, it bought three RTP buildings, began building a regional headquarters and added to its work force of 150. By late 2006, it employed more than 500 in North Carolina.

In the Triad, Greensboro-based RF Micro Devices, which makes chips for cell phones and other products, began another expansion in its hometown after an international search for a factory site. The new plant, expected to start churning out chips this year, will employ 300 at capacity.

Raleigh-based Red Hat, which sells and services its version of the Linux operating system, agreed in April to pay $420 million for Atlanta-based JBoss, which makes software that connects operating systems with Internet applications such as reservation systems. Investors applauded, driving up Red Hat's stock price to a six-year high of $32.27 in May. But it didn't stay there. In October, Redwood Shores, Calif.-based software giant Oracle said it would undercut Red Hat's software-support prices. Red Hat stock plunged into the mid-teens and didn't crack $20 a share until late December.

Durham-based Cree, a maker of light-emitting diodes used in cell phones and other products, started the year with a growing backlog of orders and increased production. But like Motricity, it grew in some ways and contracted in others. Revenue increased, but profit sagged as competition among LED makers drove down prices. For the last fiscal year, which ended in June, the company reported a 10% jump in revenue to $453 million and a 16% drop in net income to $76.7 million. The picture darkened the next quarter, with profits off 39% from the year before and revenue up just 1%.

Money to finance startups began flowing more freely last year, a trend that is expected to continue. Intersouth Partners, a Durham-based venture fund, raised $275 million in May. "If you have a good business, you should be able to find funding," General Partner John Glushik says.