Local tech sector struggling
By John Duchemin
Advertiser Staff Writer
When the U.S. economy swoons, Hawai'i feels faint. Some members of the state's technology sector, lately the source of much optimism, are learning that firsthand.
Multiple shocks have jolted the nation's tech industry, which last year was still in the midst of a fairy-tale boom. Over the last several months, the stock market crashed for the third and most resounding time in a year; the venture-capital market has become tight, particularly for unproven start-up technology companies, as investors burned by the market crash have wisened up; and massive corporations have announced earnings shortfalls, thousands of layoffs and delays in infrastructure investment projects.
These interconnected factors cannot fail to affect Hawai'i's technology sector, say many members of the industry. The state's fledgling New Economy community still has plenty of long-term potential, according to industry experts, and many companies are thriving. But several start-up Hawai'i tech firms have struggled of late:
WorldPoint, a downtown Honolulu Web site translation company, spent millions of dollars on an international expansion, but this year has shrunk its work force from more than 100 employees to about a dozen and closed several international branch offices.
WorldPoint officials say the goal is to break even, and Massimo Fuchs, the company's chief executive officer, points to several new contracts with Mainland Internet companies as good news. The company still owes the state government $800,000 in principal and interest from an overdue development loan. The Honolulu office in the penthouse of the First Hawaiian Tower now has about 10 employees, down from several dozen, company officials say. The downtown San Francisco office now has about two employees, said Ron Pettay, the former WorldPoint human resources director who recently resigned.
hotU, a start-up Internet company with offices in downtown's Harbor Court, has laid off six of its 34 employees. The company has survived since last summer on $6 million in venture funds and is searching for a new round of funding, but hotU officials said they need to conserve money until the venture investment climate becomes more promising.
HighSpeed Communications, a wireless Internet provider based in Walla Walla, Wash., has cut back its Honolulu office in the First Hawaiian Tower to about six people, and Hawai'i region manager Jerry Stabile has left the company, officials at the company's headquarters said. Company officials said their Hawai'i expansion projections outstripped actual revenue growth: Stabile in January said the company would shoot for 100 customers and $7 million to $8 million in annual revenue. To date, HighSpeed has about 15 customers.
Ohana Foundation, a nonprofit educational DVD company based in Ali'i Place in downtown Honolulu, has laid off about eight of its 120 employees as part of a corporate reorganization. The company had experienced production bottlenecks that hindered its ability to produce DVDs, officials said.
"Like any start-up, we are adjusting our staffing and systems to respond to changing conditions," said Phil Bossert, an Ohana Foundation vice president who announced his resignation as part of the restructuring.
Mid-Pacific Broadband Inc., a Kirkland, Wash., venture that plans a $100 million, 100,000-square-foot Internet data center in Kapolei, has pushed back its expected groundbreaking date because it hasn't raised enough money, company officials said. Construction originally was to begin in early 2001; a new date has not been set as the company tries to round up investors and corporate partners.
Such struggles don't surprise many of the seasoned players in the Hawai'i technology scene — especially because established companies are also feeling the heat. For example, Adtech Inc., the 330-employee network-testing company considered by many to be Hawai'i's flagship technology enterprise, says its growth will slow in 2001 as its major customers, including Cisco, Lucent and Nortel, endure a spell of financial hardship.
Still, the current problems should not be considered a death knell for technology in Hawai'i, said Ed Young, a City Bank business banker, and other experts. They said demand is still strong from traditional companies for technology services; the Internet economy should recover from recent short-term shocks; and Hawai'i's cottage technology industry remains strong, with dozens of entrepreneurs operating on shoestring budgets to develop innovative products.
"The amount of rain affects agriculture, the Asian crisis affected tourism; does the Mainland economy have an effect on us? Probably. But is it so much, that we can't come back? No, I don't think so," said Yuka Nagashima, president of Honolulu Internet service provider LavaNet.
But the economic slowdown has injected caution into many companies' projections, said Nonie Toledo, Hawai'i region vice president for Sprint Hawai'i.
"I'd say we're optimistic, but I can't say how long that optimism will last," Toledo said. "Everyone is very cautiously looking at how they invest money: Will they spend as much as they forecast on infrastructure if their revenues are not growing as they forecasted?"
A climate of caution has not helped companies that depend for survival on speculative investments, Nagashima said. The most vulnerable companies these days are those that followed the "typical" dot-com model: Spend a lot of money, expand quickly, attract lots of new investments with sexy ideas — and worry about revenues and profits later, Nagashima said.
Advertiser staff writer John Duchemin can be reached at 525-8062 or at jduchemin@honoluluadvertiser.com.
