Few options for tech companies in tight market

By Sean Hao
Advertiser Staff Writer

For the technology and telecommunications sectors, 2003 will be a different from '02, but the results may be painfully similar.

Both markets continue to suffer from the after-effects of the technology bust that followed the late-'90s boom and remain plagued by a drop in available capital and lower-than-expected demand for computer hardware and software as well as Internet and wireless data services.

And that could be problematic for Hawai'i's efforts to establish a high-tech base of employers and jobs as investment capital is expected to remain tight. Amid such an environment, business executives are expected to remain leery of expanding facilities and adding workers until signs of an industry recovery are clear.

That means Hawai'i's fledgling technology sector should remain stable next year, showing little, if any growth, according to industry observers. Exact figures on the size of Hawai'i's technology industry vary widely, but in general, such companies are estimated to employ a few thousand people statewide.

"I don't think the funding environment will improve at all, though that's not just a Hawai'i problem, but a Silicon Valley problem and for the rest of the United States," said Kirk Westbrook, managing director of International Venture Fund.

Realistically, even communities with established technology sectors are hoping they can keep such high-wage jobs, let alone add more, he added.

In the long term, incentives such as Act 221, which provides tax credits for investments in technology companies, as well as construction of a $150 million medical school and research center in Kaka'ako, should ultimately boost the local base of technology jobs, said Westbrook, whose venture capital firm is invested in several technology companies in the state.

Overall, analysts expect profits at Standard & Poor's 500 communications-services companies, such as AT&T, Sprint and Verizon to fall 3 percent next year after rising an estimated 2 percent this year, according to Thompson First Call. The outlook for S&P 500 technology companies, which includes computer and semiconductor makers, appears greater. Analysts are expecting their profits to rise 35 percent in 2003 on top of an estimated 2 percent earnings growth this year.

However, it's much too early to predict a recovery for these computer and communications equipment makers, said Chuck Hill, director of research for Thompson First Call.

That's because estimates by Wall Street analysts for the industry have been on a steady decline since July, when they initially forecast earnings at technology companies would grow 52 percent next year, he said.

Compounding concerns is the fact that most of that growth is projected to occur in the second-half of 2003, which "means it's a very back-end-loaded year," Hill said. "I think the recovery is going to take quite a while."

And when the technology industry does rebound, at least initially, new business likely will go to established companies, before finding its way to smaller innovative firms such as those in Hawai'i, said Tareq Hoque, president of the Hawaii Technology Trade Association and former chief executive of Adtech.

Meanwhile, incentives such as Act 221 should help the local technology sector secure much-needed financing amid the industry's continued slowdown, he said. "That encourages investment in technology," Hoque said. "We're seeing the signs that that's going to have some impact."

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.