"When I first came here there was a handful of jobs in the fields of applied sciences," said O'Connell, 37, a senior research engineer with Oceanit. "Now we're seeing dozens of jobs open each year."

Building a technology industry and diversifying the state's economy away from tourism has been a goal of the state for the better part of three decades. Yet achieving it has been difficult with Hawai'i's lack of adequate venture capital, isolation from large markets and the dot-com bust that slowed growth and killed off companies in recent years.

With the national outlook for technology again upbeat heading into 2004, Hawai'i's technology sector should see companies build on their near-term gains. But industry insiders say it will likely be many more years before the industry has any significant impact on the state's economy.

Estimates of the size of the state's technology industry vary. The most recent figures compiled by the industry trade group AeA, formerly the American Electronics Association, lists Hawai'i as having among the smallest technology sectors in the country — ranking 47th of the 50 states with 13,353 technology jobs in 2002.

Location an advantage

The industry's small size reflects the continuing struggle of Hawai'i entrepreneurs.

At the same time, the state has distinct natural advantages in select technology areas, particularly astronomy, marine science and defense, O'Connell said.

"Because of its geographic location, I don't know of another location for certain research in the world," he said.

And when it comes to attracting high-tech talent, Hawai'i has a further advantage with its enviable lifestyle, added O'Connell, a New Jersey native.

"Hawai'i has a lot to offer. Personally I can say the quality of life is very attractive here," said O'Connell, who works in Kihei, Maui, at Oceanit's subsidiary Maui Optical Systems and Imaging Center. "I always wanted to live in Hawai'i and work in Hawai'i and I'm very fortunate to be able to do so."

But developing a critical mass of technological ventures on the scale of Silicon Valley or San Diego will take more than good weather and white-sand beaches, and how well local technology companies do in the next year will depend in part on the industry nationwide.

Analysts expect some tech sectors will continue to struggle financially. Profits at Standard & Poor's 500 communications-services companies such as AT&T, Sprint and Verizon are projected to fall 2 percent next year after remaining flat this year, according to Thomson First Call.

The outlook for S&P 500 technology companies, including computer and semiconductor makers, appears better. Analysts expect their profits to grow 33 percent in 2004 after increasing an estimated 87 percent this year, partly because earnings were so weak in 2002 and an earnings restatement by Lucent, which depressed sector earnings in 2002.

Much of the earning growth at technology companies is expected to occur in the first half of 2004, which is a marked improvement from a year ago when analysts weren't predicting a recovery until the second half of this year, said Ken Perkins, a Thompson research analyst.

"There's a general perception that there's been a turnaround in the economy.

"Whether or not those numbers come down depends on whether businesses expand their budgets in terms of capital expenditures" on technology, he said.

A rebound in 2004 could loosen purse strings among technology investors, some of whom could be attracted to Hawai'i's Act 221 and the tax credits it provides for investments and research in technology companies.

Generous incentives

Under Act 221 passed in 2001, the state offers among the most generous technology incentives in the nation. But with the program's unexpectedly high cost and alleged abuses, tightening the provisions of Act 221 will again be debated in the coming year.

Lawmakers have up to now fought off Gov. Linda Lingle's attempts to limit the credits, some of which have gone to movie ventures and charities rather than technology companies. Act 221 supporters argue that the program needs time to prove its worth in generating economic benefits for the state.

State officials also hope the University of Hawai'i medical school under development in Kaka'ako, as well as promising research in ocean-related and medical technology, will help spur growth in the industry.

Still, technology entrepreneurs readily admit that Hawai'i's industry has a long way to go before jobs materialize in large numbers.

"It's still pretty hard to find a job right now," said Ho'ala Greevy, 27, who returned home to Hawai'i from Silicon Valley to start a Linux consulting business in 2002. He also owns a spam-filtering company called Pau Spam.

"That's not to say you can't start your own thing, which is what I did.

"When I came back I couldn't find anything, and when I saw the opportunity I figured if I didn't take the chance I'd be kicking myself," he said.

Looking for a big year

Industry insiders like Tom Moore see Hawai'i's technology industry progressing. Moore, 69, came to Hawai'i in 1960 to work as an engineer for Hawaiian Tel and has started several local companies, including telecommunications equipment maker Intellect in 1964 and most recently Tropical Telecom, a Kailua-based maker of home telephone switching systems.

Despite expectations of a relatively flat year for telecommunications, Tropical Telecom projects sales to rise next year. Moore said his company competes by outsourcing manufacturing to China and engineering to Canada — a model other Hawai'i entrepreneurs could follow.

"In the niche that we're in, over the next couple of years we're rapidly on the way to becoming the premier company in residential telephone switching," said Moore. "It looks good. We're real upbeat about it."