TELECOMS FEEDING ASIA'S NEED FOR SPEED

Published on July 25, 2005

© 2005- The Press Democrat

BYLINE:    STEVE HART

THE PRESS DEMOCRAT

PAGE: D1

Emerging from a four-year slump, Telecom Valley companies are finding success in Asia's booming high-tech market.

It's a sign that Telecom Valley, which lost thousands of jobs during the tech downturn, is picking up speed. While few expect a return to the boom of the late 1990s, Sonoma County's telecom survivors are reporting rising sales.

One measure of Telecom Valley's recovery will come this week when two of its largest companies, Tellabs and Alcatel, report their quarterly earnings. Both companies have units in Petaluma, where together they employ about 600 workers.

Although U.S. demand for telecommunications equipment is weak, the international market is booming.

Petaluma startup Teknovus is one of the Sonoma County businesses making the Asian connection, supplying computer chips for fiber-optic networks in Japan and South Korea. Those networks deliver voice, video and high-speed Internet service to millions of homes.

Teknovus President Rex Naden said Asia is the fastest-growing market for his company's products. Teknovus also is making deals with telecom carriers in Taiwan, China and Malaysia.

``The Asian countries have taken the lead in terms of this technology,'' he said. ``We believe 70 to 80 percent of fiber-to-the-home over the next 10 years will be in Asia. It will take longer for the U.S. to catch up.''

Teknovus, founded in 2002, has doubled its employment to 60 in the past year. The Petaluma office, which has 45 to 50 employees, designs and tests computer chips and software. The chips are manufactured in Europe and Asia.

The company raised $30 million in venture funding and is on track to turn a profit later this year, Naden said. Sales in the third quarter alone will exceed revenues for the first half of the year, he said, although he would not disclose revenues.

Teknovus isn't the only Sonoma County telecom company looking to Asia:

* Motorola's networks division, which includes the former Next Level Communications in Rohnert Park, recently announced deals to supply network gear to telecom service providers in Taiwan and Japan.

* Petaluma's Dilithium is providing key technology for one of China's largest manufacturers of wireless equipment. Dilithium's system allows faster transmission of voice and video over wireless networks.

* Petaluma's Turin Networks is supplying the switch platform for a nationwide telecom network in South Korea.

The reason for their focus on overseas markets is simple: Spending on telecommunications outside the United States will grow at least 10 percent a year over the next four years, reaching $2 trillion by 2008, according to the Telecommunications Industry Association, an Arlington, Va., trade group. The growth is fueled by an improving world economy and demand for mobile devices and wireless service.

The number of wireless subscribers in Asia, Europe and Latin America will reach 1.9 billion during the next four years, according to the group.

Spending on high-speed broadband access will triple in that time, spurring more demand for telecommunications equipment, the group said. Analysts said international orders will surpass $300 billion annually by 2008.

However, U.S. telecom suppliers face growing competition from Chinese manufacturers, according to a report by Economy.com, a Pennsylvania consulting firm that tracks business trends for Sonoma County's Economic Development Board.

Chinese producers of low-cost cell phones and network equipment are grabbing a larger share of the Asian and Latin American markets, said Economy.com analyst Kasie Blanchette.

Still, there are signs that Sonoma County's telecom sector is rebounding from the slump that began in 2001, she said. Agilent Technologies, the county's largest high-tech employer, reported growing sales in the last quarter for its test and measurement group, which includes the Santa Rosa wireless division.

The division makes test gear for cell phones and other electronic devices. Demand for wireless testing could also be a boon for small Sonoma County startups founded by former Agilent employees, Blanchette said.

The county's telecom sector is growing more profitable because of stable demand, cost-cutting and increased productivity, the report said.

But the improving climate hasn't led to an increase in high-tech employment. While layoffs and business closures have eased since the dot-com crash in 2001, new hiring isn't taking up the slack.

Meanwhile, large companies continue to acquire Sonoma County's homegrown high-tech businesses. In some cases, mergers have expanded local operations, adding new resources and customers. But the acquisitions also have led to layoffs in companies that changed their business strategies and eliminated redundant positions.

Venture funding for new tech companies is on the rise, but hasn't returned to pre-2001 levels, according to the report.

With much high-tech manufacturing now done overseas, Sonoma County must concentrate on research and development of new products, the report said.

You can reach Staff Writer Steve Hart at 521-5205 or shart@pressdemocrat.com.

PHOTO: 2 by MARK ARONOFF / The Press Democrat

1. Senior software engineer Thyagu Subramanian works last week in the Teknovus lab in Petaluma. The high-tech company supplies advanced semiconductors to large telecom providers in Japan and South Korea.
2. Jerry Wojtowicz, director of applications engineering at Teknovus, tests the new generation of chip sets in the lab last week.

Infobox:

TELECOM VALLEY'S GLOBAL REACH

Sonoma County companies help supply a worldwide boom in telecom, most notably in Asia:

TEKNOVUS, a startup in Petaluma, is delivering computer chips for improved fiber- optic networks in Japan and South Korea.

NEXT LEVEL COMMUNICATIONS

in Rohnert Park will be supplying equipment to telecom companies in Taiwan and Japan.

TURIN NETWORKS in Petaluma is the supplier for a switch platform for South Korea's national communication network.

Dilithium in Petaluma is helping a large China telecom maker speed up video and voice transmission.

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EARNINGS THIS WEEK

Tellabs will detail its earnings before the bell Tuesday.

Alcatel reports its quarterly earnings Thursday.

Keywords: TELECOMMUNICATIONS INDUSTRY TRADE

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