High Tech HeavenDori Jones Yang
If anyone ought to be loyal to Silicon Valley, it's James B. Moon. He grew up there, studied engineering there, and joined Intel Corp. Then in 1979, Intel moved his operation to Oregon. He agreed to go, even though many staffers refused: They considered it a high-tech hinterland. During the 1980s, however, Moon watched dozens of technology companies spring up and succeed in the Northwest. In 1986, he started his own company to make portable patient monitors. His Protocol Systems Inc. nearly doubled its sales last year, to $23 million, and went public in March. Does Moon long for the daylong traffic jams of Silicon Valley? "You couldn't pay me enough to go back," he says.
Executives at Seattle's latest, hot biotech company, CellPro Inc., echo the sentiment. So do those at Portland's E-Machines, which makes 16-inch color monitors for Apple Macintosh computers. And so do those at Nexus Engineering Corp., a Vancouver (B.C.)-based maker of satellite receiving equipment for cable TV. In fact, many from California and elsewhere take pay cuts to work at one of the hundreds of high-tech companies that have mushroomed in the Northwest.
BEYOND LOGS. As a result, the Pacific Northwest is emerging as more than just Boeings and raw logs. It is gaining a surprising new reputation: as a source of cutting-edge technologies. Some of its stories are familiar: Microsoft Corp., in Redmond, Wash., grew from a puny, $24 million company in 1982 to a $1.8 billion giant dominating the PC software industry. Portland, Ore., is a world leader in parallel-processing computing, as home not only to Intel's supercomputer division but also to Sequent Computer Systems Inc., an Intel offshoot. Portland also houses the Intel division working on the P6 chip, the next generation of chips for PCs.
But many Northwest successes are smaller and less well-known (map, page 52). Aside from Microsoft, the Northwest is home to 1,500 other software companies, including Aldus Corp., whose PageMaker revolutionized desktop publishing. Immunex Corp., with its LEUKINE cancer-treatment drug, is the biggest of nearly 50 biotech companies in Seattle. Quadra Logic Technologies Inc. of Vancouver, B.C., is in final clinical trials for a photosensitive drug that can target tumors.
It's even possible the Northwest will crack the top tier of America's technology centers. Already, it is breaking out of the second tier, comprising such areas as San Diego, Austin, Tex., and North Carolina's Research Triangle. At the same time, Boston's famous Route 128 is suffering because of troubles at companies such as Digital Equipment Corp. Taken as a whole, the three-state, one-province Northwest has 100 companies in biotech, 600 in electronics, and 1,000 in environmental businesses in addition to its software houses.
How did it happen? Part of it is a quality of life that attracts technical talent. Forest-lined freeways. Short commutes. Hiking. Skiing. Sailing. Affordable housing. Low crime rate. Clean air. "The type of person who goes into software is more likely to be traipsing the canyons of the Cascades than the canyons of New York," says Bruce D. Milne of Corum Group, a Bellevue (Wash.)-based software consultant.
Although the region still has gaps in its high-tech infrastructure, its rainy but pristine environment makes it easy to lure the talent to plug those holes. J. Basil Peters, 39, chairman and CEO of Nexus Engineering, for example, recently recruited an engineer who had job offers from four companies elsewhere. "I told him, 'I'll pay you $10,000 less to work here,' " Peters recalls, " 'but you can go to a world-class ski resort in an hour and half.' " Another recruit from back East had been commuting an hour each way. Now he has a 10-acre homestead much closer to the office.
There is a happy confluence of other factors as well. The flow of U.S. government research funds has helped, especially in creating advanced biomedical technologies in Seattle and environmental cleanup systems in Richland, Wash. Unlike California, governments have refrained from burdening companies with heavy regulatory requirements and workers-compensation expenses. California--and Japanese--companies appreciate the lower operating costs. Both Intel and Hewlett-Packard Co., for example, have their largest single manufacturing site in the Northwest, not in California.
But perhaps the most critical factor was the early success of a few key companies, including Tektronix, Microsoft, MacDonald Dettwiler, Mentor Graphics, and Sequent. This helped create a business climate that let startups and spin-offs take off at an astonishing clip. Such well-known successes as William H. Gates III and George B. Rathmann, who left Amgen Inc. in California to start up Icos Corp. in Seattle in 1990, have been inspirational. "When you see successful companies happen, you think, `Gee, I know that guy. I could do that, too,' " says Woody Howse of Cable & Howse Ventures in Bellevue, Wash.
There are some limits to Northwest's technology heaven. One is jobs. Although they pay well, the high-tech businesses only provide about 5% of the region's employment. Also missing is the richness and depth of university technical talent found in Silicon Valley or Boston. Oregon especially lacks a world-class research facility. Other shortcomings are that many smaller companies never achieve the size they need to compete against California's giants. They either fail or sell out to bigger rivals.
GONE GLOBAL. But overall it is clear that the Northwest has established a critical mass in electronics, biotech, and software that will dramatically alter the composition of its economy in coming years. "Everything from business ethics to infrastructure to quality of life just fits," says E-machines founder Steve Vollum.
One key to the region's emergence has been a tendency to go international more enthusiastically than other U.S. companies. Because the Northwest is distant from major U.S. markets, many entrepreneurs have strong trade links with Asia and Europe. Some 57% of Microsoft's sales are outside the U.S. Sales of Sequent's parallel-processing computers are growing faster in Europe than in the U.S. Mentor Graphics Corp., of Wilsonville, Ore., leads the world in electronic design automation.
The outside world has been slow to recognize the Northwest's technological strengths, partly because key companies are concentrated in different pockets. Seattle and the "technology corridor" in its eastern suburbs of Bellevue, Redmond, Kirkland, and Bothell are strong in software, biotech, and medical devices. Portland and its "Silicon Forest" suburbs of Beaverton, Hillsboro, and Wilsonville specialize in electronic hardware, including semiconductor chips and supercomputers. Boise, Idaho, home of Micron Technology Inc., has moved from potato chips to memory chips and laser printers.
This high-tech proliferation hasn't come a moment too soon. The region is experiencing a double whammy that in previous eras proved to be crippling. One blow comes from Boeing Co., which is shedding jobs because of defense cutbacks and lower demand for smaller planes. At the same time, about 10% of the lumber mills in the Northwest U.S. have been shuttered because of efforts to protect the spotted owl. Yet the Pacific Northwest has remained far healthier than other parts of North America because high-tech industries form the fastest growing sector of the regional economy. In British Columbia, computer-related businesses may overtake tourism, mining, and fishing to become the second-largest industry in the province by 1996.
All this has California, still the nation's leading technology incubator, looking nervously to the north. Many of its companies are flirting with the idea of leaving: They complain about high taxes, environmental laws, workers-compensation rules, and expensive land. According to an Ernst & Young survey released in March, more than 90% of California companies say they are considering escaping. "We have our hands full retaining the companies we have," says William W. Otterson, Director of CONNECT, a program to nurture San Diego's high-tech industry.
The first two California companies to discover the Northwest in a big way were Hewlett-Packard and Intel. HP's regional employment has grown to 9,400 people, who develop and make notebook computers and print-heads in Corvallis, Ore., ink-jet printers in Vancouver, Wash., and laser printers in Boise. All these divisions are still growing. Intel now employs 4,200 in the Portland area and expects to expand as its Hillsboro-based supercomputer project progresses.
Japanese companies, too, have discovered the Northwest. Since 1984, some 25 Japanese electronics companies have invested more than $750 million in the Northwest, employing more than 6,300, according to Portland consulting firm Rubicon International. Epson makes printers, Fujitsu, disk drives, and NEC, fiber-optic telecom systems in the Portland suburbs. Sharp and Matsushita also have major chip-related investments. More are coming: Fujitsu and Toshiba both plan to build semiconductor plants near Portland.
What distinguishes the Northwest from other U.S. technology regions such as the Research Triangle is its ability to spawn startups, not just attract big outside investors. The majority of the region's high-tech companies are homegrown. In addition to Microsoft's Seattle-born Bill Gates, Tektronix founders Howard Vollum and Jack Murdock and the two founders of MacDonald Dettwiler, a $60 million integrator of satellite systems, all hail from the region.
PRIZE WINNER. Hundreds of smaller companies have spun off from them. Tektronix alone spawned at least 22 spin-offs, ranging from $400 million Mentor Graphics to a number of smaller companies: Photon Kinetics, a maker of fiber-optic testers, TriQuint Semiconductors, a maker of gallium arsenide semiconductors, and chip-designer Bipolar Integrated Technology (BIT).
Seattle's thriving biotechnology industry consists mostly of spin-offs--not from private companies but from research institutions. The University of Washington now ranks third among U.S. universities in receipt of federal research dollars, some $356 million last year. It has spun off such companies as ZymoGenetics Inc., a yeast genetics research company now owned by Novo Nordisk of Denmark. The other catalyst has been the Fred Hutchinson Cancer Research Center. The $92 million nonprofit institution has, directly or indirectly, spawned four of Seattle's six publicly traded biotech companies: Immunex, NeoRx, CellPro, and Icos.
Much of the nation's most exciting research in environmental technology is being done at Pacific Northwest Laboratories by Battelle Memorial Institute in Richland, Wash., near the Hanford Nuclear Reservation. The Energy Dept. is spending $218 million to build a lab run by Battelle that will research using microbes to clean up contaminated groundwater and "vitrification," a technique for containing wastes by encasing them in a glasslike substance.
To make the leap into the first class of technology centers, the Northwest will have to overcome some large obstacles. One is outmoded taxes. Washington State still taxes companies based on gross revenue rather than on profit. This especially hurts biotech companies, which usually struggle through as many as 10 years of research before having a salable product.
Smaller young companies find it hard to get venture capital. Although Seattle, Portland, and Vancouver, B.C., all have venture-capital firms, the big money is still in New York and California. "There are fewer places for small Seattle firms to go, unless they pack up their business plan and go to California," says Immunex President Stephen A. Duzan.
Whatever the frustrations, the Northwest's entrepreneurs argue they are building an important technology center of the future. It's more than pretty mountains, of course, that will do it. It is a potent mix of cost structure, a flair for individualism, key institutions that inspire risk-taking, and stimulative outside investment. That's a delicate balancing act, not a model government bureaucrats can establish by fiat. But as long as it nurtures a flock of software engineers, biotech whizzes, and computer geniuses, the Northwest will most certainly continue its ascent to high-tech heaven.