All posts by Dale Kasler

Sacramento’s technology companies gained ground during the third quarter of 2009, according to an index that measures the health of the region’s tech sector.

The SARTA Tech Index rose by 8.8 percent, thanks to an uptick in hiring and strong gains in the share prices of its public companies.

The index increased to 266.1, its highest level since the fourth quarter of 2007. It was the second straight quarterly increase.

The index debuted in 2003 with an initial reading of 100.

It was developed by the Sacramento Area Regional Technology Alliance to evaluate whether the area’s tech companies are advancing or retreating. It measures companies according to employment, share price and new equity investments.

During the quarter, companies reported a net increase of 84 jobs. Public companies’ stock values rose 26.7 percent.

Venture capital investments for the year to date came to $29.1 million.

“These are extremely encouraging results,” said SARTA Chief Executive Meg Arnold in a news release. “Not only did our region’s public companies enjoy a rebound in valuation, in line with the broader public markets, but, equally importantly, our smaller private companies had the confidence to re-engage in hiring, and investors supported that confidence with new equity funding.”

Numonyx Holdings, the international computer chip company that makes its North American headquarters in Folsom, was sold Tuesday.

The sale raises questions about the future of the Folsom operations.

The Swiss company, which employs 450 workers in Folsom, is being sold to semiconductor maker Micron Technology Inc. of Boise, Idaho, for $1.27 billion in stock, the two companies announced. Numonyx is a spinoff of Intel Corp.’s Folsom research campus.

Numonyx spokesman Mark Miller said it’s too soon to say whether employment levels in Folsom will be affected. But he added that Folsom’s expertise in chips for wireless and mobile devices is highly valued by Micron.

“Those people (in Folsom) have the skill set that made Numonyx interesting to Micron in the first place,” Miller said.

Jim McGregor, chief technology strategist with the In-Stat market research firm in Arizona, said Micron will surely attempt to consolidate some of Numonyx’s operations.

Consolidation “will probably start at the headquarters,” McGregor said.

“Micron’s already a player in this market,” he added.

Numonyx develops memory chips for cell phones, cars and other devices. It was formed when Intel and Switzerland’s STMicroelectronics merged their memory businesses in early 2008. The Folsom operation was housed at Intel’s Folsom campus until two months ago, when it moved into its own office on Iron Point Road.

The headquarters includes product research and development, testing labs and sales and marketing.

Numonyx fabricates its chips in Israel and Singapore.

Miller said there won’t be any changes for at least three to six months, the time it will take to complete the takeover.

“Acquiring Numonyx brings together two memory leaders and positions Micron to offer the most comprehensive, cost-competitive solutions in the industry,” Micron Chairman Steve Appleton said in a news release.

Micron President Brian Harrison said in a press release that the deal will be “good for Numonyx and good for Micron.”

Julia Goines of Pediatric Bioscience in Davis tests blood samples in her research on autism. The company grew out of breakthrough work done at UC Davis.

From biofuels to pharmaceuticals, Sacramento-area inventors have created scores of promising scientific breakthroughs, many of them in the well-funded laboratories of UC Davis.

Turning those inventions into jobs and wealth is hard, however. Starting a high-tech company in Sacramento means overcoming the region’s risk-averse mind-set, a scarcity of big-money investors and the allure of the Bay Area’s tech-friendly landscape.

In at least one respect, though, the climate for entrepreneurs seems to be getting better. After decades of indifference, the University of California, Davis, is laboring to convert its massive portfolio of scientific research into products that could help transform the Sacramento economy.

The university – a “real sleeper,” in the words of one Davis entrepreneur – is becoming more aggressive about cooperating with the private sector. It is licensing its patented technologies and acting as midwife for new companies.

The university’s commitment to commercialization, a process known as technology transfer, has taken on new urgency as the region tries to claw its way out of the recession. UC officials say they’re trying to become a force for rapid-fire economic development in a region known for moving cautiously.

Both the university and the region have “a reputation of not being too open to risk, and we have to change that,” said new UC Davis Chancellor Linda Katehi, who holds 16 engineering patents. She’s appointed a committee to study why the university has not been more successful at tech transfer.

Nobody expects UC Davis to duplicate the success of Stanford University, which perfected the art of tech transfer decades ago and built Silicon Valley. But business leaders say UC Davis has the ability to do much more than it has so far.

“There is significant untapped potential – significant opportunity to increase the number of companies coming out of campus,” said Meg Arnold, who used to work in UC Davis’ tech-transfer office and now runs the Sacramento Area Regional Technology Alliance.

Big research budget at UCD

UC Davis’ science research budget hit $643 million in 2008, the 16th-largest in the nation, says the National Science Foundation.

Yet Davis has spawned just two-dozen or so tech companies since 2003, about a third as many as UC San Diego – a biotech powerhouse that’s been spinning off companies since the late 1970s.

Davis didn’t open a tech-transfer office until 1999, and the culture is changing slowly.

A few years ago, Sacramento construction executive Charles Gardner, a university donor and father of an autistic child, heard about a tantalizing breakthrough developed on campus: a blood test to determine whether a woman is at risk for conceiving a child with autism.

When he approached UC Davis about commercializing the technology, he got puzzled responses.

“I had no idea of the possibilities,” said scientist Judy Van de Water, who developed the test. “As academics, we don’t really think about transferring (technology) out into the public.”

Van de Water warmed to the idea, though. A technology license was signed and a company was born: Pediatric Bioscience of Davis.

Van de Water is an unpaid scientific adviser to the company. She still works on campus, where she’s developing a more accurate autism test.

“The research that I’m doing here feeds right into the next goals of the company,” she said.

Progress happens slowly

Many of UC Davis’ spinoff companies are tiny; some have folded or moved away. After four years, Pediatric Bio employs three workers and has raised just $1 million – a fraction of what it will need to bring its product to market, said Gardner, its chairman.

But the very existence of companies like Pediatric Bio gives hope to investors who’ve been craving spinoff activity from UC Davis for years.

“A significant amount of the entrepreneurial activity has to come from the campus, from UC Davis,” said Oleg Kaganovich, a partner in the Sacramento office of DFJ Frontier venture capital. “If that doesn’t happen, we will never grow significantly beyond where we are now.”

Some critics say the university still isn’t responsive to entrepreneurs. Graduate student Kenth Pedersen wanted to work with UC Davis to perfect an electrode he’d invented. The university made “onerous” financial demands, such as a substantial ownership piece of his technology, he said. So he took the idea to Mountain View, got funding and started his new company, Hyphase Energy.

“This company could have been started in Davis,” he said by e-mail.

David McGee, a former biotech executive who runs UC Davis’ tech-transfer office, InnovationAccess, said the university tries to accommodate potential partners, but “we cannot always agree to every term that someone wants.”

He said red tape is being slashed at every turn. Licensing contracts, which used to run 46 pages, have been cut in half.

“We have shown we can start up companies,” said McGee, who has run the program since 2004. “We can start up a lot more companies than we used to.”

Green tech a UCD strength

One reason for optimism is green technology: solar energy, fuel cells and so on. Venture capitalists have fallen in love with the industry, and green companies are clustering around Sacramento to be near the lawmakers and regulators in charge of California’s war on global warming.

Green tech is also a UC Davis strength; the campus operates research centers devoted to such fields as biofuels and wind power.

“We’re getting a lot more interest from investors and entrepreneurs,” said Andrew Hargadon, director of the university’s Center for Entrepreneurship. “People are starting to want what UC Davis has always been producing.”

UC Davis spinoffs could fill a void as Sacramento’s first generation of tech companies retrenches.

Since the dot-com boom ended a decade ago, Intel Corp.’s Folsom research park has trimmed 2,500 jobs, leaving 5,800 workers. Hewlett-Packard in Roseville has cut half its jobs and is down to 3,200 workers, the city says. NEC Electronics’ Roseville chip plant is mothballing one of its two manufacturing lines and cut payroll to 640 workers, down from 1,500.

The new wave of companies won’t produce a huge number of jobs, at least not right away, but could set the stage for more growth eventually.

“I think it’s a number of singles and doubles,” said Chris Soderquist, who runs a startup company, Octus Energy, that develops energy-efficiency devices based on UC Davis technology.

Soderquist’s late father, Charlie, was a UC regent who preached about the need for greater cooperation between the Davis campus and entrepreneurs. His son says Davis hasn’t done nearly enough despite mammoth intellectual firepower.

“Here’s one of the greatest research universities, and it’s really a sleeper,” he said.

Collaborating with business has sometimes created ill will. In 1980, UC Davis scientist Ray Valentine co-founded biotech company Calgene. He was criticized by many of his colleagues and thrust into a controversy over a possible conflict of interest.

“The blood was let,” said Valentine, now retired. Calgene, creator of the world’s first genetically altered food, a longer-lasting tomato, was taken over by Monsanto in 1997.

Valentine is enthusiastic about UC Davis’ commitment to entrepreneurship but has yet to be convinced it will translate into results: “They’ve got to do something, show they’re on the right track.”

Economy a factor

A weak economy doesn’t help. Without funding, it’s hard to commercialize inventions, UC Davis’ or anyone else’s. Sacramento venture capitalists did only $17 million worth of deals last year, one-seventh the volume they did in 2007, according to PricewaterhouseCoopers.

Folsom entrepreneur John Stone, who once sold a company to Apple for $62 million, has struggled to raise money for his newest startup, software maker Freepath. After launching in 2008, he planned to raise $10 million or more in a second round of funding last year. He got only $500,000.

“While we’re making progress, we’re making it at a much slower pace,” Stone said.

Even in good times, Sacramento’s venture capital community is small. Sometimes the area’s entrepreneurs have to go elsewhere for money, and sometimes out-of-town investors make the company relocate.

In 2003, UC Davis professor Bruce Hammock helped start drug-biotech company Arete Therapeutics. A year later, Bay Area venture capitalists steered the company to Fremont. It’s now in South San Francisco.

“As soon as the VC’s got control of the company, they moved it to the Bay Area,” said Hammock, who remains an adviser to Arete. “It’s their money and they like to be close to it.”

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UC Davis graduate student Dan Braunschweig consults with professor Judy Van de Water last week at the campus. Van de Water’s work on a blood test to determine whether a woman is at risk for conceiving a child with autism has led to a new business. “As academics, we don’t really think about transferring (technology) out into the public,” she said.

Citing improved results in its core aerospace business, GenCorp Inc. reported stronger profits and sales Wednesday.

The Rancho Cordova parent company of Aerojet said it earned $15 million, or 24 cents a share, in the fourth quarter.

That compared with a loss of $5.7 million during the fourth quarter of 2008, when GenCorp swallowed one-time charges related to the decision to freeze its pension plan. The per-share loss came to 10 cents.

Revenue jumped to $240.1 million in the fourth quarter of 2009 from $198.5 million the previous year, the result of growth in Aerojet’s Standard Missile and Orion space-vehicle programs.

All but a sliver of the revenue came from aerospace, showing once again that Aerojet’s operations are the main driver at GenCorp even as the company tries to become a real estate developer. A former aerospace executive from Northrop Grumman, Scott Seymour, was named president and chief executive of GenCorp last month.

For years, GenCorp has been working on a plan to convert thousands of idle company-owned acres along Highway 50 into residential and commercial developments. The idea has been slowed by the recession, but the company last month formed a new corporation, Easton Development Co. LLC, to move ahead with its development program.

GenCorp stock closed at $5.81, up 10 cents, on the New York Stock Exchange.

Another data center is coming to the Sacramento area.

SunGard Availability Services of Wayne, Pa., said Tuesday it will open a 69,000-square-foot center in Rancho Cordova on May 1.

The center at 11085 Sun Center Drive will provide data storage and other information-technology services to companies primarily in the Bay Area.

Like others of its kind in the Sacramento region, the SunGard center will market itself as a safe, reliable place for data operations, far removed from the Bay Area’s earthquake zone.

Despite the weak economy, the company was ready to expand in California at the time the Rancho Cordova location became available, said Lance Hanchey, SunGard vice president for operations.

“We strategically look to enter new markets all the time,” Hanchey said. “Aside from the recession, it was a good time to expand our footprint in California.”

The company already operates facilities in San Ramon, Cypress and San Diego. The privately held firm says it generates more than $5 billion a year in revenue.

The Rancho Cordova center will employ eight workers, plus security guards and other contract employees, Hanchey said.

SunGard joins a growing industry in Sacramento. Other significant data centers in the region include RagingWire Enterprise Solutions, Herakles Data and Advanced Data Centers.

Data centers, also known as server farms, are large buildings that provide much of the information-technology backbone for banks, health-care companies, dot-coms and other clients.

Tower Records founder Russ Solomon was on hand last March when the 30-foot neon sign above the landmark Watt Avenue store – the first outlet in what grew into a global chain – came down.

Russ Solomon remains cheerfully old-school, running a brick-and-mortar record store in an age of digital downloads.

But even Solomon, the self-described “eternal optimist” who founded Sacramento’s legendary Tower Records, acknowledges some doubts about the future of record stores. In a rare public appearance Sunday night, he indicated that R5 Records Video, the store he founded as an unofficial successor to Tower, is still trying to find its footing. He said he hopes – but isn’t sure – that record stores can coexist with downloading.

“Maybe I’m believing in something that’s drifting away,” Solomon told a Sacramento audience.

The 84-year-old Solomon captivated an overflow crowd at Time Tested Books in midtown Sacramento with stories of the rise and fall of Tower and candid talk about the state of the music business.

Above all, he lamented the fact that big record stores are a thing of the past, supplanted by the Internet, big-box discounters and a sprinkling of independent stores like R5.

“It is a missing cultural thing,” he said.

Solomon opened R5 in 2007, less than a year after Tower went out of business, at one of Tower’s flagship locations – the store at Broadway and Land Park Drive. The store is across the street from the Tower Theatre, which housed the drugstore where Tower began.

“Now if I can only make it work,” he said.

In an interview afterward, he said, “R5’s doing OK. The record business today is tough. We’ve got our heads above water.”

He said he expects to keep the store going even as the recession has made things more difficult.

R5 operates a Web site, but its focus is to draw people into the store. There’s no e-commerce, no downloads.

“I don’t know how to download and I’m not going to learn, either,” Solomon told the audience.

He said his store appeals to “the collector mentality,” the idea that consumers want to own the physical product instead of just a digital version. But he said “it’s a good question” whether physical sales can thrive in an era increasingly dominated by downloading.

The short-term outlook isn’t great, judging by national data. Sales of physical CDs dropped 21 percent through the first eight months of last year, according to Wall Street credit-rating firm Fitch Ratings. Digital album sales rose 18 percent during the same period and accounted for one of every five albums sold.

Tower was among the most spectacular victims of the rush to the Internet. Once a $1 billion-a-year global chain, it was unable to compete against a host of competitors that emerged in the mid- and late 1990s, including the Internet and big-box stores. It went out of business in December 2006 following a bankruptcy liquidation.

Yet Solomon said Tower contributed to its downfall by borrowing tens of millions of dollars it couldn’t repay.

“We borrowed too much money,” he said.

Much of the borrowed money was plowed into expensive overseas stores, including a five-story building in Buenos Aires that failed miserably, he said. The store generated only $100,000 a month in sales, one-tenth of what was expected, he said.

Solomon’s 90-minute talk, the inaugural event of the Sacramento Living Library series, was moderated by David Watts Barton, a former Bee staff writer who is editor of the online news service Sacramento Press.

Tower Records is still out there, on the Internet, under new management that’s itching to increase its Web presence.

Alas, it no longer has ties to the Sacramento area, but makes its headquarters in Wilmington, Del., of all places.

Richard Flynn, a Wilmington businessman, said he was hired a month ago as president of Tower.com Inc. The Web site is owned by a European investment group named Cumberland Corporate Services, he said.

Flynn wouldn’t disclose Tower.com’s sales numbers but said, “We’re still doing pretty good, nowhere near where we’re going to be in 12 months.

“My ultimate goal would be to get the same vibe Tower had,” he added.

Flynn’s appointment represents a new twist in the saga of Tower.com, one of the few remaining pieces of the global retail music chain founded in Sacramento. Also surviving is a chain of Tower-brand music stores in Japan and other overseas markets.

In March 2007, four months after Tower went out of business, the Web site was auctioned for $4.2 million to an e-commerce music merchant called Caiman Holdings, according to documents filed in U.S. Bankruptcy Court.

A three-employee skeleton crew ran the Web site for a while from an office in West Sacramento, not far from Tower’s former headquarters. But the employees left and operations moved back East. Caiman’s headquarters are in Montreal and Miami.

The story has some murky complications. Flynn said Caiman never owned Tower.com, despite what the court records say. Instead, he said executives from Caiman ran the business for the European firm.

Caiman’s chief executive, Didier Pilon, recently told Billboard magazine that ownership of Tower.com changed hands, although he wouldn’t elaborate. Pilon’s company has filed to liquidate its assets in a Florida state court proceeding that’s somewhat similar to a bankruptcy, Billboard reported.

The voice mail greeting at Caiman’s Montreal office mentions both Caiman and Tower. When a reporter tried to reach Caiman officials, he was referred to Flynn, who said he’s the sole employee of Tower.com.

The Web site’s current address, in Wilmington, Del., carries some poignancy. It was in Wilmington in October 2006 that Tower was sold to a liquidator in a bankruptcy auction. The going-out-of-business sale began the following day.

A massive computer upgrade at CalPERS has run millions of dollars over its original budget and missed its completion deadline – and is in danger of falling further behind schedule.

CalPERS officials’ frustration over the delays exploded publicly Wednesday.

Furious board members scolded a representative from New York-based consulting firm Accenture, the lead contractor on the project, after hearing warnings of possible new setbacks to the project’s timetable.

“You’ve put this board and this system’s reputation at stake,” CalPERS President Rob Feckner told Accenture’s Tom Hartman during the pension fund’s regular board meeting. “If our reputation is at risk, so is yours. … What we have now is totally unacceptable.”

The computer overhaul, announced in late 2006, was supposed to cost the California Public Employees’ Retirement System about $278 million. The budget has been increased to $361 million. Most of the cost increases are due to additional features sought by CalPERS after the contract was signed, said pension fund spokesman Brad Pacheco.

On Wednesday, fund officials were focused on project delays. Just last month, CalPERS agreed to push the completion date to next September, a five-month delay. Now that could be in peril.

Hartman, an Accenture managing director, told the board that Accenture has “experienced serious problems with system tests” in the past few weeks.

He said Accenture won’t know until April, after some additional testing, if the September deadline is realistic. “It’s very embarrassing,” he said.

Pension fund officials seized on his statement. Priya Mathur, a CalPERS board member, told him, “I have no faith that you’ll be able to deliver this in September.”

Hartman told the board that 25 additional Accenture staffers have been put on the job in order to catch up. And, in an interview, he said Accenture’s chief executive, William Green, has been alerted to the problems with the CalPERS job. “We are putting every effort in,” he said.

Hartman referred additional questions to a corporate spokesman, Peter Soh. Soh issued a statement pledging Accenture’s commitment to the project.

“This is a large, complex consolidation project and it is critical to complete extensive system testing before rolling it out to California public employees,” Soh said. “CalPERS and Accenture are working together to make that happen.”

The computer issue is the latest problem to hit CalPERS, which is wrestling with huge investment losses from last year and a possible influence-peddling scandal involving placement agents – middlemen hired by private-equity firms to secure investment dollars from public pension funds. One such agent, former CalPERS board member Alfred Villalobos, has earned more than $60 million from CalPERS deals in the past decade.

Other computer snafus have popped up elsewhere in state government recently. The Bee has reported that spending on an overhaul of the state’s court system has grown from $260 million to $394 million – and could go much higher.

The tardiness of the CalPERS computer project has already created organizational problems for the fund, and a further delay would be even more harmful, said Teri Bennett, CalPERS’ chief information officer. For instance, the project is causing some delays in open enrollment for health insurance, she said.

Bennett said she’s “shocked” at the prospect of further delays in finishing the computer overhaul.

“We negotiated in good faith … to come to a new schedule, a new plan,” she said.

She said CalPERS is insisting that Accenture get the job done by September.

“I think they have the wherewithal to fix it,” she said.

The project is designed to enhance the pension fund’s “My CalPERS” system, which lets members access their accounts via the Internet. It would consolidate dozens of outdated computer systems into one.

Accenture, as lead contractor, was originally to be paid $199 million. Its fee has now grown to $250.9 million, mainly to cover enhancements that weren’t in the original contract but were subsequently requested by CalPERS, said pension fund spokesman Pacheco.

He said “they’re not getting any more money” because of the delays.

SARTA, the nonprofit dedicated to expanding Sacramento’s tech economy, has changed chief executives.

Meg Arnold, the organization’s board chairwoman, has replaced J.D. Stack as CEO of the Sacramento Area Regional Technology Alliance.

Arnold just finished a four-month stint as head of the green capital alliance at Valley Vision, an organization devoted to regional planning. Before that she was with Drexel University’s Sacramento campus, and had been director of business development and entrepreneurship at the InnovationAccess program at the University of California, Davis.

Stack will remain at SARTA as director of program development and grants. He joined the organization in spring 2007 after 14 years as head of economic development for the Sacramento Municipal Utility District.

Arnold takes charge of SARTA at a time when the region’s tech economy is struggling in a sour economy.

Companies are having trouble getting venture capital and other forms of financing, and “growth projections have slowed,” she said.

Yet she said the industry hasn’t ground to a halt, either. Entrepreneurs “are finding ways to bootstrap (their) companies,” she said.

SARTA has been involved in promoting the region’s green-technology initiative. It is perhaps best known for its quarterly index measuring the health of Sacramento’s tech industry.

With Arnold’s shift to CEO, the new SARTA chairman is Dave Sanders of the executive search firm Worldbridge Partners of Roseville.