Boston Globe. Tethered, but thriving. Key components of state's tech industry continue to flourish after becoming annexed to Silicon Valley [ASND/Cascade references]
boston.com
By Ronald Rosenberg, Globe Staff, 08/23/98
Digital. Lotus. Wellfleet. Cascade.
And numerous others.
One by one the crown jewels of Massachusetts high-tech have been
scooped up in recent years by out-of-state technology giants, often from
California's Silicon Valley.
So you might call Massachusetts the ''Silicon Colony.''
At first, the corporate takeovers might seem to be a kiss of death.
Mergers and acquisitions can lead to massive job cuts and a loss of
corporate - and regional - independence and prestige.
Instead, the technology colony is flourishing. Measured by the
all-important yardstick of jobs, many of the former marquee names in the
Bay State's computer, software, and data communications industries are
prospering under out-of-state owners. Some have seen local employment
skyrocket as they create high-paying, skilled jobs in engineering,
marketing, sales, and other areas. The explosive growth of the Internet,
the convergence of voice and data communications, and other technology
trends have helped the Bay State operations thrive as regional hubs for
their corporate parents.
To be sure, the takeover wave has a price. The most obvious is the loss
of independence, as corporate decisions are now made hundreds and
even thousands of miles away from Route 128, once promoted in a local
highway sign as ''America's Technology Highway.'' Becoming a regional
outpost after years of visibility and self-sufficiency as a publicly traded
company inevitably results in a loss of status and identity.
''We in New England are not providing the ultimate leadership,'' says
Richard M. Burnes, general partner at Charles River Ventures, a
Waltham-based venture capital firm. ''That's largely now in Silicon
Valley.''
For years, the high-tech economy in Massachusetts was anchored by
behemoths like Digital Equipment Corp, Wang Laboratories Inc., and
Data General Corp. The demise of the minicomputer in the late 1980s
shook the local economy and dethroned the giants. With the rise of the
personal computer, much of the action shifted to Silicon Valley, although
Massachusetts boasted a few nationally notable stars like Lotus
Development Corp., the Cambridge PC software maker. As computer
networking and data communications blossomed in the early 1990s,
Massachusetts again claimed a visible stake, fielding successes such as
Wellfleet Communications Corp. and Cascade Communications Corp.
But by the mid-1990s, globalization and swift technological changes
drove many of the state's successful publicly traded technology
companies into the arms of bigger out-of-state acquirers. Today, many of
the state's former high-tech stars are part of world-class corporations like
computer maker IBM Corp. of Armonk, N.Y., or Cisco Systems Inc.
and 3Com Corp., the voracious data networking giants from Silicon
Valley.
While the big technology players were being snapped up, a generation of
entrepreneurial companies were becoming the lifeblood of the state's
high-tech economy.
For the former marquee names, life as a subsidiary has not been bad. Far
from dismantling their newly acquired Massachusetts operations, most
parent companies are looking to build them up as regional hubs.
Unlike Silicon Valley, where job-hopping engineers and sales people are
both expensive and scarce, Massachusetts continues to field a strong
talent pool plus more affordable real estate - assets that make it easier for
a corporate parent to expand in the Bay State, says John P. Morgridge,
chairman of Cisco, the nation's largest computer networking company.
(Cisco of San Jose, Calif. announced on Friday plans to buy American
Internet Corp. of Bedford for $56 million, its sixth acquisition in New
England in 3 1/2 years).
Wellfleet, a computer networking firm formerly based in Billerica, merged
with SynOptics Communications Inc. of Santa Clara, Calif., and was
renamed Bay Networks Inc., with headquarters in Silicon Valley.
Because of hefty growth in the use of routers, cable modems, and other
communications devices, the Billerica operations have expanded
dramatically, accounting for nearly half of Bay Networks' annual revenue.
Wellfleet once employed 1,500 locally; that core has now mushroomed
into 2,500 local positions at Bay Networks, which itself has agreed to be
purchased by Northern Telecom Ltd. of Canada.
Lotus, with operations in Cambridge and Reading, employs about 8,500
people locally today - 3,000 more since IBM acquired it three years ago.
Employment has taken off as software products such as Lotus Notes and
Lotus Domino reach a worldwide corporate market.
3Com, the Santa Clara, Calif., computer networking giant, is building a
$65 million East Coast campus in Marlborough to pull together its 1,500
Massachusetts employees, now spread out in Boxborough,
Marlborough, Westborough, and Southborough. Three years ago, 3Com
acquired Chipcom Corp. of Southborough, which employed 500 in the
Bay State. The California parent has since added three other
Massachusetts companies plus a division of U.S. Robotics and expanded
all its acquired operations.
For Eric Benhamou, 3Com chief executive, ''it really doesn't matter
where corporate headquarters are in a decentralized company like ours.''
And Ascend Communications Inc.'s major investment in Bay State
companies - it recently proposed buying Stratus Computer Inc. of
Marlborough, and it bought Cascade Communications last year - means
there will be more Ascend employees in Massachusetts than in California.
Cascade has provided Ascend with the majority of its profits.
But some Massachusetts operations have been downsized due to
overlapping jobs, particularly in finance and administration.
In one notable buy-and-cut situation, more than 3,500 Digital Equipment
Corp. employees have lost their jobs since Houston-based Compaq
Computer Corp. acquired the former Maynard computer giant earlier this
year.
The ''colonization'' of Massachusetts high tech has taken its toll in other
ways.
When local operations are under outside ownership and management,
there's a loss of worldly ambition and drive to build empires, says Paul
Deninger, chairman of Broadview International LLC, a mergers and
acquisitions investment bank.
Some say a Massachusetts technology industry full of subsidiaries tends
to be more isolated than the industry on the West Coast. Mitchell
Kertzman, chairman of Sybase Inc., recalls how the acquisition of the
company he founded, Powersoft Corp. of Concord, ultimately required
him to relocate to Sybase's headquarters in Emeryville, Calif.
''So much more of the software industry is driven from Silicon Valley and
the Redmond, Wash., [Microsoft headquarters] areas that I find the
amount of networking I do, the interactions I have on a routine basis with
leaders in the industry, is far more active on the West Coast than on the
East Coast,'' says Kertzman. But he believes Massachusetts will continue
to flourish on a smaller scale.
A loss of corporate headquarters also can mean less civic philanthropy.
Although the Route 128 community largely has stayed aloof from
Boston's civic life, there have been some notable exceptions. Digital
founder Kenneth Olsen helped create the Boston Computer Museum.
Wang Labs founder An Wang bankrolled what is now the Wang Center
for the Performing Arts in Boston's theater district. Today, with big
Massachusetts technology players under distant owners, prospects for
such contributions seem dimmer.
And while the economy is currently going gangbusters, some speculate
that Massachusetts, as a satellite operation, would take more than its
share of job cuts if the economy or technology markets slumped.
But, for now, despite its ''colonization,'' the state's high-tech industry has
prospered. And it isn't just with job growth.
Local operations under the ownership of deep-pocketed corporate
parents are better positioned to expand into new markets and distribution
channels. In computer networking, the Silicon Valley companies that
dominate - Cisco, 3Com, Bay Networks, and Ascend - control the
delivery of products and services to corporate customers. That was a
key reason why some Massachusetts communications companies agreed
to be acquired by their bigger West Coast rivals.
And even the exodus of talent that often follows a takeover can have a
positive effect. It's common for engineers and executives to leave after a
merger to start new companies, creating a process of renewal in the local
high-tech economy.
Desh Deshpande, cofounder of Cascade Communications, left after the
Ascend deal last year. He formed Sycamore Networks Inc., a 20-person
Internet communications start-up in Tewksbury.
''What excites me is growth, the challenge of inventing something new
and building it,'' says the 48-year-old Deshpande, Sycamore's president.
Besides Sycamore, three other companies have been started by former
Cascade managers.
That entrepreneurial spirit may continue to fuel the region's growth - even
if many of the bigger, mature technology players are now under outside
management. As long as Massachusetts continues to be a hotbed for
start-ups, to pump out a highly skilled work force, and to create
innovative ideas and products, the state's high tech economy will continue
to flourish, say local technology executives.
So is being a technology colony good enough?
''As long as we have innovation happening in the Boston area, where
talented teams are jumping on new opportunities and where large
companies continue to invest in the businesses they acquire, we will all
prosper,'' says Menachem Abraham, president of the Concord-based
unit of Lucent Technologies' data networking division. Abraham founded
and sold his company, Prominet Corp., to Lucent. Now, his group at
Lucent employs 400 people and has job openings for 100 more.
Some industry observers say young Bay State entrepreneurs and
executives are more interested in selling off a successful enterprise rather
than building a world-class empire.
''Maybe the problem in our area is that the new crop of entrepreneurs
who build successful companies are more interested in becoming very
wealthy quickly rather than presiding over a large business empire, like
Ken Olsen did at Digital,'' says Henry B. Weil, a senior lecturer at the
Massachusetts Institute of Technology's Sloan School of Management.
As a result, the Massachusetts high-tech industry for now remains a
colony.
This story ran on page F01 of the Boston Globe on 08/23/98.
c Copyright 1998 Globe Newspaper Company.
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