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North County manufacturing companies adapt to changing market conditions

This year's outlook for manufacturing is as varied as the North County landscape that produces satellite and digital communications, medical and dental devices and supplies, biotechnology and clean tech, golf equipment, surfboards, skateboards and wrought iron railings.

Last year many area manufacturers reported single-digit increases or flat revenues compared to 2008. Some endured steep declines while others celebrated record growth. Still others indicated that actions taken in the last couple years helped weather a challenging year.

Kevin Stotmeister, president and CEO of Federal Heath Sign Co., said despite a 27 percent drop in 2009 revenues, profits increased 20 percent, a feat he attributes to adopting lean manufacturing principles and taking them into the supply chain.

"Cycle times for delivery are faster, workers' comp expenses are at an all-time low, and margins were up significantly," he said.

An industry leader, the company designs, fabricates and installs custom electric signage, canopy and fascia products for petroleum, gaming, retail and other markets. It employs 425 nationwide, 65 at its Oceanside headquarters, the smallest of its four facilities. Federal Heath's work force shrank 18 percent last year, mostly due to attrition, but it is doing some minor hiring.

Stotmeister said business should improve significantly in the second quarter if customer projections hold true.

"The competitive challenge is to keep employees motivated, and stay sharp to take care of customers better than our competition," he said.

A fair number of North County manufacturers have design and engineering intellectual property sections here, but their products are manufactured elsewhere, said Gary Knight, president and CEO of San Diego North Economic Development Council. North County has cluster development in biotechnology, medical devices and dental implants and related supplies, action sports and the golf industry.

Calloway Golf Co. (NYSE: ELY), one of 15 golf-related companies in North County, employs approximately 1,500 at its headquarters in Carlsbad. It reported that 2009 gross profits declined 29.4 percent to $344 million, which reflected unusually heavy discounting in the marketplace as a result of the economic environment. By reducing operating expenses and inventory levels, and preparing for new market expansion last year, the company believes it is positioned to take advantage of expected improving economic and market conditions.

Biotechnology in particular has become a recognized planned industry in North County and continues to expand, according to Knight.

Life Technologies (Nasdaq: LIFE), which sells products, technologies and services to pharmaceutical companies, and institutional and government research facilities, added to its Carlsbad headquarters staff last year and currently employs 1,200.

Genentech (NYSE: DNA), a wholly owned member of the Roche Group, manufactures cancer treatment drugs Avastin and Rituxan at its Oceanside facility. Company spokesperson Caroline Pecquet said Oceanside's headcount has stayed relatively constant at around 500 in spite of last year's merger with Roche, and the company will continue to play an important role in the combined global manufacturing network.

Growth across all areas is tied to lack of available funding. Knight said many of the area's small manufacturers will have difficulty staying competitive this year.

Dennis Gabrick, president of TreeScapes International, agreed.

"The banking industry has made it real tough for a small business like mine, that needs domestic and international lines of credit, to function properly," he said.

TreeScapes manufactures cellular antenna concealment trees, preserved and replica trees, plants and greenery for hospitality, retail and entertainment industries. It's currently producing products for the world's largest domed theme park in Abu Dhabi.

TreeScapes' work force fluctuates according to production, but many of Gabrick's 76 employees have worked with him 17 years. To stay competitive, the company is tightening expenses and aggressively pursuing available opportunities. It expects revenues to increase 20 percent this year, largely due to international sales, and will move to a larger facility in October.

Driven by nationwide targets to reduce carbon emissions, clean technology manufacturers are anticipating large growth.

"The general hybridization of vehicles is huge and growing fast," said Rick Sander, president and CEO of Poway-based ISE Corp. "It's anticipated that 51 percent of new buses will be hybrid by 2020."

ISE designs, builds and supports hybrid drive systems, energy storage and system components for heavy-duty vehicles. Ninety-five percent of its business comes from the heavily subsidized North American transit industry.

ISE completed its initial public offering and began trading on the Toronto Stock Exchange Feb. 23, the first clean tech IPO on Canada's main exchange since July 2009. ISE's 2009 revenues were approximately $45 million and have grown 100 percent year over year the past four years.

Sander said revenues will be flat this year due to a backlog and ordering lead-time, but business will pick up. ISE will likely add to its work force of approximately 150.

"We have an ideal climate, but one challenge to drawing and retaining companies is the lack of contiguous space for a big campus," said David Nydegger, president and CEO of the Oceanside Chamber of Commerce.

Escondido's last large parcel is the 164-acre Escondido Research & Technology Center, site of Stone Brewing Co. and the new Palomar Medical Center West, which is under construction.

Escondido's Economic Development Division manager, Jo Ann Case, said ERTC development will include medical offices, life science and health care-related industries that will bring high-paying jobs. The EDD has received inquiries from several companies, including a medical device business, although nothing has materialized yet. Case said the ERTC build-out timeline will move faster after the hospital opens in 2012.

But cities have few tools and little money to attract or keep manufacturing here, said Knight. "The state is robbing individual cities so they don't have money to incentivize new companies.

"We still have an entrepreneurial spirit -- people are coming up with great ideas, and networking how to get their idea into the market," he said. "Money will flow to new ideas. That's the only way the economy is going to turn around: innovation."

James is a Carlsbad-based freelance writer.

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