NM software industry: Out of the woods?
New Mexico Business Weekly - December 5, 2003by Andrew Webb NMBW Staff
Local tech economy guru Randy Burge, recently liberated from the New Mexico Economic Development Department, has quite a task ahead of him.
The economy of the last couple of years hasn't been easy on the state's software firms, and the ranks of the New Mexico Information Technology and Software Association (NMITSA), a trade group he founded in 1999 to foster networking between fledgling tech firms and entrepreneurs, have thinned from a height of nearly 100 to just 35 corporate members.
Now, like clouds slowly giving way to slivers of blue in the wake of a two-year storm, the industry is showing tentative signs of returning -- especially in key areas like information security. And though the economy has taken its toll on New Mexico -- a few companies have all but disappeared since Burge founded NMITSA in the heady days of 1999 -- he says he's ready to help re-start that dialogue.
"We have been impacted, just like the entire economy, as companies like Intel have pulled back on their external investments and memberships," Burge says.
And that's too bad, he says. Because, even in a period of retrenching, the survival of businesses in a given area is often determined by their relationships with other entrepreneurs.
"As a region, having a professionally managed, full-time trade association for IT and software spaces is essential for us to be competitive," he says. Borrowing a phrase from Microsoft founder Bill Gates, Burge says "The 'speed of business' -- how quickly people are connected and connecting with new ideas -- is a measure of how successful an economy is going to be and how quickly a new idea can get support. There's definitely been a downtrend in recent times, and that's been felt by organizations like NMITSA."
New Mexico's software industry seems to be stabilizing after a couple years of layoffs and closings, Burge says.
But local firms are still facing challenges:
• Santa Fe-based business analytics consultant and software developer BiosGroup Inc., a former pillar of the state's complexity science scene, sold its remaining assets in March to a North Carolina firm. The company, which had raised nearly $20 million in venture capital funding since its 1996 founding, counted among its investors big names like Proctor & Gamble and Ford Motor Company. At its height, it had nearly 150 employees working to commercialize predictive and analytical software that could be used for everything from project management to supply chains. After the venture capital market dried up in 2001, the firm regrouped as a consulting organization, and began eliminating positions and closing nationwide offices. It shut down its operations and sold its intellectual property to a similar firm, NuTech, early this year.
• University of New Mexico modeling software spin-off Khoral Inc. over the last four years has reduced its staff from 30 to two full-timers after a decline in revenues from contracting with government agencies like the Department of Energy.
"We're in the process of rebuilding the company at this point," CEO John Salas said recently as the company announced new distributorships for its software in China and India.
-- Elisar Software, which at its height landed a spot on Fortune magazine's "Cool Companies for 2002," struggled to find a niche for its MediaRights software -- a system designed to help protect images and documents on the Internet or shared on public networks. Though the venture capital-backed firm did managed to arrange several contracts with customers like museums and church organizations, it was forced to trim staff late last year. A new CEO brought in from stock image giant Corbis Corp. left the firm after several months, and Elisar folded in November.
But more recent times haven't been without successes in the state's software milieu.
In fact, one New Mexico institution envisions a little Silicon Valley running from Los Alamos to Socorro, and it's putting up some of its own cash to prove it, with the help of Los Alamos County. The New Mexico Institute of Mining and Technology is in the process of building a 4,000-computer software testing center in the Los Alamos Research Park. Officials envision the Information Systems Validation Center will attract software makers in droves looking for someone to test their products to the limits before they're put on shelves.
Tom Dawson, director of business development for that program, says the center could help bring together the state's proven cache of tech brains -- New Mexico is noted for its high Ph.D. count, thanks to national labs and retirement hotspots -- with its wealth of institutional know-how. Add to that, he says, recent growth in another component necessary to build a software cluster resembling that of tech hotspots like Silicon Valley -- venture capital.
Aggressive state programs aimed at increasing capital put into New Mexico companies, coupled with slim pickings in traditional hotbeds of technology activity like Boston and Austin, are bringing record numbers of investors to the state. Lockheed Martin-funded VC networking nonprofit Technology Ventures Corp. reported 92 investors in attendance at its annual venture capital symposium this year, up from 60 the year before.
W. Norman Wu, managing director of Pleasanton, Calif.-based Alameda Capital, said during this year's symposium that things have changed since he first visited Albuquerque in the early 1980s.
"It was a sleepy town back then," he says. "You can really feel the momentum now. This is a welcoming business environment here. You don't see this elsewhere."
And, Burge notes, jitters over terrorism that helped spur on the economy's tailspin two years ago are creating opportunities for New Mexico software firms who specialize in security, both for the government and private sectors.
"It's an interesting time," he says. "Because of homeland security aspects of the federal budget and the direction towards increasing cyber-security, the government investment into this region has probably been a benefit of late."
Increased interest in security translated to about six (undisclosed) figures for Albuquerque's VanDyke Software, which sold nearly 10,000 licenses for its network security software to the Internal Revenue Service nearly a year ago -- then its largest single sale.
VanDyke spokesman Marc Orchant says recent successes are bolstering the firm, which has annual sales of about $5 million.
"We've come out of a difficult two years for technology," he says. "We haven't had any layoffs, but we've seen flattened sales. They've been stable, but we haven't seen the meteoric growth that got us on the Inc. 500 in 2001."
Orchant says government agencies and companies are increasingly bolstering their networks as hackers' skills at penetrating ubiquitous Windows and even obscure operating systems like Linux grow exponentially.
"Security is going to become a fact of life," he says.
And, apparently, venture capital firms are taking notice. Albuquerque-based Seclarity recently received about $3 million from several investors to help commercialize its combination software and hardware-based network security products. Gregg Adkin, a general partner in Valley Ventures, one of Seclarity's investors, says the computer security market amounts to some $14 billion per year.
"It's one of the top three areas that corporations continue to spend money on," he says.
Also in recovery: Albuquerque-based New Mexico Software, a developer of database and information distribution systems, which reduced its staff from 21 to 13 over the last year and wrangled with cash shortages and back taxes owed to the Internal Revenue Service. Recent new contracts have resulted in record stock prices for the small firm, which trades on the NASDAQ Bulletin Board. After a tough second quarter, which included a $500,000 write-off from a contract that fell through, the firm reported record profits for the third quarter.
Nationwide, a software industry some reports estimate at $1.3 trillion is expected to go through a recovery, according to a national survey of corporate information technology executives by the New York-based Software and Information Industry Association. Respondents to the October survey said they expect a recovery in IT spending before the third quarter of next year.
Albuquerque Economic development group Next Generation Economy estimates the state has about 850 companies working in the software and IT realm. The majority of those firms get their bread and butter from government contracts.
Locally, Burge says the information technology industry could do itself a favor by stimulating a cluster of such businesses dedicated to private, commercial industry, rather than just government research, a New Mexico standby. And the state's continually-languishing telecommunications infrastructure isn't doing much to help, he says. Elsewhere, public-private partnerships, like one in California to offer super-advanced, high-speed Internet services, could leave the state behind, he says.
"What we're missing out on here is the next big wave," he says.
But, he says, a revitalization of NMITSA is in the works.
