Company results mixed.

It was a mixed bag for San Fernando Valley tech companies in the third quarter of 2004. Though all 18 of the Valley's top publicly owned tech companies reported increases in revenue, eight of the 18 continued to lose money.

The good news, though, is that efforts taken in recent years to improve their financial picture is paying off for the Valley's tech community.

Though the tech downturn of 2000-2002 didn't plague the San Fernando Valley nearly as much as it did the Silicon Valley, many local companies found themselves saddled with slumping numbers and were forced to cut costs. Starting in the third quarter of 2003, both revenues and net incomes began to wend their way out of the red and into the black, a trend that has increased in recent quarters.

However, while the Internet and Internet-related service companies seemed to be returning to their salad days of the late 1990s, semiconductors and biotech and drug companies have not yet fully recovered.

Results were spotty in the biotech sector as Thousand Oaks-based Amgen Inc. saw GAAP net income for the third quarter of 2004 fall to $236 million, a 61 percent decrease from third quarter 2003 when the company reported earnings of $612 million. However, revenues remained strong--the world's largest biotech company reported a 23 percent increase in revenue to $2.7 billion in the third quarter of 2004 versus $2.2 billion in the comparable period in 2003--and the $554 million acquisition of Tularik Inc. was responsible for most of Amgen's losses. Accordingly, adjusted net income rose to $839 million this quarter versus $714 million in third quarter 2003.

Analyst Christopher J. Raymond of Baird/ U.S. Equity Research was bullish on Amgen's third quarter results.

"We are encouraged by Amgen's top and bottom-line performance in the third quarter. We continue to view Aranesp (Amgen's newest drug to hit the market) as solid and look for a reacceleration in its revenue trajectory for the next quarter. We expect Amgen to beat its own earnings guidance for the full year and we expect a continuation of the impressive revenue trajectory we've already seen thus far," Raymond wrote in a published report.

The Valley's other major biotech and drug companies showcased improved third quarters. Chatsworth-based North American Scientific Inc. achieved record revenues of $8.1 million, as compared with net sales of $3.0 million for the third quarter of 2003. Despite record-setting sales, the company reported a net loss of $19.4 million. The company attributed the loss to an acquisition that had taken place earlier in the year.

Camarillo's Biosource International Inc. reported net sales of $11.3 million for the most recent period, compared to $10.7 million in the third quarter of 2003. In terms of net income, Biosource ended up breakeven in this quarter, compared to a loss of $100,000 at this time last year.

The Internet and Internet services industry flourished in the third quarter, as United Online Inc., Digital Insight Corp. and Value-Click Inc. reported strong gains in both net income and revenue. In particular, Woodland Hills' United Online displayed impressive growth, leaping 25 percent in revenue, from $88.8 million in the third quarter last year to $110.7 million this past quarter. United Online's net income jumped up to $12.6 million this quarter, from $8.9 million for the same period last year.

WestlakeVillage-based, ValueClick, an Internet marketing media, technology and service provider reported record revenue and operating profitability results. ValueClick declared revenues of $43.5 million for the latest quarter, a 92 percent increase versus its 2003 third quarter revenues of $22.7 million. Net income corresponded to the exponential revenue gains, rising to $7.6 million in the third quarter of this year compared to $2.0 million at this time in 2003.

Digital Insight's revenue grew to $47.5 million in the third quarter of this year compared to $39.4 million in the third quarter of 2003. Net income rose to $4.8 million, up from $4.6 million in the third quarter of 2003.

Peter J. Swanson, a senior analyst at Piper Jaffray & Co. wrote optimistically of Calabasas-based Digital Insight's performance in a report issued late last month.

"Digital Insight remains well-positioned to benefit from the continued financial institution and end-user adoption of consumer Internet banking and billpay services. With strong cash flow and expanding margins, the outlook for the core Internet banking remains positive," Swanson said.

Mixed sector

Results varied for three of the Valley's largest public semiconductor companies in the latest quarter, as Diodes Inc. reported record profits while Vitesse Semiconductor Corp. and Optical Communication Products Inc. continued to lose money.

Diodes broke company records with third quarter revenues of $49.4 million, compared to 2003's third quarter sales of $34.9 million. Diodes shattered its previous net income record reporting $7.2 million this quarter versus $2.6 million at this time last year.

Optical Communication inched closer to profitability with a net loss of $673,000 last quarter, versus losses of $2.2 million at this time last year. OCP's revenues climbed to $13.2 million last quarter, a 26.2 percent increase from last year's $10.4 million.

Vitesse also continued its steady climb out of the red, reporting a loss of $3.1 million this quarter compared to a loss of $36.0 million in the comparable period last year. Revenues in the latest quarter were $52 million versus $42.8 million at this period last year.

"Over the past two years, Vitesse has shifted its focus from the physical layer to complete solutions that add value to its customers. This new complete solutions focus has served to both diversify and accelerate Vitesse's revenue stream and positions the company for rapid continued growth," analyst Karl Motey of Wachovia Securities wrote in a published report.

Other Valley tech companies that achieved robust growth in the third quarter of the year included Tekelec, Ixia, and 3D Systems Corp.

Results Mixed in Q3

Revenues on the Rise ... ... But Net Income Still Lagging

                               Revenues (in millions)

                                                 Percent
Company                        Q3 2004   Q3 200   Change

Amgen Inc.                     $2,700    $2,200    +23%
Diodes Inc.                      49.4      34.9  +41.2%
Ixia                             30.1      21.6    +39%
Digital Insight                  47.5      39.4    +20%
Tekelec                         106.6      70.7    +51%

Earnings (in millions)

Optical Communication Prods.    ($.673)   ($2.2)
Vitesse Semiconductor           (3.1)     (36.0)
Power-One Inc.                  (5.4)      (3.9)
North American Scientific      (19.4)      (2.8)
MRV Communications              (3.8)      (5.9)

Source: Company Documents