Prosperity in '91 doesn't compute for L.A. high-tech manufacturers and wholesalers.

Prosperity in '91 doesn't compute for L.A. high-tech manufacturers and wholesalers

But demand for software is expected to be a bright spot

Computer manufacturers and wholesalers in Los Angeles will likely be buffeted by recessionary downdrafts in 1991, similar to most industries locally and nationally.

The hardest hits could come in manufacturing employment.

The most positive news may occur on the demand side.

That spells layoffs, resulting in fewer workers being asked to do more work by year's end.

"They're probably not going to replace those people when we get out of the recession; they'll find ways to get along without them," predicted Mike Raimondi of WEFA Group, an economic forecasting firm.

Manufacturing employment in California harbors a nest of negatives for 1991, turning positive in 1992, according to the UCLA Business Forecast, developed with state and federal projections. (UCLA sources and private researchers said Los Angeles trends should roughly parallel state and national trends.)

To wit: 1991 payroll will fall 3.6 percent for computers and office machines businesses, will skid 2.5 percent for communications equipment and will fall 2.7 percent for electronic components, said the UCLA forecast. Those three sectors, however, are expected to see payroll growth the following year of 3.0 percent, 2.8 percent and 3.9 percent respectively.

Those valleys are in line with the total manufacturing category, which should decline by 3.6 percent and pop up 2.8 percent the following year -- moderately buffeted by a recession. At the extremes, construction should see two negative years, down 11.0 percent and down 2.0 percent, while services should see two positive years, up 2.0 percent and 5.5 percent.

Most economists blame the looming recession for the layoffs: "Everyone is anticipating negative GNP growth (a recession indicator) this fourth quarter 1990 and a 50-50 chance next quarter," said Norman Williams, economist with First Interstate Bank in Los Angeles.

"To some extent, the computer industry was fairly resilient in the past, but (now) it's subject to the business cycle, like most others," said David Hensley, director of the UCLA Business Forecasting Project. He noted that the industry is well beyond its explosive teenage years.

If particular companies are "largely export-oriented, particularly toward Europe, then they're OK," he predicted. Continental Europe may likely survive 1991 better than other top export destinations, like Great Britain, Canada and Australia, which "are already in recession," Hensley concluded.

A happier picture is evident on the demand side, especially for software.

Demand will hike nearly 15 percent for software, said Raimondi of WEFA Group. "Software is booming. Practically any other industry would love to have that kind of growth," he said.

Meanwhile, hardware -- generally more expensive -- should see a rise of only 2.5 percent, thanks to shy spending and shrewd planning.

"Many companies are now learning how they can use those microcomputers they bought in the past few years more efficiently," combining them with new, more powerful software, said Raimondi.

For example, upgrading a common 286-type personal computer to a 386 model might cost $3,000, compared with holding onto the old computer and spending $450 for new software to improve charts or graphics, he noted.

"Price discounting is rampant as vendors look to move hardware in a hostile environment," stated a Dean Witter analysis one month ago. The securities company said, with more gloom than most, that the U.S. computer industry is in the second quarter of a four-to five-quarter recession.

"But Southern California is not going to be as bad off as New England," predicted Raimondi, who is based in Burlington, Mass. Software demand there will only climb about 4 percent in 1991, and hardware will fall 1 percent, he said.

Cahners Electronic Business Forecast was far more optimistic, seeing real growth. The figures, derived from private and U.S. Department of Commerce sources, shake out this way for 1991:

* Shipments will rise 2 percent for computers and office machines, 6.3 for communications equipment and 3.3 for electronic components. * New orders for those commodities will see increases of 4.5 percent, 4.6 percent and 3.6 percent, respectively.

* Production for the three segments will move up by 9.8 percent, 3.7 percent and 4.9 percent.

Those somewhat bullish figures raised skepticism from Jack Kyser, economist for the Los Angeles Area Chamber of Commerce. "I would say that might be a little bit aggressive," he said about the Cahners data. "Anybody you talk to says they've been asked to review their 1991 budgets and cut back, or at least hold the line."

Indeed, those figures are well above UCLA's output projections for the three categories, which average a loss of 2.7 percent.

But if the higher demand figures do bear out, it could augur well for L.A.'s computer wholesalers as well, the largest being El Segundo-based Merisel Inc., with more than $1 billion in sales expected in 1990. Also affected would be sales at computer systems producers, like Computer Sciences Corp. and Wyle Laboratories, both in El Segundo too.

But higher sales may come with lower profits, said several economists. Competing imports "are coming on stronger," with L.A. and U.S. profitability "sagging," said Raimondi. That could dampen investment. Gross private domestic investment for the computer industry nationally should fall 4.2 percent, far worse than the expected 0.6 percent loss for the total U.S. economy in 1991.

"Facing declining profits, they'll cut back on new equipment and buildings," he concluded. "I would expect that the L.A. computer industry would be roughly the same as the national average," he added.