Utilities software industry dries up in L.A.

L.A.'s high-tech industry has lost what had become a lucrative niche: companies that develop troubleshooting software for personal computers.

It's not that the business has disappeared just that the companies are being bought up by Silicon Valley competitors. Two of L.A.'s bigger names in the field, Santa Monica-based CyberMedia Inc. and Marina del Rey-based Quarterdeck Corp., have been acquired, ending protracted periods of financial misery.

Quarterdeck, which was purchased by Cupertino-based Symantec Corp. for $65 million, had seen its stock fall as low as 25 cents a share before being delisted by Nasdaq on Oct. 9. CyberMedia had been battered by a series of financial and management problems for about a year, before Santa Clara-based Network Associates Inc. purchased it last month for about $130 million.

"We've lost our high-profile utility software companies headquartered here," said Bill Manassero, executive director of the Software Council of Southern California. "What we're seeing is a major movement in the industry right now."

The utilities software industry is fast winnowing down to a handful of competitors - based either in Silicon Valley or the Pacific Northwest.

Microsoft Corp. has become a de facto utilities software provider by incorporating these programs into its general software bundles. The only other two major companies left standing are Symantec and Network Associates. Since May, Symantec has acquired four other utility developers, including product lines developed by IBM and Intel Corp. Network Associates has been on its own acquisition spree, snapping up Dr. Solomen's Software and CyberMedia.

"There probably isn't room for more companies," said Matthew Nordan, an analyst for Cambridge, Mass.-based Forrester Research. "The industry is getting eaten alive on several fronts that prevents this from being a welcoming environment."

One front is shrinking profits. Most utilities software providers have shifted to selling software suites - that is, broad-ranging collections of products that sell for less than $100 - and away from more lucrative single-product sales. Meanwhile, utilities firms are suffering from a downward pressure exerted on their product prices.

"As this market matures, companies require an enormous amount of money to compete in the retail market as it shifts to suite products and prices go down," said Frank Greico, Quarterdeck's vice president and chief financial officer. "We're seeing all economy of scale emerge."

With the emphasis on suites continuing, Network Associates and Symantec are purchasing technologies that expand their portfolio holdings. But their competitors are offering similar products, prompting an ongoing search for the latest technology available in the market.

"If there is an opportunity to flesh out the product portfolio, we will continue our aggressive acquisition strategy," said Enrique Salem, a Symantec vice president.

The extent of layoffs at Quarterdeck will not be announced for the next 30 to 60 days. Symantec has a presence in L.A. just a few miles away from Quarterdeck's current offsets and is expected to absorb some of the Quarterdeck operations.

Manassero foresees further consolidation in the Los Angeles software industry. The software council has been fielding a growing number of calls from companies nationwide inquiring about L.A.-based businesses.

"We're going to see a lot of M&A activity, a lot of movement," he said. "It's becoming the main method of economic survival in the software industry."