SHARE:
Getting Over The Big Blues
International Business Machines had picked Boca to be a sort of sunny Siberia, a so-called "skunk works" where brainy computer nerds would be free to develop a new product far away from the meddling bureaucrats at IBM's headquarters in Armonk, N.Y. For South Florida, being home to the PC suggested a broadening of the region's tourism-dependent economy.
By 1984, IBM was selling $4 billion worth of PCs, enough to make its PC division the 74th-largest industrial company in the country and the third-largest computer company, behind the rest of IBM and Digital Equipment Corp., according to author Paul Carroll's 1993 book, "Big Blues." Borrowing from California's legendary "Silicon Valley," local boosters began talking a Florida version called "Silicon Beach."
That was then. Today, IBM is an also-ran in the world of personal computers. And so is Boca Raton. With its most recent round of cutbacks and transfers, IBM's work force in Boca is down to about 1,000, compared to 10,000 in 1984.
As for the glittering future predicted for South Florida, sad to say Silicon Beach washed out with the tide as IBM's presence has faded. And though it's easy now to look back and point the finger at structural weaknesses in Florida's economy - lack of venture capital, a small pool of scientists, engineers and entrepreneurs and the lack of a top-flight research center - in truth, IBM is largely to blame.
The company's blunders - most famously its ceding control of the DOS operating system that powered early PCs to Microsoft - ensured the emergence of cheap PC "clones" that eventually drove Big Blue and Boca Raton to the fringes of the business. With a healthy IBM as the anchor, Silicon Beach might have thrived; without it, South Florida's high-tech future dimmed quickly.
It is a testament to Boca Raton's allure both as a place to live and to do business that the blows of the last decade haven't devastated the city. Few communities could lose a $4 billion company and 9,000 high-paying jobs in a decade and still have boosters who maintain, straight-faced, that things are working out just fine. Fine, that is, unless you're a high-tech worker. "I think there is a misperception on one level: we are not Flint, Michigan, when GM [General Motors] left," says Robert Bartolotta, a spokesman for telecommunications equipment maker Siemens Stromberg-Carlson, which employs 1,700 people in Boca Raton.
"I don't want to sound like the spin doctor, but there are a number of positive things going on," says M.J. "Mike" Arts, president of the Greater Boca Raton Chamber of Commerce. "As we look at our current inventory of land and buildings, we are almost out of space right now."
Larry Pelton, president of the Business Development Board of Palm Beach County, goes even further, saying IBM's departure has had no deleterious effect on the local economy. "It will probably turn out to be positive," he suggests, perhaps a bit wishfully.
Cheap office space
Arts and Pelton reason that Boca Raton is virtually built-out, with little room for expansion. So when IBM vacates two million square feet of office space at its 590-acre, mostly empty campus on Yamato Road near I-95, developers will likely turn the campus into an office park and new employers will move in and create thousands of jobs.
And they argue that while Silicon Beach never materialized, a host of technology-oriented companies have emerged over the years, creating hundreds of good-paying jobs. "In the last three years, IBM left one million square feet of office space on the market and we've totally absorbed it," says Pelton.
Certainly, Boca Raton remains an attractive corporate destination. In part, that's because overbuilding in the 1980s and IBM's departure left so much empty office space that companies have been able to lease or buy prime property at cut-rate prices. "Rents were very low until recently," says Lewis M. Goodkin, a real estate analyst with Goodkin Research/Price Waterhouse in Miami and a contributing editor to Florida Trend. Boca Raton also retained its allure as an upscale place to live and as a viable corporate office alternative to Broward or Dade.
Among the recent arrivals to Boca Raton: Sensormatic Electronics bought 150,000 square feet of former IBM space and moved to Boca from Deerfield Beach; Astral Communications, of Montreal, Canada, opened a 100,000-square-foot, 100-worker plant making compact discs; and NABI, formerly North American Biologicals, moved its headquarters from Miami, opening a 77,000-square-foot facility.
Also, W.R. Grace moved its corporate headquarters from New York to Boca Raton in 1991 and employs 370 people at its 10-story, 200,000-square-foot office building. Rexall Sundown moved to town two years ago and today occupies 300,000 square feet of space and employs 650 people. BellSouth Mobility moved to Boca Raton from Fort Lauderdale and now leases 155,000 square feet of space on Congress Avenue. In fact, property is now so scarce in Boca Raton that Pelton says companies are moving north to Boynton Beach and Delray Beach.
"There still is a regional critical mass," Pelton says. "I think that's why we are still able to attract companies."
But there has been substantial damage. While Boca Raton's housing market remains stable, thanks to demand from retirees, second-home buyers and Fort Lauderdale commuters, analyst Goodkin notes that sales of homes worth more than $300,000 peaked in Palm Beach County in 1989, back when IBM still employed more than 5,000 people there.
The real estate recession is partly to blame for the decline in luxury home sales, but so are high-tech job losses, Goodkin says. "The kinds of jobs we're getting now are not comparable to the jobs lost at IBM," he says.
Salary shock
Walt Snedeker can testify to that. Snedeker is a former IBM manager who oversaw a team that designed and produced the Personal System 2 computer. He's worked in Boca Raton since 1978, "when [IBM] was one little dinky building. I got to see it all, from beginning to end."
Snedeker was one of the lucky ones. He left IBM in 1992, receiving a generous retirement package for his 26 years with the company. Today, he works for a small Boca company, Daleen Technologies, that makes Internet software. Snedeker says he works because he enjoys it, not because he needs the money, but allows he's making about one-third of his old IBM salary.
That's common, he adds. "One of the things you will see is IBMers will interview for jobs and think they are going to get their old salaries. They were making $90,000 and now they are going to get $40,000. That's an eye-opener," he says.
Anita Soto worked for IBM for ten years, from 1983 to 1993, starting as a secretary and later training to become a technical writer. She says IBM's practice was to pay top dollar to attract the best talent. But as people left, they learned their salaries were inflated. "Now they're finding it difficult to find jobs that would enable them to maintain their standard of living," she says.
That fact was highlighted by IBM's January announcement that 700 of the 976 computer programmers whose jobs are being eliminated in Boca Raton took the company's offer to transfer to Austin, Texas. Boca has its charms, but lucrative high-tech employment doesn't appear to be one of them.
Soto says most of the IBMers she knows would prefer to stay in Boca Raton. But skills honed at IBM aren't always transferable. For example, most of the people who'll go to Austin worked on IBM's OS/2 computer operating system.
Soto recalls that when OS/2 came out eight years ago, IBMers were sure it was their ticket to a secure retirement. "We felt it would become the standard and we would work for IBM for life," she recalls. But Windows NT, Windows 95 and Unix are now in much greater use than OS/2.
Soto, who wrote instruction manuals for OS/2 users, found out the hard way that her own skills meant little once she left Big Blue. "Within two days of walking out the door, I knew I was going to be taking like $15,000-$20,000 less than I was getting at IBM," she says. "Those skills were not transferable outside IBM."
Retraining for less pay
She took IBM's offer to retrain, and became a technical recruiter for Daleen Technologies. Now she gets a constant stream of resumes from former colleagues, many of whom send samples of their work, including games, graphics programs and demonstration programs they've created using OS/2 software. But Soto uses Windows on her computer. "I can't run their demos. I don't have OS/2 here to run it," she shrugs.
Boca's boosters like to cite companies like Boca Research and Panda Project as rising Phoenix-like from IBM's ashes. "The point I make is, even though we have lost 8,500 to 9,000 employees over the last ten years, in many cases we've been able to absorb most of those employees who elected to stay behind," says Arts, of the Boca Chamber. He also notes that the generous severance and early retirement packages IBM offered during the 1980s allowed many employees to maintain their standard of living or start new businesses. "Many of them turned into entrepreneurs, so we didn't just lose all those people."
But Soto says she knows of several people who went into the locksmith business, "and they all failed." And other employers are a lot leaner than IBM ever was. Take Boca Research, for example. Founded in 1986 in Boca Raton in part to be close to IBM, Boca Research today is a 320-employee maker of add-on boards and data communications equipment for PCs. Through the first nine months of 1995, sales were $97.8 million and net income was $6.6 million, or 73 cents per share. About a half dozen top-level and mid-level executives come from IBM.
Boca Research offers no pension plan, just a 401-K. Workers pay for a portion of their health insurance and retired workers get no company-paid coverage. Yet the company finds all the workers it needs. "We're having no difficulty attracting high level technical people," says Marty Ritchason, the company's vice president of human resources.
Not that the company is eager to add full-time workers. Boca Research prefers to use contingency workers, who don't receive benefits. "We don't hire people unless there is so much need," says Chief Financial Officer R. Michael Brewer. "It is so much easier to hire cautiously and make sure you are profitable than to go through downsizing."
Another oft-cited young computer company is Panda Project, developer of file servers and personal computers with key parts - the processor, memory and communications cards - that can be easily upgraded or replaced, enabling owners to keep up with advances in technology. Wendy Lester, Panda Project's director of communications, says that half of the company's 140 employees come from IBM. But Wall Street is wary of Panda Project's future. It stock has swooned from a high of $51.75 last year to a recent price of $18.50.
Crunch some numbers and you'll see that the market for techies isn't what it used to be. Bruce Thomson at the Florida Department of Labor notes that the number of people employed in Palm Beach County making industrial equipment, which is primarily computer-related manufacturing employment, fell from 5,310 to 4,249 between 1993 and 1995, a 20% decline. "That's a big drop in a two-year period," Thomson says.
Critical job losses
In the broader category of durable goods, which includes industrial equipment and a number of other mostly high-tech occupations, employment fell from a peak of 30,500 in 1985 to 21,700 in Palm Beach County in 1995. That 29% decline is all the more remarkable considering Palm Beach enjoyed 40% growth in employment over the same decade.
(In Broward, which would have been on the southern end of Silicon Beach, total employment in the industrial machinery sector fell from 7,428 jobs in 1985 to 4,236 by 1995. In the broader durable goods sector, employment fell from 32,300 in 1985 to 28,400 by 1995, according to the Department of Labor. Again, these declines in technical jobs came even as Broward enjoyed 38% job growth during the decade.)
These job losses are critical. Thomson reports the average salary in the industrial equipment sector in Palm Beach County is $58,000, more than double the average salary for all Palm Beach employment. To lose 1,061 jobs in two years equates to a loss of $61.5 million in salaried employment.
With some 700 IBM computer programmers leaving for Austin this spring and Motorola offering voluntary severance incentives to 1,200 non-manufacturing employees at its nearby Boynton Beach pager plant, the Palm Beach economy figures to take another blow this year.
Also, job losses at IBM create fallout for those high-tech employers who remain.
Larry McMillen, vice president of human resources for Siemens Stromberg-Carlson in Boca Raton, was in charge of deciding where the German telecommunications equipment maker would locate its North American headquarters back in 1978. McMillen chose Boca Raton, he says, largely because Siemens felt it could attract high-tech workers to live there.
"If I'm going to go through the relocation process, you've got to have an attention-getter in terms of where you are," McMillen says. "If you're in Chicago and I offer you a chance to move to Philadelphia, do you really want to move your family for that? The job and the work is the same as other places, so the quality of life becomes the big sell."
Boca Raton remains a desirable place to live, but IBM's departure makes the city a less attractive place to work, McMillen says. "We have employees whose spouses work at IBM, and it's always an issue of which spouse's career do you follow?" he says. Having IBM in town helped Siemens because relocating spouses could work there.
Others agree, saying IBM's departure makes South Florida a tougher sell to workers. Mike Levy is a Georgia Tech-educated electrical engineer and founder of Sports-Line USA, an Internet sports service in Fort Lauderdale. Though SportsLine's product is news and entertainment, the business employs about 20 computer specialists with Unix operating system expertise.
Levy, 49, says bluntly that a South Florida address is a liability. "It's a handicap in hiring people, because people wonder if it doesn't work out, what am I going to do?" he says. "It would've been a lot easier to start this business in Silicon Valley." He adds that being in South Florida also makes it tougher to raise venture capital.
Others disagree. "I don't think recruiting or raising capital is any different here than anywhere else," says Brewer, the Boca Research CFO and himself a veteran of downsizing at Mitel Corp., a Canadian telecommunications company that once employed 600 people in Boca Raton.
"This is a trend that is sort of happening everywhere," Brewer adds. "I think this region has done very well to survive this downsizing."
