Old Economy companies reward shareholders with highest returns in last decade
Of the 16 Northwest-based companies that averaged double-digit shareholder returns during the 2000s, seven were manufacturers, one was a utility and one was a wood-products company — all Old Economy mainstays. Only four were retailers or makers of consumer goods; not one was a classic New Economy player.
Seattle Times business reporter
Best of the Northwest, 2000-09
1. Precision Castparts
3. Schnitzer Steel Industries
6. Washington Banking
7. StanCorp Financial Group
8. Esterline Technologies
10. Expeditors International
If there was one sure thing at the dawn of the 2000s, it was that technology held the key to the Northwest's economic future.
The evidence was everywhere. Microsoft was minting millionaires with machine-line regularity. Dozens of e-commerce companies, inspired by Amazon.com, were hiring like mad and leasing vast swaths of office space. Semiconductor plants sprouted along both banks of the Columbia River, and Idaho was suddenly home to one of the world's biggest chip-makers.
And it wasn't just information technology. The Seattle area was home to a dense cluster of telecommunications companies, led by AT&T Wireless. Biotechnology companies promised to remake the way we treated illness. Investors — from savvy venture capitalists to CNBC-obsessed day traders — happily poured billions into anything that smacked of advanced technology.
But two stock-market crashes, two recessions and a real-estate bubble later, the companies that rewarded investors the most in the past decade are overwhelmingly concentrated in what we perhaps prematurely called the "Old Economy."
Companies such as: Bellevue-based truck-maker Paccar; Precision Castparts, of Oregon, which makes parts for jet engines and power plants; Schnitzer Steel, also of Oregon, which recycles junked cars and other scrap metal; and Itron, based outside Spokane, which makes utility meters and devices to read them.
In fact, of the 16 Northwest-based companies that averaged double-digit shareholder returns during the 2000s, seven were manufacturers, one was a utility and one was a wood-products company — all Old Economy mainstays. Only four were retailers or makers of consumer goods; not one was a classic New Economy player.
Tech companies, of course, are still vital to the Northwest economy, both as employers and as creators of wealth, and many still see advanced technologies as key to the region's future. But the experience of the 2000s illustrates that the old Northwest — where people made tangible products — is still very much a force.
"There are a lot of companies that no one has ever heard of because they don't sell to consumers, yet they're a major force in the economy," said Bill Conerly, an economist and business consultant in suburban Portland. "For a long time, I was pointing out that Oregon's largest industry was 'miscellaneous and other.' "
Why did the Old outpace the New? As you might expect, several dynamics appear to be at work — starting with the fact that the IT boom peaked just after the turn of the decade, and those companies had the farthest to fall.
From railroads in the 1850s to the Internet today, waves of technological innovation have repeatedly swept across the economic landscape. Those innovations have made many people rich, but their pioneers have, as often as not, been left behind.
"Investments in transforming technologies have often proved unrewarding for investors," wrote Burton Malkiel in his classic book "A Random Walk Down Wall Street." In the middle of the last century, Malkiel noted, "airlines and television manufacturers transformed our country, but most of the early investors lost their shirts."
Speculation is part and parcel of any business revolution. No matter how powerful the technology, the competitive crush of capitalism all but assures that most of the early entrants will fail — and that most of the investors who bid up their stocks will be out of luck.
Consider biotechnology, which has proved particularly frustrating. Most of the local biotech companies that survived the decade have yet to launch feasible products into the marketplace. The few winners, such as Immunex and Icos, were swiftly gobbled up by big drugmakers.
"Business and civic leaders have been hoping for big things from biotech for as long as I've lived here," said Paul Sommers, an economics professor at Seattle University who moved to the area in 1978. "But they seem to hit a plateau and then get bought."
The Northwest's technology sector — broadly defined to include software, telecom, biotech, e-commerce and related fields — underwent a massive shakeout in the 2000s. Out of nearly 100 publicly traded Northwest-based tech companies in the year 2000, only 30 are still around; the rest were either bought up, went under, got delisted or, in a few cases, moved.
Microsoft, the region's marquee tech company, survived the antitrust battles that consumed much of the 1990s and early 2000s. But the company has yet to develop a new hit product on the order of Windows and Office, and rivals such as Google, Apple and Facebook have seized much of the pop-culture buzz.
Though Microsoft with its 40,000 employees in the Seattle area remains a major force in the region's economy, it's no longer the millionaire factory it once was: The company actually generated a negative 4.4 percent annual shareholder return during the 2000s.
At the same time, several forces converged to give a lift to the Northwest's traditional strength in raw materials and "investment goods" — the stuff businesses use to make other stuff.
For starters, the dollar's weakness for much of the decade made U.S. exports more competitive. That helped companies such as Paccar, which derives nearly half its revenue from overseas.
The weak dollar also made U.S. aircraft cheaper and more appealing to airlines in the developing world; that benefited Boeing as well as suppliers such as Precision Castparts and Esterline Technologies. So has the surge in military spending that followed the Sept. 11, 2001, attacks.
Defense spending also has helped Flir Systems (infrared imaging) and Todd Shipyards (shipbuilding and repair).
More generally, many of the decade's best performers share a global outlook, said Michael Parks, former editor of Marple's Northwest Business Letter and a longtime observer of the regional economy.
"Companies like Paccar honed their skills in the Pacific Northwest and then took them abroad," Parks said. Now, the 105-year-old company operates manufacturing plants in Canada, Mexico, Australia and Europe, in addition to four other states.
And while technology pioneers may have run into trouble turning buzz into business, companies such as Flir, Itron and Esterline — with deep expertise in commercializing fairly specific technologies — have found it easier to extend themselves.
Not straying too far from one's core business was another common theme. Itron's big move was expanding from making meter readers to the meters themselves. Flir recently bought British marine-electronics company Raymarine, largely for its distribution network.
JB Groh, an analyst for D.A. Davidson in suburban Portland, described the decade's top performer, Precision Castparts, this way: "They're relentless on the blocking and tackling front — they're a blue-collar, slug-it-out kind of company."
None of which is to say that any of the best performers of the 2000s will continue to lead in the current decade. Provenge, the cancer treatment recently launched by Dendreon, could become a blockbuster and lead a biotech resurgence. Amazon.com, which finally found a path to consistent profits, might fulfill its dream of being the Walmart of the Internet. Or some as-yet-unknown company in an obscure industry could surprise us all.
As Parks said: "You can look for grand lessons, but some of it is serendipity."
Drew DeSilver: 206-464-3145 or email@example.com
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