Tech Sectors: The Technology Advantage, Sustaining Arizona’s Economy

Reaching out to leading Arizona companies for insights into their respective fields, In Business Magazine presents an overview of the economic sector the state is counting on to sustain Arizona into the future.
by RaeAnne Marsh

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Jobs in the technology sector are among the best-paying, and therefore help to raise the economy generally. There is also a multiplier effect, as each single technology-sector job creates more than four jobs in the broader community. Creating the jobs and the work force to fill them, then, has become an important focus of economic development from the local to the statewide level.

But “technology” is a broadly inclusive label. Within the wide realm of technology are several distinct segments. Although needs, challenges and even resources may overlap, each is a unique economic force.

Information Technology – Axosoft

“Software is just beginning to show its potential,” says Lawdan Shojaee, CEO of Axosoft. For the next generation of kids coming out of school, she points out, software is all they know — everything they touch, everything they do is based on software. So, “Everything they’re going to innovate with has technology already in it. I think we’re going to have another explosion coming up that’s just amazing innovation.”

Shojaee foresees grand achievements — but not where they’re visible to the eye. “We’re going to use those technologies to cure diseases and build new and amazing things,” she enthuses. Pointing to the grand edifices of skyscrapers and bridges constructed by previous generations, she says it may seem that nothing of that scale is being created now. “Yet we are doing them — we’re just doing it in bits and pieces in the cloud.”

Involved in the industry for two decades, Shojaee says she and her husband, Axosoft founder Hamid Shojaee, have seen tremendous growth in the local tech ecosystem — to where, now, “Everywhere you go on the Loop 101, from the Southeast Valley north, there’s a huge company.” And the cluster of technology companies is producing a positive synergy. The effect of multiple companies looking for a certain skill or talent, she points out, is the creation of better talent as the work force responds to opportunity.

The impact extends to supporting businesses as well, as tech and non-tech suppliers alike up their game, too, to serve their customers. Shojaee relates that Axosoft had been working with a local office supplies company to meet a need that was outside the needs of a typical office. “They went back to the drawing board and changed the way they do business so they could provide services to companies like us better and more efficiently.”

Availability of talent is a topic that touches what Shojaee says is “a pet peeve of mine” — that there is not enough talent here. It’s not a matter of too few being trained, she believes, crediting the schools with producing well-qualified talent. The problem is they leave because they don’t know about the thriving tech ecosystem in Arizona; that there is a lot of employment opportunity. “If I could hire 20 more today, I would, and we would grow faster,” Shojaee says, relating the company currently employs 42. “And I know my other CEO friends feel the same.”

Access to capital is another challenge Shojaee sees. In her experience, investors here are not as aware of technology companies as she feels they should be, and are not able to evaluate them as accurately as they could other types of businesses in the Valley. “Therefore, bringing investors from outside the country is very beneficial, and educating inside investors,” she says.

At the same time, Shojaee believes new companies are finding it easier now to get funding than 10 or even five years ago. “We have startup pitches, and investors coming and looking at them,” she says. And those already in the industry are lending a helping hand, too, with CEOs becoming mentors to new startups.

Biosciences – Translational Genomics Research Institute (TGen)

A major force in Arizona’s biosciences sector since it was persuaded to establish itself in Phoenix in 2002, TGen has helped pioneer the translational approach to bioscience research — which is to take knowledge learned through research into DNA and apply it to the clinic. “We’re techno-agnostic,” says Tess Burleson, chief operating officer. “We try to improve the outcome for patients.” Medicine is not currently practiced by understanding the molecular reason for things, she explains, and yet each person has his or her own blueprint. “We try to find out what is specific to this individual that’s driving disease, rather than treating symptoms in a one-size-fits-all way.”

Burleson sees a lot of growth in this segment due to need in the market, which, in turn, is being driven by changes in the healthcare space. Advances translate to better care, and also to lower cost and more revenue. From the cost-avoidance perspective, she explains, more targeted care for an individual helps avoid the cost of inappropriate or ineffective medicines. And from a revenue-generation standpoint, Burleson points to the opportunity to raise revenue through health tourism. “People go where the best care is,” she says.

TGen’s focus is to figure out what tools are best and which capabilities help drug development in targeted therapeutic arenas, testing out different technologies and capabilities, and along with that is the developing of methods, software, processes and algorithms to apply that knowledge to better patient care. In the 13 years since the institute became operational, TGen has spun off 16 companies, and Burleson says a few more are nearly at that point now.

Noting the bioscience industry is competitive in some ways and cooperative in others, Burleson says Arizona is a very collaborative environment. “In not many places in the country are they so willing to work together where there is opportunity for all ships to rise.”

While precision medicine is a growing field, funding for basic science and research is a challenge. Pointing out that TGen is a nonprofit, Burleson says it is opportunities for commercialization that gain access to capital. But she believes ongoing investment is necessary. “Arizona has been a leader in the life sciences space based on its investment in this space,” she says, “and there is opportunity to capitalize on that if we can stay focused on making sure everybody in the research community in Arizona — TGen, the universities, private groups doing clinical research — has a shot at it.”

About 80 percent of TGen’s work force hold advanced degrees, and Burleson estimates 26 percent of them are from Arizona universities. “We try to encourage interest in those types of careers through internships with TGen,” she says, crediting the effort also with helping retain the Arizona-educated knowledge-based work force in the state.

Telecommunications – CenturyLink

“The [technology] sector is changing drastically,” says Ken McMahon, CenturyLink’s vice president of Sales for the Mountain West Region. Pointing to the impact of Uber — disrupting an entire industry not through any change in the core customer need but by developing an application that enables a person to use an iPhone to compare wait times when calling for a ride — McMahon says customers, chief marketing officers and other business units are starting to make similar demands of their IT organization. And they are doing this while also trying to keep up with the day-to-day demands of keeping their current network architecture running to support their business.

McMahon says he is seeing a flood of digital application requests from businesses’ marketing and other divisions to help the company drive revenue or reduce operating costs, and, therefore, “we’re seeing a significant amount of growth within our industry.” But he notes that technology changes very quickly, “so we are consistently re-evaluating the products and services available in our portfolio, and adjusting based on feedback from customers and what we’re hearing from industry analysts.” This requires maintaining a constant link with customers and being highly engaged with those companies regarded as industry experts to help predict what’s coming next.

Types of telecommunications/IT support businesses are looking for include cyber connectivity, hosting, colocation, cloud IT capabilities and complete end-to-end managed services. Some IT organizations within businesses shift all of this to telecommunications companies like CenturyLink, McMahon says, while others keep some functions in-house and onsite.

McMahon believes his company has an edge in its sector because it is able to combine its nationwide network, hosting and IT services capability into what he describes as “an end-to-end product, service and managed service solution for businesses of all sizes.” He points also to acquisitions, investments and strategic focus. For instance, he says, “We were hearing from customers that they had terabytes of data but were not able to analyze the data to drive business decisions. So we acquired Cognilytics in 4th quarter of 2014 rather than develop it ourselves.”

For CenturyLink, being able to expand aggressively in the sector was facilitated by being able to leverage its capability to connect customers with their data center with CenturyLink’s core network. Says McMahon, “Our core asset allowed us to enter this industry easier than others.” For further advancing, he relates the company is bringing to the small-business customer “our expertise in supporting Fortune 500 companies and learning what they are doing to drive incremental revenue, drive customers to applications as well as reduce operating costs — and, at the same time, remaining secure.”

Arizona has a competitive technology ecosystem, says McMahon, pointing to a strong cluster of technology companies that are either growing here or moving operations here. Advantages include the area’s low risk of catastrophic events such as hurricanes or earthquakes and its predictable climate, which have made it a popular location for data centers. Also, McMahon says, “Modestly priced energy and government tax incentives are relatively well-positioned here.”

A challenge McMahon sees to the industry is in the work force. While a work force exists to meet current needs, he says, “I’m not sure we’re going to be able to accelerate our ready-workforce environment at the same rate that technology’s changing.” He sees the need growing also as more companies choose Arizona as their headquarters or regional headquarters. “It’s vital that higher education focus on STEM-related fields so we can have a stronger work force in Arizona.”

Energy – Arizona Public Service (APS) 

“Arizona is moving to flexible resources,” says Jasdeep Singh, manager of APS’s Smart Grid, naming solar as one type. Such development will entail changes in the delivery systems, and Singh says APS is looking into technologies around energy storage and micro-grids to support those flexible resources.

Currently, however, technology advancements are primarily on the distribution side, to make the grid more flexible and advanced in the future. This requires advanced metering infrastructure. Distributed energy from solar and other sources impacts the transfer on the energy grid from one-way flow to two-way flow, Singh says, explaining this creates a challenge to maintain reliability. Another metering challenge comes from Arizona’s transient population, with a heavy influx of people whose winter residence is here. Energy utilities have to support their grid changes, Singh explains.

Another aspect involves fault communication indicators. Technicians used to have to actually walk the line, but technology now enables APS to pinpoint the fault and send a technician directly to that location.

APS is now putting into place an Advanced Distribution Management System (ADM). Referring to this as “a huge undertaking,” Singh explains, “This will be the brains behind our operations center.” All the information from the smart meters, fault communicators, automated switches and other technologies will be sent to the ADM. “We’ll have one single system to have eyes and ears on the distribution grid, and operate it from the computer terminals in one central location.” Says Singh, “The most important areas of technology to focus on are how to get more visibility and automation on a grid, and how technologies come together and integrate.”

A big challenge in his realm is the work force. “Power engineering is not a common major,” Singh says, noting students are gravitating to computer science and business-related degrees. Compounding the situation for APS, one of the state’s oldest and largest employers, is its aging work force comprised heavily of retirement-ready baby boomers. To address this, APS helps support vocational engineering programs.

Local utility companies are also being impacted by Arizona’s stagnating population growth. Few Arizona cities made the U.S. Census Bureau’s list of fastest-growing large cities (Goodyear, No. 6, and Gilbert, No. 12). Says Singh, “This affects us from a growth standpoint and impacts our ability to invest in infrastructure.”

Aerospace and Aviation – The Boeing Company

Aerospace and aviation have been a staple of Arizona’s economy, with aerospace and defense companies here numbering greater than 1,000. The Arizona Commerce Authority estimates this industry’s annual economic impact at $15 billion.

With sequestration cutting into Defense contracts, companies are putting greater emphasis on commercial aviation, including development of unmanned aircraft systems (drones), for which applications and regulation are still evolving. Companies like Boeing have been answering a pent-up demand from airline companies that had, during the Great Recession, held off on replacing aging equipment.

Challenges in addition to a constrained Defense budget, according to a Boeing spokesperson, include fierce global competition as international competition emerges on the commercial side, and the threat to the reauthorization of the United States’ Export-Import Bank, which places commercial international sales at a critical disadvantage.

Boeing is recognized as the world’s leading manufacturer of commercial jetliners and defense, space and security systems. In Arizona, its core business areas operate in Mesa and Chandler, and employ a skilled work force of approximately 4,670. The greatest percentage of these employees work on the production of Boeing’s Apache helicopters at its Mesa site — one of the world’s leading producers of military rotocraft. The AH-64 Apache multi-mission combat helicopter has been designed, developed and produced there since 1982. Boeing sees military rotocraft as an area of growth, and, according to a Boeing spokesperson, the site developed the AH-6i Light Attack/Reconnaissance helicopter and expects to begin production this year for the aircraft’s first international customer.

Other technology being advanced in Arizona by Boeing includes unmanned rotocraft and fabrication of electrical subassemblies and composites for military and commercial aircraft. Boeing operates one of the world’s most advanced flight simulation facilities in Mesa, where company designers and engineers can evaluate new avionics, crew station designs or mission software. And, encompassing software development, maintenance, system integration and testing, Boeing staffs the Iridium Satellite Technical Support Center in Chandler for Iridium Communications, Inc.

Boeing impacts Arizona’s technology ecosystem in contracting with 424 suppliers and vendors throughout the state. Its annual expenditures with Arizona suppliers and vendors is $1.4 billion, and it supports, directly and indirectly, an estimated 48,000 jobs in Arizona.

It is commonly recognized that the work force of the future will rely on strong skills in science, technology, engineering and mathematics, and Boeing’s spokesperson notes the company is committed to STEM education. Among the many programs it supports is “Engineering is Elementary.” This professional development program is designed to help teachers of grades pre-K through middle school foster their students’ understanding and interest in engineering and technology.

Semiconductors and Electronics – Microchip Technology Inc.

“Arizona has a good semiconductor ecosystem because of the number of large and small semiconductor companies, manufacturing plants (otherwise known as Fabs) and semiconductor support services in the areas of equipment, chemicals, gasses, spare parts, repairs, etc. — all of which are located in-state,” says Steve Sanghi, president and CEO of Microchip Technology Inc., a semiconductor company that designs, manufacturers and markets microcontrollers, analog, mixed-signal and memory chips.

Globally, the semiconductor market has lost some of its steam. Now a maturing market, its rate of growth has slowed markedly. The Semiconductor Industry Association’s statistics give a rate of growth in each of the past 10 years at 4.7 percent, compared to 7.8 percent during the preceding 10 years. But, while Sanghi points to the closure by Intel, Freescale, STMicroelectronics, ON Semiconductor, his own company and others of a significant number of older Fabs, he also notes these companies do maintain other plants in Arizona that they continue to operate.

Of Microchip’s 9,430 employees worldwide, 2,100 are in Arizona. The company was founded here, a spin-off in 1989 of General Instruments’ semiconductor division. Initial access to capital, Sanghi relates, was through venture-capital funding — a source he says new companies are finding fairly scarce in Arizona. “First, there is a shortage of VC funding and, secondly, the quality of Arizona business plans is inferior to that of our neighbors to the northwest,” he says, referring specifically to California. “So, it is a chicken-and-egg scenario. Entrepreneurs often end up going to California to seek venture funding. That scenario does not allow a vibrant VC funding community, nor high-quality funding ideas, to develop here.”

Some of the work force also comes from out of state. “Engineering employment has always been a U.S.-wide market,” Sanghi says. Observing, “A large number of the engineers working at Arizona companies have moved from somewhere — California, Oregon, Colorado, Texas, Massachusetts, North Carolina or any of the others tech hubs in the country,” he says Microchip is able to draw the required employees to Arizona and cites our good climate and low costs of housing and living as helping make Arizona attractive to them. At the same time, he notes also, Arizona’s universities have a very large enrollment, and they are graduating students in record numbers for the local as well as national markets. Of education overall in Arizona, he says, “The K-12 education in Arizona’s public schools still leaves something to be desired, but the college-level education is good.”

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