State's economy sees shift Technology replaces blue-collar industry in quiet revolution

November 03, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Meet the new face of Maryland business.

William M. Gibson doesn't run a bank, and no smoke belches from his Rockville office. And unlike the stereotype of a suffering Maryland economy, his software company, Manugistics Group Inc., isn't stuck with a stagnant stock and bleeding jobs.

Instead, the 51-year-old is the accidental leader of a quiet revolution reshaping the economy of the nation's fifth-richest state in terms of personal income. Manugistics' stock is up 191 percent this year. More importantly, it is the hottest in a wave of Maryland high-tech firms that are taking over economic leadership from traditional smokestack and locally-oriented service industries.

"We have a 33 percent market share," Gibson said, in a $150 million niche of the software market expected to grow to $1 billion in annual sales by 2000. "That implies if we simply maintain our share, we'll have $350 million in [software] licensing revenue and another $350 million-plus in service-related revenue."

The shift has been developing for years, but the last several weeks have been particularly full of signs Maryland may finally live up to predictions that it would come to rival California or Massa

chusetts as a technology center.

Digex Inc. of Beltsville became Maryland's first publicly-traded Internet service provider in an offering that valued the 6-year-old firm at $110 million. Trusted Information Systems Inc. of Glenwood and V-One Corp. of Rockville, which make software to safeguard electronic commerce, went public two weeks apart, bringing the total to 16 Maryland companies that have launched initial public offerings in 20 months. And Inc. magazine's new tabulation of the 500 fastest-growing private companies in America listed 18 Maryland firms -- as many as in both Carolinas and Tennessee combined.

New on list

In mid-October Bloomberg L. P. added 18 new companies to its index of Maryland's top 100 publicly traded firms, the biggest change since the index began in 1994. Nearly all owe their growth to new technology, the expansion of managed health care or this year's federal law to boost competition in communications businesses. All but three of the 18 companies have gone public since mid-1995.

The companies that Bloomberg bumped to make room say almost as much. Out went some of Maryland's most familiar names -- Monarch Avalon Corp., the game maker; Environmental Elements Corp., makers of pollution-control equipment; even Jos. A. Bank Clothiers Inc., one of the few clothing companies that still manufactures here.

The news highlights a slow but dramatic shift in where Maryland finds its wealth -- and its new jobs.

Maryland's economy was based on manufacturing through the 1960s, and by the 1980s the state was a haven for defense contractors, federal workers, financial services and a burgeoning construction market that made Maryland more dependent on building than any state but Nevada.

But those five sectors have all struggled to add jobs during the 1990s, holding down Maryland's overall job growth and leaving rising industries to take up the slack. Forty percent of the state's net private-sector job growth last year -- more than 10,000 jobs -- came from business services companies, according to the Regional Economic Studies Institute at Towson State University.

The business services group, which includes many of the emerging industries but not lower-wage personal services and restaurant jobs, added jobs four times faster than the state average in 1995. RESI expects business services to lead the 61 industry groups the state tracks in Maryland job creation through 1998.

"Why we're different is fairly significant," said Manugistics' Gibson. "It's a clean industry, it's a very highly educated industry, it's a very young industry. And these are very fairly compensated individuals."

The stock market expects the young companies to keep growing, and Manugistics, which makes logistics planning software, is a lesson in why. It had $62.3 million in sales in its fiscal year ended in February, and is up to 550 workers from 150 a few years ago. But the lure of $700 million in sales only four years away shows how fast its financial world is still changing.

That's why Gibson, who made just over half the salary of the head of Baltimore Gas & Electric Co. last year, has made almost $60 million on his Manugistics stock.

A common stock-market measure, the price-to-earnings ratio, shows how much the market expects Maryland companies to grow.

It's a simple concept: a company that has 1 million shares of stock outstanding and makes a profit of $1 million a year, or $1 per share, has a P/E of 10 if its stock sells for $10. The higher the P/E, the faster the company is expected to grow.

When P/E ratios reach 20 -- the Dow Jones Industrial Average is now at about 18 -- it means people are very confident. Tech stocks often get the highest multiples.

Beating Silicon Valley

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