Irwin Jacobs walks tall across the parking lot on a hot August morning. His 6-foot-2 inch frame, those oversized glasses and natural smile make him stand out amid the small group of company executives gathered for a technology demonstration still an hour off. Jacobs won’t be participating — today’s show belongs to his son, Paul E. Jacobs, group president of Qualcomm’s Wireless & Internet Group — but he has agreed to be photographed. Effortlessly climbing into the cab of a semi equipped with Homeland Defense gadgets, the senior Jacobs, 68, embodies the past, present and future of San Diego’s diverse technology industry, an industry that has carried the local economy well since terrorism struck a year ago Sept. 11.

That diversity wasn’t always so.

San Diego’s modern economy is comfortable with, for decades even dependent on, war. In a time of relative peace, the region remains home to the nation’s largest concentration of U.S. Naval hardware and enough Marines to make even the most confident dictator lose sleep. Up until a decade ago, war iron — missiles and other weapon components — provided tens of thousands of solid civilian jobs, the kind that today would each pay between $40,000 and $80,000 annually. Then the Cold War ended. Then a national recession rolled through. Of those 45,000 or so civilian defense-related positions tracked by the San Diego Regional Chamber of Commerce, three out of four went away in the early 1990s. Essentially overnight. Again. In a boom or bust pattern familiar to longtime San Diegans, one that started with the end of World War II.

Yet the comfortable technology diversity San Diego now enjoys owes much of its existence to the defense industry. Nowhere is that more true than in telecom, where in 1969 Professor Irwin Mark Jacobs put a toe outside academic life with a part-time venture called Linkabit. He took a year sabbatical in 1971 to give a serious try to running a business specializing in encrypted digital wireless communications for the defense industry. He liked it and never went back to the classroom.

Those were lonely times for an academic in a nascent technology business. “There was very little knowledge among lawyers, bankers, insurance people; the different ancillary services you need to start a company,” recalls Jacobs, who collected organization charts to help piece together a corporate structure.

Nurtured by up-front money that came with defense contracts, Linkabit took off and was acquired in 1980 by M/A Com. By that time, company executives were recognizing the commercial potential of the various technologies and leaving to start their own companies, like Carlsbad’s ViaSat. In spring of 1985, Jacobs left with about $25 million from the Linkabit sale and founded Qualcomm.

The commercial success of the Code Division Multiple Access technology that Qualcomm pioneered later helped attract industry heavyweights like Ericsson, which bought Qualcomm’s infrastructure business, and Kyocera, which bought its handset business. Nokia, the world’s largest manufacturer of wireless handsets, established its CDMA operations in San Diego. The San Diego Telecom Council says the region is home to about 500 telecoms. The Chamber of Commerce counts nearly 28,000 telecom jobs, up from 4,000 a decade ago.

What are those jobs worth to the economy? Probably a little less today than a year ago. But Marney Cox, director of research at the San Diego Association of Governments, notes that from 1999 to 2000 the average income of a worker in the telecom industry more than doubled, growing from $55,000 to $120,000. “Now that had a lot to do with taking advantage of stock options,” Cox notes. “But you can imagine what that plows back into the local economy in terms of discretionary spending. A lot of people are going to dinner more, hiring landscapers and making other purchases that they could not have before.”

Biotech Is Here To Stay

About the same time Jacobs was starting Qualcomm, a life-sciences company called Hybritech, founded in 1978 by Howard Birndorf and Ivor Roysten, was hitting its stride. Hybritech alumni went on to found companies such as Ligand, Idec, Dura, Gensia, Neurocrine Biosciences, Immune Response Corp., Viagene, Gen-Probe, Nanogen and Genoptix.

Those firms and others provide about 25,000 jobs in San Diego. The industry continues to grow, even as telecom expansion is stalled. For example, Novartis, arguably the world’s most successful life-sciences company today, moved its Genomics Institute to San Diego in 1999. Already it has more than 200 researchers and engineers at work on revolutionizing experimental science in the post-genomic era and this year opened a new 260,000-square-foot research headquarters on Torrey Pines Mesa.

Among the participants and observers of both industries is Guy Iannuzzi, founder of Mentus, one of San Diego’s oldest marketing firms catering to the tech industry. Hybritech was his first client, followed shortly by Linkabit.

Iannuzzi says that by the end of 1979 San Diego was home to 14 bioscience companies. By 1984 that number grew to 33. It hit 71 in 1989, 131 in 1994, 245 in 1999 and 287 by the end of last year. “Those were the numbers we could verify,” Iannuzzi says. “We know there are even more out there.”

Diversity’s Economic Glow

The concept of diversity gets tossed around often by observers of, and participants in, San Diego’s technology economy. “San Diego has managed to have a fairly broad base of industry,” notes Jacobs. “And although there can be slowdowns in different parts of the industry, we are very well-positioned as a community.”

Iannuzzi says “organic” is an even better description for the stability the tech industry brings. He harkens back to taxpayer-funded economic development efforts to generate a civilian aerospace industry in San Diego. The coup was luring Aerojet’s corporate headquarters to La Jolla in the late 1970s. A decade later a new chief executive decided to move the company back to Sacramento. The investment went pffft.

That is unlikely to happen with the homegrown biotech, telecom, software and golf club industries.

“These are companies that were created here, companies that grew from the local infrastructure,” Iannuzzi says. “You have the founders, you have the executive management and the bulk of the research pool and they are all from San Diego. The beauty of this is if they leave one company, they go to another San Diego company. If you don’t have that you have instead a division manager and maybe a specialization group. When they leave they go elsewhere. But when you have the whole company founded here, that means the intellectual genesis of the company stays here. Hybritech had 11 vice presidents that went on to found other companies. And at each one of the companies those v.p.s created, the successful ones do the same thing.”

All Is Not Perfect

The last thing anyone should do is go Pollyannaish on San Diego’s economy. This is not 1999. This is not 2000. The unemployment rate may only be 4.1 percent, and that may be the high for the year, but all is not well. Mirroring the national trend, venture capital investment is on the decline. That’s the money that feeds the startups that San Diego’s tech industries spin off, and those are the spin-offs that hire all those critical support firms. While not exactly glum, most of San Diego’s professional service firms with an eye on the techs are hunkering down. Some have had layoffs, slashed budgets or even shut their doors.

Sandag’s Cox notes five areas where expansion of San Diego’s economy is challenged: access to global markets, moving from research and development to production, housing costs, utilities (energy and water) and hazardous waste disposal.

Future airport constraints are probably the biggest global market challenge, since San Diego’s economy is on track to produce high-value goods that are small in size and require quick transportation to market. The lack of a better airport will not constrain population growth, but will lop about $7 billion in today’s dollars from the future economy cumulatively over 30 years. The possibility of a war with Iraq also may be enough to take the top candidate, Miramar, off the table for the foreseeable future.

Telecom, too, is suffering.

Jim Ingraham, managing partner of the local office of PricewaterhouseCoopers, tracks the venture capital numbers by the quarter, and for telecom they are grim. Communications and networking garnered only $8.2 million in the second quarter, down from $106.4 million in the first quarter and way down from previous years. While that most recent quarter may be an aberration — indeed strong life-science action brought San Diego $339 million in total quarterly VC investment, boosting total VC investment to the fourth most in the nation — Ingraham acknowledges the negative impact. His clients and associates are scaling back and fewer new businesses are being formed.

But Ingraham, a two-decade veteran of the San Diego scene, takes a longer view. He’s been through the cycles, including watching the Downtown market go bust when the big three savings and loans — HomeFed, Great American and Imperial — and their billions were washed away in the late 1980s and early 1990s.

“Communications has been hit hard,” Ingraham says. “... If I take a longer perspective and look back five or six years, a period that includes more than the bubble, I see networking and communications had the highest valuations and got the most money by a long shot. Unless you think this sector is dead forever, it is a healthy sector where a lot of capital has been invested. It tells you that sector will again be healthy.”

Kelly Cunningham, research manager at the San Diego Chamber, notes San Diego’s emphasis on telecom research and development has allowed it to escape much of the industry’s hardest times. Indeed Qualcomm already has morphed into what Jacobs describes as an innovation company, one that uses intellectual horsepower to place ever greater capabilities — whether it be location technology, a music player, video display or biotech application — onto a single chip at the heart of each wireless device.

When the huge telecom conglomerates sort out the mess that is now making front-page news, San Diego’s players, particularly those in the wireless hardware and software sectors, seem poised to grow. Indeed, the region remains a focus of the wireless industry, with leading players gathering here regularly for major conferences and conventions, the next one being International Wireless Symposium 2002 set for Oct. 2-4.

The Outlook And War

While the technology community has diversified, its defense-industry roots still serve it well in troubled times. Witness the back-to-the-future demonstration led by Qualcomm’s Paul Jacobs. The company’s first hit was its OmniTracs that allowed shipping companies to track the progress of their trucks. During last month’s presentation, which included Rep. Randy “Duke” Cunningham, R-51st District, Qualcomm showed off a truck and trailer featuring anti-hijacking measures that can be operated remotely. Elements could be on trucks carrying sensitive cargo by early next year.

This month, UCSD scientists and policy experts will publicly highlight areas of research from airport security and blast protection to wireless sensors and new technologies to detect biological agents. A plan to deploy a monitoring network along four miles of coastline to automatically track and assess possible security threats will be unveiled. Other companies, including SAIC, also are working on Homeland Defense technologies, much of it out of the public spotlight.

Jacobs sees future symmetry from the technology industry’s diversity and the rapid evolution of cell phones into what essentially are hand-held computers.

“(San Diego has) come a long way but I can see we have a very positive future ahead of us,” he says. “Some of these new (wireless) applications will be biotech in nature. ... I can see over time a number of these local industries beginning to interact and forming even a more cohesive whole.” That kind of interaction is the ultimate strength of technology diversity.

Well before the end of the century, experts say, San Diego can expect the ultimate in tech/bio convergence, with telecommunications, computing and bio-regulating devices implanted directly into the brain, nervous system, retina and under the skin. You’ll read about it here first, but give UCSD and the San Diego Venture Group a couple of decades to catch up.