CITY HANGS ITS HOPES ON A FLOURISHING 'BYTE BELT'

In 1900, electric wires snaking through the region for the firsttime carried Buffalo's hopes for prosperity.

One hundred years later it's a different wire -- high-speedcommunications cable -- that the city hopes will bring an economicrevival.

Electronic commerce "is a natural for downtown Buffalo," MayorAnthony Masiello said. The city's nexus of phone and data linesconnecting the Northeast with Canada "makes us competitive withother regions," he said.

While other urban economies ride the information technology boom,Western New York is still playing catch-up.

"It is an issue, because a lot of the major employers in thisregion are not in sectors that people perceive as high-growth areasin the next 20 years," said John Cappellino, business retentionspecialist at the Erie County Industrial Development Agency.

This year could see significant strides, as home-grown techcompanies launch expected stock offerings and other major projectsbear fruit, industry experts said.

However, recruiting difficulties and a drought of start-upcapital continue to be a drag on high-tech growth.

"Venture capital is still a huge issue we're focused on," saidDavid Straitiff, chairman of the Infotech Niagara industry group andpresident of Syrinex Communications Corp., a technology start-up."Even though there's a lot of money out there, it tends to staypretty close to home."

Encouraged by a sprouting of high-tech ventures in its well-wired downtown, the city launched a "Byte Belt" initiative in 1999to foster info-tech firms. Companies -- aided by a city loan programfor pre-wired "smart" buildings and help with a training costs --could absorb some of downtown's glut of vacant office space. As abyproduct, they could also attract more downtown residents,officials said.

"The IT (information technology) industry attracts young people,and they want to be where the action is," Masiello said. Half adozen tech companies have located downtown since 1998, bringingemployment in the sector to about 2,000, City Hall estimates.

Four out of five tech companies in the area plan to growemployment, a survey by Infotech Niagara found. However, they citeddifficulty finding skilled staff and attracting capital.

A city training fund -- an idea that's under discussion as partof the Byte Belt initiative -- could be a potent aid for techcompanies to solve their skill gap, Straitiff said.

Two senior firms -- older than 1998 -- are likely to offer stocksometime this year, helping efforts to put the region on thenation's dot-com map. Although officers won't say when, ReciprocalInc. and Chek.com appear poised to offer their shares for sale inthe heated market for e-commerce companies.

In another development, the University at Buffalo unveiled its $7million supercomputer center early in 1999, putting it among thenation's top university computing sites. The Center forComputational Research will aid corporate as well as academicresearch, contributing to the region's digital infrastructure,officials said.

But two larger, established technology companies, Computer TaskGroup and Ingram Micro, stumbled last year, while a shortage ofrecruits with computer skills could be an anchor on growththroughout the high-tech sector.

Faced with plunging computer prices, wholesaler Ingram Micro Inc.announced a 10 percent staff cut in March, affecting about 140workers at its sales and support call center in Amherst. By year endthe company's stock had fallen to $13 a share, down from a high ofover $35 at the beginning of 1999.

The layoffs are complete and the company's employment in Amherst,at about 1,600 people, should remain stable, representatives havesaid.

At Computer Task Group Inc. in Buffalo, sales were hit by a Y2K-induced chill on corporate computer spending, the company said. Thecomputer consultant said corporations put off new projects untilafter Jan. 1 to see where things stood. CTG stock fell from a highof $29 in the beginning of 1999 to about $14 a share at year end.

The half-billion dollar company is poised to recover this year,as corporations poke their heads up and kick-start e-commerceprojects, said industry analyst Stephen Dube at Wasserstein PerellaSecurities in New York.

For providers of technology services, "e-commerce is the driverfor almost everything that's happening now," he said. Companieslarge and small are moving to offer customers the ability to buyproducts and track orders via the Internet.

Selling products via downloads direct to the consumer is thebusiness model behind e-commerce company Reciprocal Inc. Formerlynamed Rights Exchange and Softbank Net Solutions, Reciprocal marketsa clearinghouse service for digital products like music and text.When consumers download products from the Internet, Reciprocalcollects on-line payment and gives them the keys to unlock anti-piracy protections.

Last year Reciprocal introduced its first commercial services,moving quickly from aiding Internet music downloads to services forelectronic publishers. In November, it announced a joint agreementwith Xerox that includes an investment from the copier company.Officers have said they expect to have a year of commercialoperations behind the company -- a milestone that will come thisyear -- before launching a stock offering.

Chek.com, a provider of Web-based e-mail services to corporationsand organizations, is also on track for its own stock offering. Thedowntown Buffalo company celebrated reaching 1 million e-mailaccounts last year.

If the IPOs raise millions and make a splash with investors, theycould help ease the capital drought for other companies.

"It's important to show that a Reciprocal or a Chek.com is ableto grow and go public locally," Straitiff said.

A survey by PricewaterhouseCoopers said Buffalo-area firmsattracted $8.5 million in venture funds during the first half of1999, far less than other cities. The survey, which included 70percent of venture firms, showed that Western New York received onlya tiny fraction of the nearly $12 billion in venture funding duringthe year's first half.

A state-lead effort to jump-start tech employment by attracting acomputer chip manufacturing plant continued in 1999, gaining steamduring what officials say is an upturn in the semiconductorindustry.

"We feel all the initiatives we've undertaken have positioned usto catch the next wave of a rebounding semiconductor market," saidRay Richardson, senior vice president of strategic business at theEmpire State Development Corp.

Western New York has one site, the North American Center in WestSeneca, enrolled in the Semi-NY program, one of eight statewide. Theprogram pays $75,000 in matching funds per site to qualify "shovel-ready" locations for chip manufacturing.

In July Semi-NY hired Sanford L. "Sandy" Kane, a veteran of IBMCorp. and the SEMATECH consortium, as a consultant to network withhis former colleagues in the chip industry. Over the past two yearsabout $2.5 million has been spent marketing the state to chipmakers.

A 1999 study showed that New York had the lowest costs for ahypothetical, $1.6 billion microchip factory, Richardson said. Statetax breaks plus low costs for labor and water put New York's costsbelow those of the industry centers Austin, Phoenix, Portland, Ore.and Richmond, Va. The study was commissioned by the ESDC andperformed by Albany-based CPA firm of Urbach Kahn & Werlin PC.

"We are getting inquiries from the (semiconductor) industry,"Richardson said, "whereas two years ago New York wasn't on anybody'smap."