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CITY HANGS ITS HOPES ON A FLOURISHING 'BYTE BELT'

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

One hundred years later it's a different wire -- high-speed communications cable -- that the city hopes will bring an economic revival.

Electronic commerce "is a natural for downtown Buffalo," Mayor Anthony Masiello said. The city's nexus of phone and data lines connecting the Northeast with Canada "makes us competitive with other 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 this region are not in sectors that people perceive as high-growth areas in the next 20 years," said John Cappellino, business retention specialist at the Erie County Industrial Development Agency.

This year could see significant strides, as home-grown tech companies launch expected stock offerings and other major projects bear fruit, industry experts said.

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

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

Encouraged by a sprouting of high-tech ventures in its well-wired downtown, the city launched a "Byte Belt" initiative in 1999 to foster info-tech firms. Companies -- aided by a city loan program for pre-wired "smart" buildings and help with a training costs -- could absorb some of downtown's glut of vacant office space. As a byproduct, 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 a dozen tech companies have located downtown since 1998, bringing employment in the sector to about 2,000, City Hall estimates.

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

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

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

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

But two larger, established technology companies, Computer Task Group and Ingram Micro, stumbled last year, while a shortage of recruits with computer skills could be an anchor on growth throughout the high-tech sector.

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

At Computer Task Group Inc. in Buffalo, sales were hit by a Y2K-induced chill on corporate computer spending, the company said. The computer consultant said corporations put off new projects until after Jan. 1 to see where things stood. CTG stock fell from a high of $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-commerce projects, said industry analyst Stephen Dube at Wasserstein Perella Securities in New York.

For providers of technology services, "e-commerce is the driver for almost everything that's happening now," he said. Companies large and small are moving to offer customers the ability to buy products and track orders via the Internet.

Selling products via downloads direct to the consumer is the business model behind e-commerce company Reciprocal Inc. Formerly named Rights Exchange and Softbank Net Solutions, Reciprocal markets a clearinghouse service for digital products like music and text. When consumers download products from the Internet, Reciprocal collects 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 for electronic publishers. In November, it announced a joint agreement with Xerox that includes an investment from the copier company. Officers have said they expect to have a year of commercial operations behind the company -- a milestone that will come this year -- before launching a stock offering.

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

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

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

A survey by PricewaterhouseCoopers said Buffalo-area firms attracted $8.5 million in venture funds during the first half of 1999, far less than other cities. The survey, which included 70 percent of venture firms, showed that Western New York received only a tiny fraction of the nearly $12 billion in venture funding during the year's first half.

A state-lead effort to jump-start tech employment by attracting a computer chip manufacturing plant continued in 1999, gaining steam during what officials say is an upturn in the semiconductor industry.

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

Western New York has one site, the North American Center in West Seneca, enrolled in the Semi-NY program, one of eight statewide. The program 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 IBM Corp. and the SEMATECH consortium, as a consultant to network with his former colleagues in the chip industry. Over the past two years about $2.5 million has been spent marketing the state to chip makers.

A 1999 study showed that New York had the lowest costs for a hypothetical, $1.6 billion microchip factory, Richardson said. State tax breaks plus low costs for labor and water put New York's costs below those of the industry centers Austin, Phoenix, Portland, Ore. and Richmond, Va. The study was commissioned by the ESDC and performed 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's map."

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