INDUSTRY

The Pittsburgh Technology Council released is seventh annual State of the Industry Report, which found that several southwestern Pennsylvania technology industry clusters have made considerable strides in growth. The report, which covers the 13-county southwestern Pennsylvania region, documents among other things, increases in total annual payroll and average wages which are manifested generally across most industry clusters and subclusters. Statistical data presented within the report is for 2004, the latest year for which complete, comprehensive data was available. The annual State of the Industry Report is commissioned by the Council and conducted by Carnegie Mellon University's Center for Economic Development. The report examines the role that the technology industry clusters and other key factors play in southwestern Pennsylvania's economy. The clusters include information technology, advanced materials, life sciences, advanced manufacturing and environmental technology. Emerging technology industries covered in the report include cyber security, data storage, electro-optics, nanotechnology, micro- electromechanical systems, robotics, specialty metals, supercomputing, system- on-a-chip and tissue engineering. These emerging industries were cited as giving the region a broader technology base from which to build a future economic expansion. According to the 2006 report, the 13-county southwestern Pennsylvania region has 7,559 technology companies that employ nearly 213,000 with a total annual payroll of roughly $10.8 billion. These companies represent 10.3 percent of all companies in the region, yet they employ 16.9 percent of the region's workforce. In addition, regional technology industries' total annual payroll represents 23.5 percent of the total payroll for the region, indicating that technology jobs do indeed pay higher than the average wage. "We believe economic conditions in 2006 will be favorable for further growth in southwestern Pennsylvania's technology industries," said Stuart Hoffman, senior vice president and chief economist for PNC Financial Services Group. "Rising business confidence, healthy growth in business investment spending, and increasingly available venture capital will leave our region's technology industries on firmer footing in 2006. A highly diverse technology base and the presence of world-class research institutions mean that, over the longer-term, technology will continue to play an increasingly significant role in the economy of southwest Pennsylvania." Hoffman contributed the forward to the Council's report. "The continued positive aspects described in this year's report on the state of the region's technology industries are once again encouraging," said Steven G. Zylstra, president and CEO of the Pittsburgh Technology Council. "The growth trends in total annual payroll and average wages serve as a measure of wealth creation for the region's economy and a sign that future expansion will depend heavily on technology industries. We are confident that these industries will continue to be positive leading indicators, as southwestern Pennsylvania's economy continues to emerge from the less than robust general economic environment earlier in the decade." Highlights of the State of the Industry Report are as follows: Information Technology - 92 hardware firms within the 13-county region employ 7,641 people with a total annual payroll of $398 million. This subcluster reported gains in average wages at 13 percent growth over the three-year measured period. - 808 software firms employ more than 9,000 people with a total annual payroll of $672 million. Although employment is down when measured over the three-year period, it rebounded slightly over the last year. The software subcluster continues to have the highest average wage examined within this report at $75,109 per year within the MSA, which has been solidified even more since the three-year increase is in excess of five percent. - 682 telecommunications firms employ more than 16,800 people with a total annual payroll exceeding $977 million in the 13-county region. Life Sciences - Including the Health Services subcluster, there are 3,229 life sciences firms throughout southwestern Pennsylvania employing more than 115,000 people with a total annual payroll in excess of $5.5 billion. - The 13-county region's Health Services subcluster encompasses 2,807 companies employing more than 100,000 people with a total annual payroll of $4.6 billion. - Although employment was down by more than 11 percent over three years, the total annual payroll for Instruments and Devices increased nearly six percent, and average wages increased nearly 20 percent. - The region's Medical Equipment subcluster experienced a modest increase (4.2 percent) in the number of companies (4.2 percent) and average wages (four percent) over three years. The total annual payroll, however, has declined to the lowest in the three measured years and stands at $73.5 million. - The 260 companies in the region's Bio Research subcluster, employing more than 8,500 people are responsible for a $555 million total annual payroll, which represents an increase of nearly 20 percent over three years. - Though employment was up by six percent in the MSA's Pharmaceuticals subcluster, the total annual payroll increased nearly 60 percent to more than $41 million over three years' time, and the average wage increased nearly 50 percent to more than $73,400 a year, the second highest average wage in this report. - Pharmaceuticals represent a positive note in this report, as it is the only subcluster wherein the number of companies, employment, payroll and average wages all were up. Advanced Manufacturing - Although there is a slight net decrease in the number of advanced manufacturing companies over a three-year period in both the 13-county region and the MSA, the average wage increased markedly (9.5 percent) to more than $48,000 a year in the MSA. - The total annual payroll also increased in both the 13-county region and MSA more than six and seven percent respectively; the 13-county payroll now stands at more than $1 billion. Advanced Materials - The weakness across the board within the plastics and rubber subcluster is the deciding factor for the aggregated cluster's steep declines in all measures with the exception of the average wages. The average wage within the entire cluster in the MSA gained about one percentage point over the three-year period, and it now stands at a little more than $52,000 per year. - The chemical industry is a bright spot within this cluster with smart gains everywhere, except for the number of companies; the chemicals subcluster posted total annual payroll gains of nearly 10 percent to $233 million. - The aggregated cluster's total annual payroll now stands at $560 million. Environmental Technology - The aggregated Environmental Technology cluster is the only one in this report that has experienced increases in all categories. - The total annual payroll for this cluster increased nearly 13 percent in the MSA; the wider 13-county region posted a total annual payroll at $1.7 billion. - Average wages between the MSA and the 13-counties are almost at parity at nearly $56,700 per year. - Over the three-year period, the average wage in the Environmental Equipment subcluster grew almost 18 percent in the 13-county region, and average wages within the MSA now stand at $52,743, up from $48,347 a year earlier. - Despite the decrease in the number of employees in the Remediation and Waste Management subcluster, the average wage in the MSA gained in excess of 10 percent over the prior three-year period and stands at $46,427 a year. Technology Growth Indicators A range of key technology growth indicators also is examined in the report each year. These include trends in university research and development, the number of science and engineering graduates, university-based technology transfer, private sector patents and venture capital investment. University Research and Development - The region has shown steady growth in university research and development expenditures with $647 million in spending in 2003, a gain of 51 percent over the five-year period beginning in 1999. - Expenditures at Carnegie Mellon's Software Engineering Institute, the region's lone Federally Funded Research and Development Center (FFRDC) were $43 million, higher than any other year except for the year 2000 peak, and a 16 percent increase since 2001 levels. - The region's growth in R&D spending appears to be fueled principally by research and development activity in the life sciences, mostly at the University of Pittsburgh. The share of total R&D spending in the life sciences at regional colleges and universities has been higher than 60 percent every year since 2000. - Math and Computer Science is the second largest discipline, accounting for 16 percent of 2003 expenditures. Carnegie Mellon University generally is acknowledged to be among the top three computer science schools in the nation, along with Stanford University and M.I.T. Carnegie Mellon also is nationally ranked high in systems, theory and artificial intelligence which was first envisioned and developed there 50 years ago. It has been successful for decades in attracting significant research funding from government and industry. - Engineering's 12 percent share of total spending places the discipline third. - Two institutions accounted for 92 percent of the region's R&D expenditures in 2003. Research and development at the University of Pittsburgh accounted for 63 percent of total spending, with Carnegie Mellon accounting for nearly 29 percent of total expenditures. Science and Engineering Graduates - Altogether, six southwestern Pennsylvania universities accounted for 7,884 science and engineering graduate students in 2003, the last year for which complete data is available. This is the highest total since reporting began in 1991, and represents 605 more students than in 2002. - Of 33 Pennsylvania colleges and universities offering science and engineering degrees, the University of Pittsburgh was ranked second in total graduate students with 3,941, accounting for half of the 13- county totals. - Carnegie Mellon University is the region's second highest in science and engineering graduate students with 2,496 in the year 2003 - a 24 percent increase over five years - which places it sixth in the state. Carnegie Mellon's share encompassed nearly 32 percent of the regional total in 2003. - Duquesne University and Indiana University of Pennsylvania accounted for a combined nearly 14 percent of all science and engineering graduate students. University-based Technology Transfer - Both Carnegie Mellon University and the University of Pittsburgh performed at or well above the national average in all categories in 2003, with the exception of license income received. License income for U.S. universities tends to fluctuate on the payments of a small number of highly successful licenses. - In comparing patents issued to 227 other universities throughout the U.S., Carnegie Mellon ranked in 53rd place; the University of Pittsburgh was ranked 56th for 2003. - With respect to the ranking in the number of startups, Carnegie Mellon University's rank tied at 60th nationwide with two startups, and the University of Pittsburgh was tied at 11th with eight. Private Sector Patents - Despite year-to-year fluctuations, patenting has been relatively steady in the Pittsburgh region since 1990, reaching a peak of 841 in 1999, and a trough of 581 in 1997. - In 2004, the total patents with assignees in the Pittsburgh region declined slightly to 615. Of that number, 47 came from the university community. - Just over three-quarters of all patents issued in 2004 to regional inventors were assigned to corporations; nearly 16 percent were assigned to individuals and only eight percent were assigned to universities. SBIR Awards - In 2004, total regional SBIR awards continued its five-year upward trend. - A record year of more than $13 million was awarded in 2004, a 17 percent increase over the previous year. - The Department of Health and Human Services continued its decade-long tradition of awarding the most funding (nearly $6 million annually) to the region's companies. Venture Capital - Total venture capital investment has been restated this year to exclude company buyouts, which were present in previous reports. - Southwestern Pennsylvania's share of early stage investments, when compared to all venture capital investments in the region, was 45 percent. This level is more than double the share of early stage investments for the U.S. and the state. However, this level also includes Medmark, which was created as an independent for-profit subsidiary of Highmark operating as a pharmaceutical distribution company. It initially was funded with $28 million by Highmark; it currently employs 100, and first-year sales were $40 million. Some circles would not consider this an early-stage company. - The single largest sector receiving the highest share (42 percent) of the region's venture capital in 2004 was medical and health-related companies. Factoring in biotechnology will boost that share to half of all investments. - Computer and communications-related products and services received 44 percent of the regions venture capital in 2004. The State of the Industry Report includes data for the entire 13-county region, which is comprised of Allegheny, Armstrong, Beaver, Bedford, Butler, Cambria, Fayette, Greene, Indiana, Lawrence, Somerset, Westmoreland and Washington Counties. Copies of the 20-page executive summary and related articles are available by calling (412) 687-0200, extension 247. The complete, more comprehensive report is available for viewing and downloading on line at the Pittsburgh Technology Council's Web site at its Web site