Calabasas is an upscale community perched on the western edge of Los Angeles' San Fernando Valley. It's refuge to some notable Hollywood types -- Britney Spears rents a house here, Howie Mandel hangs out at a local Starbucks, and Will Smith and his family occupy a sprawling compound -- but it also has a business reputation the city of 23,000 would like to forget. "Countrywide country," blurts out a Connecticut-based mortgage industry marketing consultant when the city's name is mentioned.

Calabasas was the headquarters of Countrywide Financial Corp. At one time the nation's largest mortgage lender, Countrywide notoriously imploded in late 2007 and was sold to Bank of America Corp. in a fire sale early last year. Countrywide operations once dotted the area and employed about 15,000 workers. Other subprime mortgage companies also crashed. OwnIt Mortgage Solutions Inc. and Quality Home Loans occupied prominent buildings just up the hill from Countrywide's country club-like headquarters. Calabasas declared itself the epicenter of the subprime mortgage industry.

Alas, that industry has pretty much been confined to the dustbin of history. Its corporate players, reviled and vilified, are almost all bankrupt and defunct. Even before the Bank of America takeover, thousands of Countrywide employees were laid off. More followed. All OwnIt and Quality Home Loans workers have fled to find jobs. A surprising number of BMWs still occupy the parking lot of the richly finished office complex that served as OwnIt headquarters. Only on closer inspection does it become clear that the local BMW dealer is storing unsold cars on the lot.

So it stands to reason that the Calabasas-area economy would be in deep freeze.

Well, not quite. While times are indisputably tough, the area's bright blue sky isn't necessarily falling, at least not entirely.

"We did hire a few Countrywide employees in IT, but that was it. There was no other impact," says Atul Bhatnagar, CEO and president of Ixia, which makes performance-testing equipment for Internet protocol systems, from its corporate base three miles from Countrywide's old headquarters and just down Agoura Road from the old OwnIt and Quality Home Loans offices. In June, Ixia completed the $110 million all-cash acquisition of wireless test systems maker Catapult Communications Corp., one of the few notable midmarket technology acquisitions in recent months.

Ixia is busy integrating its new acquisition, which has developed state-of-the-art testing for fourth-generation wireless, Bhatnagar says. "Next year, we'll look at other opportunities."

"There's no one in this office who doesn't know someone affected by Countrywide," says Brian Towne, executive vice president and general manager of DTS Inc., the sound technology company based in the neighboring community of Agoura Hills. But "we're still hiring."

And expanding. At the end of last year, DTS acquired the assets of Kirkland, Wash-based company Neural Audio Corp., The deal, worth up to $15 million, gives DTS some state-of-the-art audio technology that improves the quality of sound in laptops. So as to accommodate an expanding workforce, DTS bought a much larger building in Calabasas, where it expects to move in November.

According to Towne, while "I wouldn't characterize it as a buying spree," his company has no debt and is "continually looking through this industry" for potential acquisitions.

Calabasas and its neighbors suggest a far more nuanced business environment than recent mortgage-industry-based notoriety might indicate. They are corporate homes to a surprising number and variety of companies, everything from restaurant chain Cheesecake Factory Inc. and specialty retailer Guitar Center Inc. to video gamer THQ Inc. and the country's largest landscape services provider, ValleyCrest Cos. Liquidators such as Buxbaum Holdings Inc. and the Great American Group Inc. congregate in the area. Head a little further west into Westlake Village and encounter the corporate digs of Dole Food Co., athletic shoemaker K-Swiss Inc. and researcher J.D. Power and Associates. Biotechology giant Amgen Inc. dominates an area of nearby Thousand Oaks called Newbury Park.

Equally as varied and even more plentiful are the area's hundreds of small and medium-sized enterprises. "There are a tremendous amount of companies in the $20 [million] to $600 million range," says Brent Reinke, a Westlake Village-based partner with the law firm Musick, Peeler & Garrett LLP.

"Here, your neighbors could be in entertainment, agriculture, aerospace, a million other things," adds Robert Nunn, chief executive of Calabasas-based Fulcrum Microsystems Inc., a specialty semiconductor manufacturer.

Like the fires still smoldering around Los Angeles, the recession has hit Southern California hard, but not uniformly. Many businesses in the Calabasas area are understandably down, but others are surprisingly upbeat. Financial services and construction, for example, were decimated. (Calabasas is headquarters to one of Southern California's biggest homebuilders, Ryland Group Inc.) However, some healthcare and defense suppliers are doing well. The area's technology corridor, which stretches from Calabasas all the way west and north to the coastal city of Santa Barbara, is at least holding its own.

"Tech has been a relative bright spot," says Gary Rabishaw, a Los Angeles-based managing director with middle-market group Wells Fargo Securities LLC.

Fulcrum, which makes chips used in high-speed routers, is a case in point. The recession has "slowed us down, maybe nine to 12 months," says Nunn, of the current recession. Despite this, he expects his company will finish the year "slightly up" in revenue from 2008.

The kinds of complexities that characterize the Calabasas area, in turn, speak to the economic profile of the San Fernando Valley as a whole and, by extension, Los Angeles and Southern California. A look at this one corner of the sprawling Los Angeles metropolis helps explain an enormous economic catchment in times of severe stress.

"As goes the Valley, so goes Southern California and vice versa," says William Roberts, economics professor at California State University, Northridge, who heads the university's San Fernando Valley Economic Research Center. "We represent Southern California."

That representation takes on multiple characteristics: a preponderance of small and medium-sized enterprises, heavy on retail and consumer products, many ethnic-owned and -oriented businesses, a near obsession with real estate and construction. But perhaps most importantly, Southern California's economy, like its population, is as varied as any in America. The San Fernando Valley mirrors this diversification. "You name it. We've got it," Roberts says.

Economic variation helps during a downturn.

"Here, firms can fail and the Valley doesn't die," says Roberts, who contrasts the area with a one-industry town like Detroit. Even Walt Disney Co., the Valley's biggest employer, is diversified enough to provide a cushion if one of its sectors falls on hard times, Roberts says. "The Valley really has been a hotbed of entrepreneurial activity."

That doesn't mean the area is completely sheltered from economic woes. Southern California may exemplify diversity, explains Rabishaw. But "this recession has been so broad and deep" it affects a wide range of sectors and industries.

That downturn extends to the area around Calabasas and includes more than just the mortgage industry. For example, in October 2007, Boston private equity powerhouse Bain Capital LLC acquired Guitar Center in a leveraged buyout for $2.1 billion. The investment was written down by 40% earlier this year, according to a Reuters report, as specialty companies like the musical-instruments retailer have taken a huge hit.

Not surprisingly, the recession has taken its toll on local dealmaking as well. Rabishaw and others say the Los Angeles area scene is little different from elsewhere in the country. "The amount of conversations, the pace of conversations are increasing," says Ivan Brockman, a senior managing director with the Blackstone Group LP. However, "we're not seeing a ton of new transactions getting announced."

The biggest stumbling block remains a valuation gap. That difference is narrowing, says Rabishaw, but only to a point. "Valuations are killing deals," says Reinke, whose practice includes mid-market companies. "Many of my clients are saying, 'Why give away so much of my company when I can hold out for six, 12 months and get a better deal.' Companies that can hold out, are."

A year after the financial meltdown, two years after the housing market began to implode, the enormous Los Angeles economy is struggling to right itself. Unemployment for the Los Angeles area is expected to reach 11.7% this year, according to projections released in July by the Los Angeles County Economic Development Corp., with the jobless rate projected to peak at a staggering 12.8% next year. The San Fernando Valley is faring a bit better, perhaps 11.3%, Roberts estimates, although that rate varies from town to town, with the western Valley unemployment rate probably several points lower. (Accurate statistics are "impossible" to come by, Roberts explains, in part because of post-Sept. 11 U.S. government secrecy.)

Uncertainty persists. In part, that's because of questions common anywhere in the U.S. about when the economy will turn. It's compounded by real concern that in California the state and some local governments are essentially broke. And, there's a belief that the area economy must adapt, but what form that evolution will take isn't clear. "Right now we're in a transition, but we don't know what we're transitioning into," Roberts says.

The economist, for one, thinks technology will be an important driver. Others aren't so sure. "There's not enough muscle in technology" to turn the economy around, Rabishaw says.

Signs of the recession are easy enough to see for anyone who drives the area -- after all, no one walks in Los Angeles. "For lease" boards and "going-out-of-business sale" banners adorn buildings along the 101 Freeway, which snakes through much of the San Fernando Valley.

On the Valley's main thoroughfares and residential streets, "for-sale" signs and makeshift "closed" notices attest that real estate has been hammered. In the San Fernando Valley, the median price of a house has fallen almost 50% since the peak in March 2007, although "part of that is illusory," Roberts says, because "in some higher-priced areas, owners just didn't put up their homes for sale."

Commercial real estate vacancy in the San Fernando Valley hit 16.7% at the end of this year's first quarter, the highest it has been in a decade and the worst among all the subregions of Los Angeles County.

Roberts discusses the area economy as he sips an iced drink in the courtyard of a Coffee Bean outlet in Tarzana, a district that sits pretty much in the center of the San Fernando Valley. This particular Coffee Bean occupies a small strip mall. There are as many empty as occupied storefronts. A sandwich shop, a cosmetics outlet and an ice cream parlor all are closed. "When times are tough, are you going to go out to a Stone Cold Creamery or go to Vons [supermarket] and buy a gallon of ice cream?" Roberts wonders.

The Valley is a swath of Los Angeles County that runs more than 30 miles. It is home to almost 2 million people and tens of thousands of businesses. The Valley officially stretches from the cities of Burbank and Glendale in the east to Calabasas and Agoura Hills to the west. By some reckoning, however, this geographic and economic band actually extends further west into Ventura County and the cities of Westlake Village and Thousand Oaks.

The San Fernando Valley is known as Los Angeles' biggest bedroom community. That is just one part of the story, however. "The whole San Fernando Valley is effectively a suburb of Los Angeles, with businesses built around the communities," says William Schenck, a Wells Fargo Bank senior vice president in charge of the area's middle-market commercial banking. "A lot of businesses are created every day."

Schenck says the list of companies he tracks, with revenues from $50 million to the "high hundreds," runs to more than 1,000. Those businesses run the sectoral gamut. Disney and NBC Universal Inc., for example, dominate the portion of the eastern San Fernando Valley around Burbank, attracting smaller, entertainment-oriented companies. Aerospace and defense suppliers, including Pratt & Whitney Rocketdyne Inc., are scattered around Canoga Park.

Some districts (much of the Valley is actually part of the City of Los Angeles), such as Van Nuys and Panorama City, struggle in the best of times, with a heavily Latino population, poor educational achievement and a thick veneer of suburban decay. Others, notably Chatsworth, must live down the rap as the country's pre-eminent center of pornography. In shabby industrial parks, where for-lease signs sometime outnumber tenant boards, often nameless "studios" co-exist with aerospace components companies and medical supplies distributors.

White-collar professionals, and the occasional movie star, dominate the much more affluent western San Fernando Valley, which even boasts of, or is embarrassed by, its own gated city, Hidden Hills.

"Lifestyle" is a word that crops up repeatedly in interviews with business executives and professionals in the western San Fernando Valley and into Ventura County's Canejo Valley. Good schools, open space and proximity to beaches are inevitably mentioned. The area exudes a kind of Southwestern newness. Ubiquitous sand-colored buildings and red-tile roofs characterize both residences and offices. They are framed by barren hills, into which are tucked some enormous homes and exclusive, gated subdivisions. "It's a desirable area to live," says Therese Tucker, the CEO of Calabasas-based financial software provider BlackLine Systems Corp.

Tucker founded BlackLine eight years back, after spending more than a decade with another Calabasas-based software company, ADS Associates Inc., which SunGard Data Systems Inc. purchased in 1997. She lives nearby. "If you're going to start a company, you don't want to add a commute to your problems."

Tucker gushes about her own trajectory. "We've been growing like crazy," she says. "At the start of 2008, we had 13 employees. Now we're at 40 and trying to hire three or four more."

One year ago, BlackLine moved into its current digs, a small office building on the main street of Calabasas, just a couple blocks from a freeway entrance. (Like other companies in the area, BlackLine draws its employees from all over the Los Angeles area. Proximity to the freeway is a huge plus.)

At the time, Tucker says, the building "was really pretty deserted." Since then, a realtor took up residence, and more importantly, another technology company is readying the office next door for occupancy.

BlackLine develops software that is used to reconcile accounts. The company is profitable. Revenue has jumped to $5 million in 2008 from $1 million in 2006. "It probably won't double this year, but it won't be too far from that," Tucker says, adding, "We had our best quarter ever last quarter."

This kind of optimism is what economic planners want to hear more of. With most financial services in deep freeze, technology is the great hope for the western San Fernando Valley and communities further west.

Its success isn't a given, however.

"It's really hard to create an ecosystem that will generate a great number of companies," warns Brockman. "You do have some serial entrepreneurs, but not a ton. You do have capital, but that tends to be deployed in traditional entertainment, not new media. It's not a foregone conclusion that creating that [technology] community will be easy to do."

"We have the ingredients to be a very strong technology area," counters Nunn, whose nine-year-old company has raised a total of $102 million in five rounds, with New Enterprise Associates Inc. the lead investor. Fulcrum occupies a building in the Calabasas Technology Center. But he admits this technology corridor is "a diverse hodgepodge of companies."

That can be both an advantage and disadvantage, Reinke says. "Everything is so dispersed. The tremendous amount of industry diversity is a plus, because when there's a downturn, you don't get hit as much. But because of the diversity, there's not as much dealflow into one area. It doesn't warrant attention from VCs and PE."

While Los Angeles boasts a fair number of private equity firms, local venture capitalists are few and far between. That makes funding far more problematic.

"It's not that you can't necessarily find the money," says Dave Gross, who co-founded and heads Great Pacific Capital, a small venture firm based in Carpinteria, Calif., in Santa Barbara County. "The networking and institutional exposure" so common in Silicon Valley and Boston, and vital for unknown entrepreneurs, "is very nascent" in the Los Angeles area.

Finding qualified employees, on the other hand, is becoming less of an issue, entrepreneurs and executives say. "When I moved here [in 1989], it was hard to attract talent, between housing costs and being isolated from the Silicon Valley," says Nunn. "It's much easier."

The sharp downturn in housing prices has actually helped the effort to find employees. At DTS, "two or three of our people closed on their first home," Towne says. "These were people who had been priced out of the market."

Adds Nunn: "Housing has gone from a period when it seemed to be an insurmountable problem to where it is now just a problem."

Employee loyalty is actually better than in Silicon Valley, where it's considered practically de rigueur to skip from company to company. "It's more stable here. No one has quit in five years," Tucker says, then quips: "This economy has been wonderful for us. We've been able to find some amazing people."

Towne reports much the same. After posting a job opening online, he says, "we had 60 resumés in two hours."

Towne explains his company's expansion plans after he and some colleagues take a visitor on a sonic tour of DTS products. The 15-year-old company, which began by developing sound technology for cinematic releases, now produces technology that goes into soundtracks for DVDs and, most importantly, Blu-ray. Its latest offering separates a soundtrack into seven discreet channels, plus a bass, which are decoded by Blu-ray players. (DTS' current standard is five channels plus a bass, so-called 5.1.)

Licensed to studios and to consumer electronics manufacturers, the technology allows studios to remix a film's sound in ways movie theaters can't match. Home entertainment buffs, surrounded by speakers, can feel like they're assaulted by different sounds. It's stereo times four.

Musicians, notably Neil Young, are embracing the technology as well for their own Blu-ray releases as one way to combat piracy. All Blu-ray players accommodate the DTS technology. The company is betting that as Blu-ray gains market share, its own fortunes will improve. For the first six months of 2009, DTS reported revenue of $41.4 million, an almost 50% gain. Income totaled $3.8 million.

Studio clients include Disney and Universal, both about a half-hour drive east (without traffic). Those links to Hollywood underpin one advantage this area has over Silicon Valley and other high technology centers. However, the number of entertainment-related technology companies in this part of California remains relatively few, surprising, given the economic clout of nearby Hollywood.

Ixia is in some ways more typical. The surrounding communities boast several test and measurement companies, and Calabasas provides "a very nice area to live," Bhatnagar says. But he stresses that Ixia has reached the size and complexity when it must think globally. It established R&D in India and Romania. Catapult is in Silicon Valley and is being integrated in Ixia's own operations there, not moved to Calabasas.

"You look for the best talent globally," he says, adding that the best time for a technology company to gear up and innovate, either organically or through acquisition, is when times are slow. "When markets come back, [your customer base] won't be buying legacy products."

Amgen is by far the area's biggest technology company; it's the largest private employer in Ventura County. At one time, it employed more than 8,000 in the area, most housed in an almost-200 acre campus that lords over a Thousand Oaks community called Newbury Park. Building after building line streets named Amgen Center Road and Biotech Court.

However, unlike other biotech behemoths such as Genentech, now fully owned by Basel, Switzerland-based Roche Holding Ltd., Amgen as a corporate culture discouraged the spawning of companies, Reinke and others says. "It was a chicken before the egg situation," the lawyer says.

Only Kythera Biopharmaceuticals Inc. of Calabasas is cited as a successful Amgen spinoff, attracting over $70 million in venture funding for its work on prescription-only cosmetic products. Its "facial contouring" agent, which it believes can reduce fat under the chin, is now in Phase 3 trials.

So Newbury Park was all the more vulnerable after the Food and Drug Administration found potentially serious side effects with Amgen's anemia drugs in 2007. Amgen announced in August that year that it would lay off some 2,500 workers. Almost 1,000 got the ax in Amgen's Thousand Oaks complex alone.

"I saw that as a unique opportunity," says Reinke. He co-founded a networking organization called the Biotech Forum in late 2007 along with Wayne Davey, the former director of corporate audit for Amgen and former CFO of Rockwell Scientific Co. LLC, another major company based in Thousand Oaks.

Reinke and Davey have since signed a letter of intent on a 19,000-square-foot biotechnology incubator to be built in a long-vacant office building in Agoura Hills. The landlord, however, hasn't been able to obtain necessary financing. Plans are on hold.

Many of those laid off from Amgen haven't moved, says Reinke, relying on a generous severance and consulting work. Even some of those who retained their Amgen jobs might bolt if given the chance, Reinke believes. But many of them they want to stay in the neighborhood. "The reality is a number of people at Amgen would love to have an opportunity to do something else if they could."

A desire to remain tethered to this part of California is extremely strong. Earlier this year, former Countrywide executives set up a real estate investment trust to invest in troubled mortgages. PennyMac Mortgage Investment Trust raised $320 million in an initial public offering in July.

That some of those who profited by the subprime mortgage bubble could now profit again by its residue rankled many across the U.S., but not in Calabasas. PennyMac occupies the building Quality Home Loans deserted when it went bust.

It's the way things go in Calabasas.