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Hope lives on in Silicon Valley
24 January 2002

Despite the slump, traffic is still heavy

In the glory days of the digital economy, a popular in-joke made the rounds of Silicon Valley's hi-tech community.

"You know you live in Silicon Valley when you make $100,000 a year yet still can't find a place to live," it began.

"You know you live in Silicon Valley when your commute time is 45 minutes and you live only eight miles away from work," and so on.

The jokes don't circulate anymore.

In 2001, Silicon Valley lost an estimated 25,000 jobs, the first net job loss in nine years. According to industry watchdog Webmergers, 537 Internet companies folded in 2001, more than twice as many as in 2000. As quickly as people swarmed into the area during the Internet boom years, so they quickly dispersed.

Despite the exodus, some things haven't changed in Silicon Valley. Recent reports suggest that the heavy job losses have not heavily impacted social conditions within the area, notwithstanding the spike in business school applications and mid-day yoga class attendance. It still regularly takes people two hours a day to travel to and from work. And despite the prevalence of "For Rent" signs hanging in apartment windows and a 7.8pc drop in average monthly rent by the end of last year, the real estate market is only just beginning to show signs of levelling off.

A new study released by the University of California at Berkeley predicts house prices will fall 15pc from their peak, but not till 2003. "The effects on the housing market will lag about a year," said Haas School of Business Real Estate professor Kenneth Rosen.

The days of champagne-soaked launch parties and sky-rocketing IPOs might be over, but the buccaneer Silicon Valley spirit of innovation continues even in these lacklustre economic times. According to the 2002 Silicon Valley Index survey by Joint Venture, a regional development body, the area was awarded more than 6,800 patents over the past year.

Although venture capital investment fell from an all-time high of $21 billion in 2000 to $6 billion in 2001, smaller, mainly foreign VC firms, such as Britain's 3i and the venture wing of the French bank Societe Generale, are camping out in Silicon Valley with the express intention of catching the next Yahoo! before the more entrenched firms do. Societe Generale recently announced its first investment: $2 million into Mountain View's Ponte Communications.

Meanwhile, Michael Moritz, a partner at the well-established venture capital firm Sequoia Capital, is upbeat about the current investment climate. "Thank goodness the rate at which nutty ideas arrive in our inboxes has declined," he said. "The air has come out of the balloon and this has allowed us to concentrate on the things we are most interested in."

Economist Kim Walesh, a consultant on Joint Venture's 2002 Index, highlights three growth areas in Silicon Valley over the next few years - the Internet, biotechnology and nanotechnology. "The Internet is not over, although the first phase of it may be," she said. "There's a real opportunity in biotechnology, as we see the convergence of the biotechnology and information technology industries. The commercialisation of nanotechnology is also a growth area," she added.

"Innovation continues and we are progressing towards our long-term goals," concluded Ms. Walesh. "Silicon Valley is alive and well."

As the rest of the US economy comes to term with recession, it seems like Silicon Valley is looking forward to the next boom.