Business Week has a relatively upbeat assessment of Silicon Valley's future.
Valley veterans also are quick to note that Silicon Valley is still where the venture-capital community is putting its money. In 2003's second quarter, 33.6% of the country's VC funds went to Valley startups, two points higher than its share in 1996. Venture capitalists, beaten and bruised though they may be, haven't gone away. "Silicon Valley occupies the same central place that it always has" with investors, says John Doerr, a partner at Kleiner, Perkins Caufield & Byers.
Silicon Valley faces problems in part due to a more general skepticism toward tech buying. Information technology buyers have become more reluctant to buy from new small companies which face poor odds of long term survival. They also have tired of buying buggy products that do not turn out to provide much return on investment.
But let's be clear: There will be no return to the frothy foolishness of the boom. With the weak economy, global unrest, and lingering skepticism by buyers, tech spending will probably recover to a modest 6% or so next year, and just shy of its 10% historical average in 2005. The biggest problem: Many IT buyers refuse to purchase anything that won't guarantee a return in six months. "There's a big backlash against technology and a lot of skepticism about what it can do," says technology consultant and author John Hagel III.
Another reason to be optimistic about the amount of future demand for technology is that past spending may turn out to provide bigger benefits than the skeptics have been claiming.
A recent study by Massachusetts Institute of Technology economist Erik Brynjolfsson and University of Pennsylvania's Lorin M. Hitt says the biggest gains come five to seven years later. If true, last year's 4.8% productivity surge traces to investments made in 1997 or before. And that would mean big gains from the late-'90s technology spendathon are still coming.
Moore's Law and similar patterns of advance with fiber optics and disk storage continually drive up the power of computers. Applications that previously were not feasible come into the realm of the economically possible. In a competitive environment companies have to continually try to develop new ways to cut costs and the steadily advancing power of computers make them the tool of choice for developing means to cut other costs. Therefore they have to invest in IT or be beat by other companies that will make the investments.
The real wild card for American and other Western IT industry workers at this point is just how much IT work can be outsourced to India and China? Also, as IT becomes such a large portion of total budgets it becomes inevitable that IT itself becomes a target for cost cutting and companies will look to automate the work that IT workers do.
The VCs are starting to invest more in start-ups.
SAN FRANCISCO (Reuters) - Silicon Valley on Tuesday cheered the first quarterly increase in venture investment since the peak of the dot-com boom, saying it pointed to a gradual recovery for the hard-hit business of taking stakes in risky high-tech start-ups.
The rate of investment is still less than a fifth of the amount at the peak of the bubble. Even if it turns up even higher there is a different trend running that looks like it will have a biger impact on US technical workers than a VC investment upturn. Jobs are getting shipped overseas.
Gartner Inc., the world's biggest high-tech forecasting firm, said in a report entitled "U.S. Offshore Outsourcing: Structural Changes, Big Impact" that 500,000 of the 10.3 million U.S. technology jobs could move just in 2003 and 2004.
Jeff Taylor of Reason magazine tries to downplay the threat of foreign programmer competition.
But the catch is that out-sourcing is being embraced without much sign that it will actually make high-tech firms, particularly software companies, more effective. Highly collaborative, imaginative work might suffer in the hands of technically adept but inexperienced programmers.
Here's the thing about inexperienced programmers: if they program for years they eventually become (oh, can you guess it?) experienced programmers. Remember all the industries where the United States used to be the world leader where it no longer is? Computer programming is supposed to be immune to foreign competition why exactly?
Venture capitalist Bill Ericson of Mohr, Davidow Ventures and other venture capitalists tell the Christian Science Monitor that they are starting to actively invest once again.
Moreover, it is times like now, when scientists and entrepreneurs can fully turn their attentions toward a new generation of innovation, that the technological cornerstones for the next boom are laid. "Today, a lot of that noise [from the Internet boom] is gone," says Ericson. "It is an environment of stability ... where you can work toward building up a good idea." Adds fellow venture capitalist Allan Thygesen of the Carlyle Group in San Francisco: "It is no different from the first half of the 1990s."
This comes on the heels of a tech sector downturn so severe that the Census Bureau estimates that from July 2001 to July 2002 San Francisco's population was the most rapidly declining of any city in the United States.
San Francisco's population fell 1.5 percent to 764,049. Nearby Sunnyvale and Daly City were among the Top 10 losers. San Jose declined 0.6 percent to 900,443.
Sunnyvale is next on the list, losing 1.4 percent of its residents in one year
The region has suffered big job losses.
Experts attribute the population losses to sweeping layoffs in the high-tech sector. The Bay Area lost an estimated 313,000 jobs from December 2000 to December 2002.
One problem that Silicon Valley faces is that it is less unique than it used to be. There are other cities with concentrations of highly skilled engineers and programmers. Also, communications cost reductions have reduced the need to co-locate as many different kinds of workers. I think they face a tougher time coming back this time than they have during previous tech downturns.
Its the highest rate for Silicon Valley since 1983. By contrast, Orange Country is only 4.0%. Read more details here.