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Silicon Valley working hard to keep its edge


VENTURE CAPITAL, BRIGHT STUDENTS ARE INGREDIENTS FOR NEXT BOOM

By Mike Langberg

San Jose Mercury News

April 11, 2005

 


Twenty years ago, a devastating recession almost shut down the local semiconductor industry, and some experts weren't sure Silicon Valley had a future. There were fears the valley would be surpassed by competitors in Asia. Worries that our unique innovation engine was running out of steam. Concerns over the growing cost of doing business here.

 

"The electronics industry is reaching a mature stage,'' Mario Belotti, an economics professor at Santa Clara University, said on April 21, 1986, when the Mercury News published its first list of the SV100. "That means we won't grow as rapidly as we have in the past.'' I called Belotti last week at his university office, where he still works at age 78, and found he hasn't mellowed. While conceding that Silicon Valley still sits atop the global technology pyramid, he said the valley's position is "slowly eroding'' and added: "We're losing some of the dynamism we used to have.'' As we present our 20th annual list today, I respectfully disagree.

 

Threats easier to see

 

It's always easier to see threats to the valley's future than the opportunities. We know about growing manufacturing and engineering prowess in Asia, the endlessly increasing cost of housing, and California's burdensome regulations and taxes. It's much harder to accurately predict where the valley's next boom will come from.

 

In 1986, it would have been almost impossible to foresee the thousands of local jobs that would be created by companies then tiny or unborn, including Cisco Systems, eBay, Electronic Arts, Google, Oracle and Yahoo. It is clear, however, that the ingredients for the next boom are in place. The San Francisco Bay Area attracts one-third of all venture capital investments in the United States, and that percentage kept gradually increasing even through the recent tech bust.

 

Stanford University and the University of California-Berkeley continue to attract some of the best and brightest engineering and business students from around the world, many of whom will stick around after graduation to become the next generation of innovators and entrepreneurs. Most important, the global technology economy is not a zero-sum game. Huge nations such as India and China are moving up the ladder to the point where they will consume more technology products, not just supply cheap labor for developed nations.

 

In 1986, the valley's single biggest fear was competition from Japan, where giant electronics companies working hand in hand with government seemed ready to take the lead in semiconductors and every other sector of what was then called "high technology.'' Today, we're worried instead about Asian competitors in China, Taiwan and South Korea. I expect Silicon Valley will continue to grow slowly in total tech jobs, and will exceed the previous 2000 peak in a few years. At the same time, because of the high cost of doing business here, tech jobs will be added faster elsewhere in the United States and elsewhere in the world.

 

How Intel has changed

 

Intel, one of the valley's bedrock companies, is an example of how this works. The chip company, founded in 1969, had its entire workforce in the city of Santa Clara until 1975, when it opened a plant in Livermore. Today, only 8 percent of Intel's 85,000 employees are in Santa Clara County. But that's a good thing. Intel's current local head count of 6,917 is 1,400 more than when the company began expanding outside the valley 30 years ago.

 

The jobs at Intel also have changed. The company employed hundreds of "operators,'' mostly female and many lacking even a high school diploma, to work in chip production as recently as the late 1980s. Today the starting production job is "technician'' and requires a two-year community college degree to even apply. So the future of Silicon Valley, now as in 1986, looks the same for individual workers and the companies that employ them: much opportunity, but also much risk of getting pushed aside if you don't constantly reinvent yourself. I believe we're up to the task, as we were 20 years ago.

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