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The BBC's Andrew Walker
"The slowing US economy has made its mark in Silicon Valley"
 real 28k

Monday, 12 February, 2001, 16:40 GMT
Silicon Valley blues

Silicon Valley is running out of skilled workers
In the first of a series of reports from America's high-tech heartland, BBC News Online's Steve Schifferes reports on the challenges facing Silicon Valley.

Silicon Valley is the heart of high-tech America.

Here along the narrow peninsula south of San Francisco are concentrated many of America's fastest growing companies.

Among the well-known names who are headquartered here are Intel, Oracle, Sun Microsystems, Cisco Systems, Apple, and Hewlett-Packard.

It also is the capital of the venture capital industry, which spent $100bn last year funding new start-up firms - one of the reasons that Silicon Valley has been at the centre of innovation.

During the past year the sales, earnings and stock prices of Silicon Valley companies soared as the US economic boom reached unprecedented heights.

Many argued that it was information technology supplied by these companies that allowed America to grow at a higher rate than before, boosting the long-term output of the economy.

But now that boom is slowing down, and the high-tech sector is feeling the pressure.

Business confidence has fallen sharply, and companies are ordering less IT equipment.

And venture capitalists are scaling back their activities, funding fewer new firms and looking to limit their exposure to some others.

Challenges to the Valley

And no less than the chairman of the US central bank, Alan Greenspan, has warned that the economy is at near zero growth and he has cut interest rates twice already this year.

Silicon Valley executives, whose share prices have tumbled - first in April when the dotcom boom ended, and more recently when it has become clear that they cannot meet their double-digit growth and profit forecasts this year - have redoubled their efforts to restructure their companies.

They are looking for a formula that will help stimulate the kind of innovation that the Valley is famous for - as the region that invented or developed most the crucial elements in the computer revolution, from the desktop to the internet browser.

But some analysts worry that the Valley has become the victim of its own success - too rich and complacent to stay the centre of economic dynamism.

They worry that high share prices - which are often paid to employees rather than wage increases - and mergers and acquisitions have replaced technological innovation as the Valley's main pre-occupation.

Limits of growth

Silicon Valley is also facing other limits on its future expansion, it which it is a victim of its own success.

This year the Valley's firms have been hit by California's electricity crisis, the product of a botched deregulation, which has led to power blackouts which cost firms up to $1m per day.

The huge growth in jobs - now slowing - has led to major congestion and clogged highways, and has made house prices virtually unaffordable to middle income workers such as teachers and firefighters.

And the further expansion of the larger firms - with Cisco planning a huge new campus south of San Jose - has run into environmental objections on an unprecedented scale.

Loosened quotas wanted

Silicon Valley is also running out of skilled workers, and has an increasing dependence on engineers from abroad, with India and Taiwan the main source of recruitment. Up to 30% of its workforce is now from an Asian background.

With a new, pro-business Bush administration in the White House, business leaders in Silicon Valley are also looking to the government to help solve their problems.

They are hoping for a further loosening of immigration quotas, for more tax breaks for research and development, and for a tougher line in US trade talks designed to open overseas markets.

Silicon Valley has a long history of re-inventing itself. It has a concentration of high-tech talent, research and networks - including venture capital networks - that cannot be found anywhere else in the world.

But it now faces an unprecedented set of challenges if it is to retain its economic dynamism.

And its success or failure will reverberate around, not just the US, but the world economy

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05 Dec 00 | Business
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