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Thursday, 4 October, 2001, 13:05 GMT 14:05 UK
Silicon Valley feels the pinch
A dot.com wine auction
Dot.com wine auction: Not all business has ground to a halt in Silicon Valley
By Maggie Shiels in Silicon Valley

From Silicon Valley in San Jose to Telecom Alley north of San Francisco, the Stars and Stripes are very much in evidence as businesses show solidarity following the terrorist attacks of 11 September.

This outward display of confidence is seemingly at odds with business reality: there is little doubt that the atrocities of three weeks ago have further exacerbated the tech industry's woes.

This week a report by the Silicon Valley Manufacturing Group forecasts more pain ahead.

SVMG represents 190 companies including Apple Computers, Hewlett Packard and Sun Microsystems.

Group president Carl Guardino, says; "On 11 September, when those planes went down, so did our economy."

Mr Guardino says as an illustration of how widespread this view is held, a local CEO told him: "Customers are a lot more cautious about buying anything. I'm one of them."

Already reeling

Unwelcome news for a computer industry already reeling from sagging sales and talk of recession.

Evidence that company bosses have been shaken to their core can be glimpsed by the fact the number of initial public offerings fell to zero for the first month since December 1975.

At one point 13 companies were slated to go public in September which IPO Monitor claims would have made it the second strongest IPO month this year.

"The IPO market is the worst it has been in a quarter century," maintains Richard Peterson, market strategist for Thomson Financial Securities Data which tracks the IPO market.

Analysts say the terrorist attacks added a massive dose of uncertainty to an already uncertain environment, signalling an anomaly caused by those events is a level of stability in the dot-com industry.

Hope springs eternal

But while many focus on what seems to be the worst of times, some believe the best of times are just around the corner.

A dot.com wine auction, one of the biggest online auctions ever held, went ahead with record attendance.

And Doug Henton, president of Collaborative Economics, has found that key innovations occur during recessions.

He cites 1970, when semiconductor companies turned to the civilian market because their defence business declined.

The 1984-85 recession was another landmark with Intel shifting from memory chip production to microprocessors, laying the groundwork for its boom in the 1990's.

And the 1990 recession led to the commercialisation of the Internet which fuelled the dot.com boom.

Mr Henton's conclusion is simple. Innovation occurs during the down cycle. In the up cycle, people are copying a basic idea over and over.

See also:

07 Sep 01 | Business
Bust dot.com has liquid assets
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