Page last updated at 01:00 GMT, Wednesday, 31 December 2008

Silicon Valley looks towards 2009

By Maggie Shiels
Technology reporter, BBC News, San Francisco

An investor looks at a share prices board in Tokyo on 18 September, 2008
Avoiding the fallout from the global credit crisis has been nearly impossible

The world of technology is set to face a challenging year in 2009 but many in the industry say it will weather the storm better than the rest of the US. Here Maggie Shiels presents the first of a two-part assessment of how technology will fare over the next 12 months.

Despite the continuing fall out from the global credit crisis, there is a mood of optimism around Silicon Valley, which is perhaps not that unusual given its "can do" reputation.

The other reason for this upbeat attitude is that in 2000, when the dot com bubble burst, Silicon Valley felt the pain deeply.

Venture capital firms all but shut up shop, deals did not get made and nearly a quarter of the workforce were laid off. This time round, things are simply nowhere near as bad.

So what does the coming year hold for this area of the world? Here are some of the views of those living and working in the Valley.

HIRING AND FIRING

There is no avoiding the fact that in technology a lot of people lost their jobs in 2008.

The blog TechCrunch has been keeping a track since the beginning of October and the litany of layoffs adds up to over 113,000 across the world. It chronicles pinks slips being handed out by everyone from eBay to Electronic Arts and from Yahoo to Sun Microsystems.

Sign at Yahoo headquarters
Job losses in the Valley have hit big and small companies

It seems no one is immune, yet on CNET's website, its so-called "spreadsheet of sunshine" shows companies are still hiring. The list includes Cisco, Digg, Salesforce.com and Napster among others.

One of the biggest firms in the business of hiring, finding and helping the industry retain talent is Taleo. It has nearly 4,000 customers, including most of the major Fortune 500 companies.

Taleo chief executive Michael Gregoire said that in the last quarter it had over 400,000 jobs on file but 10 million people applied for those jobs worldwide. He said he did not think that was an indication that the jobs market is especially tough, but more that "people are always looking to find a better place to work and looking to change their lot in life".

As to Silicon Valley, Mr Gregoire admitted that unemployment will hit the 6-7% mark next year, but that that will be well below the national anticipated rate of 9%.

"We are definitely in uncharted waters but if you look at what has happened on the East coast and some of the money centres like London and Tokyo etc, they have felt a very blunt and immediate pain," said Mr Gregoire.

"Here in Silicon Valley a number of things are different. There is so much innovation here and people from all over the world come here because this is where you can truly start a company, work with venture capitalists , get funded and get access to talent you wouldn't be able to get pretty much anywhere else in the world.

"If you think about it, the Googles and the eBays started in the dotcom bomb era and they have gone on to not only be huge companies themselves, but have spawned another world of start ups."

With industry forecasters estimating another 10,000 jobs disappearing in Silicon Valley in 2009, Mr Gregoire pointed to a major change in the bonus structure that will result in a new reality for many top executives.

"I think bonuses will come back to being paid for extraordinary performance. Coupled with that, I do think you will see a recalibration of people's lives.

"Many people unfortunately have tried to live their lifestyles off their bonuses and I think they will pare back and start living off their base salaries. There is no doubt about it that that's going to be painful. It's going to be painful for companies. It's going to be painful for individuals."

TECHNOLOGY SPENDING

2008 has already shown that everyone from the lowest to the highest paid has been tightening their belts. That is just as true when it comes to technology spending. And while the figures look bleak for 2009, some are hoping a creative approach will keep things going.

keyboards
Technology spending is expected to concentrate on upgrades

Demand for products related to semiconductors, Silicon Valley's bellwether, is weakening. Industry trade group SEMI expects a 21% decline next year in equipment sales, following a 28% decline this year.

Overall, the dotcom bust resulted in spending declines of around 20% while industry experts are pegging it at around 4-5% for 2009.

However Logitech, the world's biggest producer of computer control devices like mice, trackballs and touchpads, said while budget managers will be looking to cut back on spending they will hopefully be doing so with a new twist.

"The big challenge out there is whether people will buy new systems in 2009," said Logitech's general manager Rory Dooley.

"We expect less of that in the coming 12 months, but we do expect people to upgrade existing systems and upgrade them by investing in the interface. We are talking about maybe a better screen, a better mouse, a better keyboard."

Mr Dooley said he believes things will be nowhere near as bad as 2000, when Silicon Valley was the epicentre of the downturn. He also pointed to innovation as the key to the future.

"2009 will definitely be a tough year for the technology industry as a whole, but I also think that necessity is the mother of invention and it's these times that spur a lot of great innovation.

"The last recession we had of note was in 2000 and in the US as a whole it was in the early 90s," he said.

"That recession was tough on the Valley. It was really when things were getting outsourced big-time and people said Silicon Valley is going to die, and it was just before Netscape got launched and what became the internet generation came into being.

"I am optimistic that 2009 will be a tough year but will bring lots of good things as well," said Mr Dooley.

ROBOTICS, HAPTICS AND ALL THINGS GREEN

So if innovation is being seen as the Valley's way out of the recession, just what does that look like?

Liverpool's Burbo Bank wind farm
Clean tech investment is growing year on year

Industry watchers continue to name "clean tech" as an area of innovation and one that will attract a lot of venture capital funding. One of the most respected VC firms, Kleiner Perkins Caufield & Byers, has bet a lot on this.

Earlier this year the company opened a $500 million (322 million) special fund for green investments. Not surprisingly the company's John Doerr has called clean tech the "biggest economic opportunity of this century" and "the mother of all markets".

He is not alone in thinking this. VC investment in this area increased 44% to $5.2bn in 2007.

Other technologies that seem to be getting people excited are robotics and haptics, the science of touch.

"One word that should be in everybody's vocabulary is haptics," said technology forecaster and futurist Paul Saffo.

"At the moment we look at our machines and they look at us but they don't have the sense of physical touch or feedback. So haptics is the way to give sensory touch between machines and humans.

He said their use, while common in things like surgery, is creeping into everyday technologies such as the Nintendo Wii console and the iPhone. He also described the increasing use of haptics as part of a "sensor revolution".

"The real event of the decade is running below the surface and all those sensors are helping connect our computers and our networks to the physical world.

"We are giving them sensory organs, vision, eyes, RFID sensors, meme sensors, accelerometers. Basically, we are now asking our computers and our networks to observe and manipulate the physical world around us and on our behalf. That is the really big technology event of 2009"

robot at Intel conference
The emergence of robotics in the future will defy the norm

Mr Saffo also highlighted robotics as another technology that will enter the mainstream.

"The real event is probably two to three years away but it's the robotics revolution. Just as in the 1980s cheap microprocessors gave us the personal computer, the poster child of the processing revolution in the 90s. Lasers gave us the bandwidth, the world wide web.

"Well, the sensor revolution is about to deliver robots into our lives. So the big "it" gift for Christmas in a couple of years; the thing that is going to amaze and astound people the way the PC did and the web did, is going to be ubiquitous robots," predicted Mr Saffo.

He said the robot that will have the biggest impact on our lives is the "robot made of pure software. Autonomous devices doing things on our behalf on the web".

Mr Saffo said such devices were already here.

"If you apply for a mortgage, it's not reviewed by a human. It's reviewed by a software 'bot that is making decisions about the future of your life.

"Software 'bots are all over the web, handling transactions, making decisions about airplane tickets and the like. They are here and they are just going to increase," stated Mr Saffo.

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