Silicon Valley Economy Shrouded in Tech-Bust Gloom
By Daniel F. DeLong
NewsFactor Network
July 27, 2001
On the heels of the dot-com implosion, business and economic conditions in
California's beleaguered Silicon Valley are going from bad to worse.
With the announcements on Thursday that venerable printer and computer firm
Hewlett-Packard (NYSE: HWP) and fiber-optic components maker JDS Uniphase
(Nasdaq: JDSU) would trim a combined 13,000 jobs, California's beleaguered
Silicon Valley area is shrouded in deepening summer gloom.
The number of technology pink slips handed out since the beginning of the year is
approaching 200,000, according to various estimates, and the end is nowhere in
sight.
"I don't recall ever seeing such a harsh downturn here," Dr. James Forcier,
managing director of Bay Analytics, a Silicon Valley consulting firm, told
NewsFactor Network.
Years To Recover
Forcier said that some high-tech sectors are looking at years, rather than months,
before they will fully recover from wounds suffered after the Internet bubble burst.
From San Francisco's so-called Multimedia Gulch, which was home to many
dot-com startups that burned through billions of dollars of venture capital, to the
elite corporations of Silicon Valley, people are beginning to dread what the future
holds.
"Given today's overall weakness in the economy, there simply is no compelling
reason for companies to spend on new software applications and other
technology equipment," Lehman Brothers analyst Neil Herman told NewsFactor.
Recent Strategies Fail
Despite forced vacations, temporary closings and the jettisoning of excess office
space, no single strategy so far appears capable of returning profits -- or
confidence -- to the sector.
Lehman Brothers' Herman said that inventory levels continue to remain high.
Coupled with the slowdown in orders that has caused a glut of stock to pile up in
warehouses, that translates into a continuation of the pain.
Daniel Kunstler, a J.P. Morgan analyst, explained to NewsFactor that high-tech
companies are engaged in a curious balancing act.
"Cost cutting is at the top of everyone's agenda, but most of them don't want to cut
back so much that they won't be ready when a recovery happens," he said.
Slowdown Is Everywhere
The slowdown is taking its toll throughout northern California, from the Wine
Country region, where summer visits are estimated to be off by about 20 percent,
to the posh hotels of San Francisco, where room rates have been slashed by up
to 50 percent in many cases.
Restaurants are reporting that sales are down significantly, and are cutting staff
and, in some cases, closing for lunch.
One Bright Note
Perhaps the most notable changes are the sudden reappearance of parking
spaces in San Francisco and shorter commute times on the usually overburdened
freeways that snake through Silicon Valley.
Caltrans, the state agency that oversees California's freeways, told NewsFactor
that these days many morning commuters are getting to work in about half the
time that it took just six months ago.
"It is refreshing to be able to move around without the frenetic pace of the past
couple of years," Gus Pangan, a health care executive, told NewsFactor.
Real Estate Concerns
Commercial real estate prices are reportedly tumbling, off by nearly a third in San
Francisco, according to broker Cushman & Wakefield. And the vacancy rate is
about 10 percent -- mid-1970s recession levels -- nearly 10 times higher than it
was last summer.
The hard times have not yet caught up with home prices, however. While prices
dropped 2 percent in June from May, they were still up some 20 percent from
year-ago figures, with a median price of US$535,000. Part of the reason might be
that falling interest rates are encouraging potential purchasers to buy.
"That might not be the case in the next few months," one broker told NewsFactor.
"Inventory is building quickly, and buyers are staying away, waiting for prices to fall
even more." |
