Tech hub strains under recession

High unemployment and empty office building overlooking San Francisco Bay show Silicon Valley is far from recovery even though US technology stocks have seen a recent climb.

The 2.4 percent surge in US economic growth in the second quarter of 2003 has done little to shed the eight percent unemployment rate in the US high-tech centre.

After losing nearly 200,000 jobs in the economic crash of 2001, unemployment in the area is much higher than the national average of 6.2 percent.

“This region will tend to recover later than the country because we flew so high and crashed so far,” explained David Shiver, vice president of consultant Bay Area Economics.

In the 1990s the area between San Jose and San Francisco was home to roughly 10 percent of the US’ high tech industries at a time when anything seemed possible.

Silicon Valley led US growth driven by respected electronics companies such as Intel, Hewlett-Packard and Sun Microsystems, as well as thousands of new start-ups that developed Internet, telecommunications, medical and pharmaceutical technologies.

But two years after the meltdown of hundreds of cutting-edge businesses, there are few signs of a recovery.

In San Jose 8.5 percent of workers are unemployed. In San Francisco to the north, the rate is six percent even as the city shrinks amid an exodus of laid-off workers.

However, layoffs have slowed, consumer confidence is up slightly and more companies are reporting rising profits.

Increased profits

Computer chip maker Intel reported in July that it had doubled its profit in the first half of 2003 over the same period last year.

“The companies can recover and their sales can grow without any hiring.”

–Stephen Levy

Reflecting this, the S&P technology stock index soared by 50 percent since October. Wall Street welcomed a handful of new public listings of Silicon Valley companies in June and July.

During 2002, it was almost impossible to take a fledgling technology stock public.

A survey released last week by Santa Clara University says tech executives are more optimistic about their companies’ future than they were six months ago.

“It remains to be seen if this steady increase in optimism translates into new investments and business growth,” said professor Robert Hendershott, who oversaw the survey.

While the 1990s expansion was Internet-driven, no one knows what new technology might spark another boom.

Some economists think the next round of growth will not generate nearly the same number of jobs.

Stephen Levy, director of the Centre for the Continuing Study of California’s Economy in Palo Alto, said that the turnaround in profits at tech companies is largely rooted in boosted efficiency.

“There’s no job pick-up in the area,” Levy said.

“The companies can recover and their sales can grow without any hiring.”

“The San Francisco Bay area is doing worse than others because we have a high concentration of technology business.”

The IT sector has been strugglingto become the darling of WallStreet again

The IT sector has been struggling
to become the darling of Wall
Street again

Jobs moving abroad

And the push for efficiency has sent jobs to less expensive countries such as India, China and Russia, Shiver said.

In July, software maker Siebel Systems Inc. announced it was laying off 490 workers and sending some of the jobs abroad.

Connecticut-based consultant Gartner Inc. predicts that a half-million jobs in US high-tech industries could be exported by 2004.

But despite high labour costs, the San Francisco Bay will remain the US high-tech centre, analysts say.

The area’s dozen universities and 480 company headquarters make for an unparalleled concentration of skills and brainpower.

Shiver pointed out that private companies, government agencies and regional universities are investing some $45 billion this year in research and development.

But the key is in new companies.

“The future of the valley is start-ups,” said Levy.

Venture capital investments rose eight percent between April and June, to 1.3 million dollars, the first quarterly increase since 2000, according to consultant Venture One.

But that’s only a fraction of the eight billion dollars spent on young companies each quarter in the peak year, 2000.

Source : News Agencies

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