[FoRK] Profits, Not Jobs, on the Rebound in Silicon Valley

Eugen Leitl eugen
Mon Jul 4 23:49:42 PDT 2005


July 3, 2005
Profits, Not Jobs, on the Rebound in Silicon Valley

SAN JOSE, Calif., July 1 - Things are looking up at Wyse Technology, a
venerable maker of computer terminals. Unless, that is, you happen to want to
work for the company here in Silicon Valley.

Responding to booming demand in Asia and in Europe, Wyse is adding new
development teams in India and China and expanding its worldwide work force
to about 380, from 260. Its profits are recorded here - but almost none of
its new jobs.

Amid widespread signs of economic recovery in the region, Wyse is emblematic
of its economy, in which demand, sales and profits are rising quickly while
job growth continues to stagnate.

In the last three years, profits at the seven largest companies in Silicon
Valley by market value have increased by an average of more than 500 percent
while Santa Clara County employment has declined to 767,600, from 787,200.
During the previous economic recovery, between 1995 and 1997, the county,
which is the heart of Silicon Valley, added more than 82,800 jobs.

Changes in technology and business strategy are raising fundamental questions
about the future of the valley, the nation's high technology heartland. In
part, the change is driven by the very automation that Silicon Valley has
largely made possible, allowing companies to create more value with fewer

Some economists are wondering if a larger transformation is at work -
accelerating a trend in which the region's big employers keep a brain trust
of creative people and engineers here but hire workers for lower-level tasks

"What has changed is that Silicon Valley has continued to move up the value
chain," said AnnaLee Saxenian, dean of the School of Information Management
and Systems and professor of city and regional planning at the University of
California, Berkeley. That has meant that just as low-skilled manufacturing
jobs fled the region starting in the 1970's, now software jobs are also

The phenomenon is only the latest twist in the region's boom-and-bust
history, marked by repeated cycles of innovation and renewal over the last
five decades.

Industries based on personal computing, hand-held devices and electronic
commerce have emerged and thrived here, and each brought waves of new jobs.
Now, almost everyone agrees that Silicon Valley is coming back, and
employment there grew from March to May, but the area still has about 10,000
fewer jobs than there were a year ago.

The increase in profits "has been very dramatic, but there's no job growth,"
said Doug Henton, president of Collaborative Economics, a regional consulting

Some former technology workers have given up on the sector - or moved out of
the Bay Area altogether.

Catherine Haley, 32, went to work in 1997 as a project manager and a Web
designer for technology companies in the area, but after quitting the
consulting firm KPMG in 2002, she found it extremely difficult to find a
full-time job.

In 2004, after working in piecemeal assignments for two years, she gave up on
the job market and nearly moved back to Boston. Instead, she decided to
pursue her passion - art - and is now majority owner of a gallery in San

She does not miss fighting for work, she said, partly because the high-tech
economy has lost its charm. "Unfortunately, the number of interesting
projects and companies out there has really come down," she said.

In some cases, as at Wyse, the job growth in the sector is taking place
elsewhere - in lower-cost, higher-growth markets.

A new management team, installed as part of a buyout of the company that was
completed in April, is leading a restructuring that includes adding 100
workers in India and 35 in Beijing so far this year. At the start of the year
the company had 90 percent of its work force in Silicon Valley; now the
figure is 48 percent, and only 15 percent of its engineering talent remains
here, largely because of the technology development teams it is building in
India and China.

"It was pretty clear that growth was going to come first in Asia," said John
Kish, Wyse's chief executive. "We had the desire to get engineering teams to
those markets as quickly as we could."

Stephen Levy, director for the Center for the Continuing Study of the
California Economy, said the growth of employment outside Silicon Valley was
"not a nefarious plot," but a logical development. "Companies are going where
there are customers and, in some cases, where it's cheaper to produce," he

Hoping to keep costs low, Electronic Arts, the video game maker based just
north of here in Redwood City, already has development studios in Vancouver,
Montreal, London, Chicago and Orlando, Fla. It is debating how much of its
work in the future it can move to lower-cost regions, said Jeff Brown, a
company spokesman.

"We will always have a presence here because there is a core of talent," he
said. "But there is strong pressure to figure out exactly which jobs it is
essential to keep in California."

The issue is not just outsourcing, though, but also big leaps in
productivity. Cisco, the behemoth maker of Internet equipment, now has annual
sales of $680,000 per employee, compared to $480,000 in 2001.

One key measure, known as value added per employee, rose 3.7 percent in 2004,
to $222,000 in economic value per worker. That compares with $85,000 per
worker in the rest of the country, according to data reported by Joint
Venture Silicon Valley, a regional economic research group.

By a number of other measures, companies are watching profits and sales rise.
An analysis published in April by The San Jose Mercury News found that the
top 100 public companies in the region had revenues of $336 billion in 2004,
an increase of 14 percent from the previous year.

Mr. Henton said that measure, while not entirely indicative of what is going
on because it includes worldwide sales, gives a good sense of the growth

"It's a clear recovery," Mr. Levy said. "It's a high-productivity jobless

In the past, much of the job growth has come from investment by venture
capitalists in start-up companies. That engine is starting to rev up again,
with venture capitalists putting $7.4 billion into 724 Silicon Valley
companies in 2004, according to the National Venture Capital Association.

That is up 17 percent from 2003, but still far below the $34 billion invested
in 2000, at the peak of the phenomenon.

Also, newer start-ups are under pressure from their venture-capital investors
to outsource work to lower-cost regions, said Cynthia Kroll, a senior
regional economist at the Haas School of Business at the University of
California, Berkeley. She added that the venture capitalists, burned as the
last cycle turned downward, are much more closely watching how start-ups
spend money, including how they hire.

"That would be slowing growth of employment," Ms. Kroll said.

The venture capitalists are being highly selective, said Margot Heiligman,
39, who is doing consulting work for technology companies but is in the
market for a full-time job. Ms. Heiligman moved to San Francisco last
November when her husband took a trumpeter position with the city's symphony

Ms. Heiligman previously oversaw the internal technology department for the
New York law firm of Proskauer Rose and spent six years as director of
business development for Swisscom, a telecommunications company in Bern,
Switzerland. She is eager to find work at a start-up company, but has found
that the venture backers of such companies are very selective, hiring
acquaintances or people who have worked at companies they know well.

"I'm finding it pretty closed," she said of the job market. "It's making New
York look like an easy place" to find a job.

Eugen* Leitl <a href="http://leitl.org">leitl</a>
ICBM: 48.07100, 11.36820            http://www.leitl.org
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