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Sunday, Sep. 13, 1998
Silicon Valley feels economic crises' byte
High-tech, money-fertile address tightens belts, prepares to ride out market unrest
By MICHAEL WARREN
Associated PressSAN JOSE, Calif. - Asia is in crisis, Russia is imploding and Latin America may be next.
The ripples of global crisis have reached Silicon Valley, making some technology stocks look like a thing of the past and leading to pay cuts at some of the best-known high-tech companies.
Still, the daring that made this area the hard-driving engine of the Information Economy doesn't show signs of waning.
``The confidence level remains undaunted,'' said Fred Hoar, a veteran of Fairchild, Apple and other technology companies. ``They honestly think they're changing the world.''
The world's not changing fast enough for Vish Akella, co-founder of Acclaim Software, a San Jose startup he just sold for $120 million.
``There's incredible confidence in the Valley,'' Akella said last week. ``This is not the time to be looking back. It's more like, What else can I be doing?''
Of course, Akella just achieved the Silicon Valley dream, and is raining riches onto his staff of 60. For workers at more established companies, the global economic slowdown is cutting deep.
Hewlett-Packard managers are swallowing a 5 percent quarterly pay cut; National Semiconductor cut 1,400 jobs and is forcing workers to take 10 days unpaid vacation; and Intel is trimming its work force by 3,000 people this year, its biggest job cuts in more than a decade.
Now, the stock market selloff has given even the Internet darlings pause. Any other industry would be humbled, particularly one in which so many employees measure their worth in stock options.
The selloff ``is certainly a lunchtime topic, and not necessarily a fun one. But usually the conversation ends with us talking about, Is this the best time to buy?'' said Brad Whitworth, H-P's international public affairs manager.
Signs of a slowdown had been evident for months in the software industry here, which grew to 2,000 companies last year, and had 61,000 employees earning more than $85,000 on average, according to economists at Joint Venture: Silicon Valley Network.
A survey of the Valley's 150 largest publicly traded companies by the San Jose Mercury News shows profits grew by 15 percent to $15.4 billion in 1997. But subtract Intel's $6.9 billion in earnings, and the growth was a limp 2.3 percent.
Between the Asia crisis and price wars that have made it possible to buy respectable PCs for under $1,000, earnings are depressed at many companies.
Adobe Systems, the San Jose-based maker of Photoshop software, is cutting 10 percent of its work force. And at Applied Materials, a maker of chip wafer equipment, third-quarter profits fell 75 percent.
``The Asian crisis has thrown a major curve at how fast we felt we could bring the world into the digital economy,'' acknowledged Tim Bajarin, president of Creative Strategies in Campbell, Calif., a technology research firm.
But Bajarin said most people he knows see boom times continuing through the first 10 years of the next decade.
``All of these companies are basically taking short-term moves to make sure they don't lose their people, because they all realize that when this thing gets moving again, it'll take off with a fury,'' he said.
Silicon Valley has been so successful in part because of the intense concentration of talent - thousands of engineers, marketers and venture capitalists all trying to get in on the next big thing. And now that stocks are down, employees throughout the Valley are freshening their resumes and taking calls from headhunters.
``If I get laid off in the next few months I'll just take my severance pay and find another job,'' said Rick Hagborg, a systems engineer at Applied Materials, as he eyed the latest high-tech gadgets at Fry's Electronics in Sunnyvale.
Few seem to pity the laid-off workers. Envy is more like it in this risk-taking culture, where leaping to another company is seen as the best way to increase the value of your stock portfolio.
``A downturn in the economy is exactly the right time to hire people,'' explains Paul Franklin, one of about 100 wealthy executives who make up the Band of Angels, a secretive Silicon Valley group known for providing venture capital to startups.
``Those people are going to get picked up because of their high-tech talent overnight,'' agrees Bajarin. ``There's no question the Asian crisis will cause some belt-tightening in the short term, but if you're National (Semiconductor) or H-P, you better have your people in place when it rebounds.''
Because a defection by one charismatic worker can lead to many other departures, companies are keeping the frills workers have come to expect, like on-site gyms, elaborate company picnics and stock options.
``We've cut back on travel some, but not the perks,'' said Keith Sorenson, a quality-control manager at National Semi. ``Stock plans used to be 400 to 500 shares, and now they're more like 1,500. You need to do that stuff to keep morale up.''
Still, there are signs of cooling.
Back in May, swank ``look-at-me'' properties in Silicon Valley would get a dozen bids and sell in 2-3 days. Now, they're taking a month to sell, and twice recently, buyers have abandoned deposits of $45,000 or more in $1.5 million homes, says Jane Bigelow, who manages the Century 21 office in Los Altos.
``People have decided to breach the contract because their stock went down. They said `you know what, I'm not confident in the market,'' she said. ``We would never have seen that happen in April or May.''
Arvind Deogirikar was one of the few potential buyers at an open house last week for a $1.8 million four-bedroom in Los Altos Hills that would have attracted lines of people with open checkbooks this spring. And given the stock selloff, he doubted anyone would buy.
``Looking at all these turmoils that are happening, we may have to look at the situation a little more closely,'' said Deogirikar, an international sales manager at Sun Microsystems.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web