Silicon Valley: Still a boomtown?

As Silicon Valley's tech firms enter the New Year, their prognosis for a speedy recovery from the Asian flu is dim.

Economists and analysts predict that the tech economy will continue to battle a slowdown in 1999, on the heels of a year in which exports of high-tech goods to Asia sank and job growth fell steeply compared with the previous two years.

Adding insult to injury, Sacramento--not the Silicon Valley--was named California's fastest growing region for tech employment, according to a "California Cybercities" study released last fall by the American Electronics Association.

Experts point to continued weakness of exports to Asia, a maturing product cycle, and a tight labor market in California as the key factors that will set the tone for constrained growth going forward, warning that relief is not yet in sight.

"We are expecting an overall slowdown in the high-tech sectors--not large, but some," said Bruce Smith, an economist for California's Department of Finance. "But after four or five years of very strong growth, even slightly lower numbers will seem like a huge [downturn]."

The ugliness, in fact, spread worldwide in 1998. Seven of the top 11 semiconductor vendors saw their worldwide revenue drop by at least 14 percent, according to a recent study from Dataquest.

"Semiconductor vendors around the world are glad to see the back of 1998, a year slated to be the worst since the mid-80s," said Joe D'Elia, associate director and program manager for Dataquest's Semiconductors Europe program.

According to analysts, exports to Canada and Mexico, which offset losses in Asia last year, will--at best--remain flat this year, offering little help to the faltering global economy. There is, however, some hope to be found in Europe and the United States. Both regions likely will continue to be strong players in the world economy, and will help to allay fears of recession in 1999.

Still, nothing can make up for the damage already done by the Asian economic crisis.

What goes up must come down
Figures released last month by the California Employment Development Department show that Santa Clara County, at the heart of Silicon Valley, posted far weaker job growth than it did for the past two years, and was poised to fall behind the state of California's job growth rate for the first time in four years.

Santa Clara posted a 2 percent job growth rate, based on average figures through November 1998, while the state was ahead with 2.2 percent. During the previous two years, the Valley's job growth rate was 5 percent or more.

Meanwhile, the Valley's electronic equipment and industrial machinery sectors saw employment figures fall in November 1998, down 1,100 jobs or 4.2 percent from the year-ago period. The region's transportation equipment sector was hit even harder, losing 1,800 jobs or 12.8 percent of its workforce.

"Clearly, softening demand, because of what is happening in Asia, is a factor for the slower growth," Smith said.

Layoffs in the U.S. electronics industry, which includes semiconductors, alone totaled nearly 70,000 through September 30, 1998--tripling the previous year's total of 22,000 job cuts, according to employment consultancy Challenger, Gray & Christmas.

Bearing out these figures, semiconductor equipment maker Applied Materials cut back dramatically last year, trimming its workforce by 3,500. Companies such as Intel, Packard Bell NEC, National Semiconductor, Adaptec, and many others also leveled job cuts last year.

PC companies weren't spared, either. Hewlett-Packard, for example, instituted temporary wage reductions for executives and imposed brief plant closures in an effort to pare down costs.

The ax falls Downsizing took a toll on the tech industry last year, in the form of layoffs, buyouts, early retirement offers, and spin-offs. A sampling of the bad news:
Company	Calendar quarter	Job cuts	% of workforce
Adaptec	Q2	850	24
Adobe	Q3	350	12
Applied Materials	Q2	3,500	23
Baan	Q4	1,200	24
Cirrus Logic	Q3	400	22
Compaq	Q2	*6,500	8
HP	Q4	1,825	1.4
Hitachi	Q4	400	15
Intel	Q1	3,000	5
Lam Research	Q1	1,880	38
Learning Co.	Q3	500	16
LSI Logic	Q4	1,200	17
National Semi	Q2	2,500	18
Open Market	Q4	65	14
Packard Bell	Q2	1,400	20
Seagate	Q1	10,000	10
SGI	Q2	1,000	10
SVG	Q3	1,011	29
Sun	Q2	200	1
Symantec	Q4	100	5
Texas Instruments	Q2	3,500	9
3Com	Q1	645	5
* Compaq announced 17,000 job cuts, but only 6,500 were taken in 1998. Source: companies, research, and Reuters

Looking ahead to 1999, Wall Street analysts are forecasting that Asia's economic struggles will continue to impact U.S. corporate earnings for some time.

"We think the slowdown is temporary, but it could extend [if] Asia has a hard time recovering or [if] the U.S. economy finally slips," said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy.

Last month, the UCLA Anderson Forecast predicted that such difficulties almost certainly will be played out in 1999, confirming that, economically speaking, things are likely to get worse before they get better.

"The pronounced slowdown in Silicon Valley, an important factor in the weaker 1999 employment outlook for California, will likely be less of a factor in 2000 and 2001, when the state's economy is projected to increase 2.6 percent annually as measured by nonfarm employment growth," the report stated.