RealTime IT News

Rocky Times Ahead for Silicon Valley

Economy in Silicon Valley
PALO ALTO, Calif. -- When it comes to the economic outlook for Silicon Valley, the glass isn't half empty, it's just about dry.

Yet a panel of experts here at Stanford University still found room for optimism for some of the region's companies, despite the gloomy near-term prognosis.

For the meantime, however, the panelists -- speaking during an event titled "How Can Silicon Valley Survive the Great Recession?" -- still found plenty of reasons to stay hunkered down. For example, Valley veteran Patricia Sueltz, CEO of LogLogic, said her company has had good growth and, being in the security and compliance business, she's reasonably sure customers will keep buying.

That hasn't stopped her from taking steps in case there's "an economic nuclear winter," she said.

"Instead of breaking out the champagne, I let a sizable number of employees go so we'll have enough cash to keep operating for 12 to 18 months," Sueltz said. "I could see the Dow falling below 5,000 and unemployment hitting double-digit up to 12 to 15 percent."

Lisa Lambert, managing director of Intel's (NASDAQ: INTC) venture capital arm, said the chip giant has given similarly grim advice to its portfolio companies: "Conserve cash, and if you have to raise money, you're getting to get low valuations and difficult terms," she said.

They might do well to keep that advice in mind for the long haul. Joseph Grundfest, co-director at the Rock Center on Corporate Governance at Stanford, said he expects the actual recession to end in 2010, but that the bear cycle the economy's in could take as long as five to ten years to play out.

Part of the difficulty stems from the fact that the current downturn is a different beast than many remember from an earlier large-scale crisis. Bill Coleman, CEO of Cassatt and another Valley veteran, said the current crisis presents a far wider challenge than the dotcom bust at the start of this decade.

"This isn't about a next-generation technology being overhyped and oversold," he said. "This is about the cost of capital, and that affects everything."

Little good news for green tech

That could dampen hopes for the payoff from green tech, in particular. While the emerging industry is often seen as the next great engine of tech innovation and opportunity, the panel wasn't hopping on the bandwagon.

"I can't imagine a worse turn from where we were 18 months ago," said Stanford's Grundfest. "Much of clean tech is capital-intensive, and the higher the price of oil, the more profitable it is. When oil was trading at $145 a barrel, it looked good. But now we're at $38 a barrel, the number of technologies profitable today are a fraction of what they were 18 months ago."

While government subsidies and investment will help, Grundfest warned there's a danger that green tech would become Silicon Valley's first "welfare industry" -- dependent on the government for survival.

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