The return of Silicon Valley

Barbara Grady

MOUNTAIN VIEW: At the BMW dealership down the street from Google's Silicon Valley headquarters, sales manager Jamie Laurenzano is guardedly hopeful about the trickle-down effect if the No. 1 search engine goes public as is widely expected.

While Laurenzano hopes to see a spike in sales from newly minted millionaires -- and wouldn't mind getting in on the Google IPO himself -- he recognizes that the go-go days of the late 1990s and its conspicuous consumption aren't coming back.

"Now we have a different economy," Laurenzano said. "My feeling is a lot of people would go for real estate now."

As Google prepares to file financial documents this week expected to pave the way for an IPO that would enrich the search firm's founders, backers and hundreds of its employees, America's high-tech hub is at a crossroads, experts said.

After a punishing three-year downturn, a measure of confidence and an appetite for risk are returning to Silicon Valley.

Although the swath of former orchards south of San Francisco has lost some 200,000 jobs in the last three years and remains saddled with some of the highest office vacancy rates in the nation, some say Google's success underscores Silicon Valley's resilience as a hotbed for innovation.

"The Valley does know that we've come out of our funk," said Tim Bajarin, an analyst at Creative Strategies, a Silicon Valley technology market research firm, who said that the dot-com bust may have had a silver lining.

"What it did is it not only shocked us into reality but it forced us back to what have been our roots of a fundamentally solid business strategy," Bajarin said.

Google's campus in Mountain View, California, is emblematic of the Wheel of Fortune character of Silicon Valley, the birthplace of such famed names in technology as Intel Corp., Hewlett-Packard Co., Apple Computer Inc. and Oracle Corp.

Google's sleek, modern buildings once housed another Valley high-flyer that has since fallen on hard times and moved to a smaller space: supercomputer maker Silicon Graphics Inc.

Google's headquarters boast a volleyball court, umbrella-shaded tables outside and grassy fields. Google employees also have access to an on-site masseuse, a workplace luxury that recalls the most recent boom.

GATHERING TURNAROUND?

In a sign of Silicon Valley's gathering turnaround, venture capital firms are now making money for the first time since the dot-com bubble burst.

In 2003, the value of venture firms' investments nationwide rose 8.1 percent, according to a recent survey by Thomson Venture Economics and the National Venture Capital Association.

To put that return in context, they fell 31.5 percent and 37.5 percent in 2001 and 2002 respectively, and observers agree that the broad economy in the region remains a shadow of what it was in the fever-pitch era of the late 1990s.

San Francisco was the fastest-shrinking large city between July 2001 and July 2002, according to U.S. Census data, leading to soaring apartment vacancy rates as dot-com start-ups in the once hip South of Market Street area failed by the bushel.

The vacancy rate for commercial real estate in the heart of Silicon Valley hovered near 25 percent at the end of 2003, and is far higher if unlisted offices are counted, experts said.

That figure is up from a vacancy rate of about 2.5 percent at the end of 2000. Rents have plunged by more than half.

"There's been a recession of sorts, but nothing like these huge numbers in San Jose, San Francisco and even Oakland," said Joe Hurd, senior economist for the UCLA Anderson Forecast.

But there are anecdotal signs that the mood in the Valley may be brightening.

One Cisco Systems Inc. employee said more engineers and sales executives have gone back to driving their flashy sports cars to the office now that the worst is over.

For a while, she noted many had opted to drive their second cars, more staid sedans in a show of a kind of solidarity with the recently unemployed.

"It is exciting to be in the Valley again, but the bad news is traffic jams are back," Bajarin said.