The American economy may or may not be in a recession -- but the information technology industry surely is, with no sign of an upturn. Lately, Silicon Valley, fabled for its invention, its can-do mentality and its dotcom fever, is looking a lot less fabled.
For two hours recently, four veterans of the valley -- Craig Barrett, the chief executive of Intel; Judith Estrin, a serial entrepreneur who is now chief executive of Packet Design Inc; Mitchell Kertzman, the chief executive of Liberate Technologies; and Eric Schmidt, chairman of Novell and Google, -- met at the Garden Court Hotel in Palo Alto to discuss the state of the high-tech world. Asking the questions of these executives, who sit on the boards of eight other companies, all told, were John Markoff, Matt Richtel and Judith Dobrzynski of The New York Times.
Overcapacity -- and its probable longevity -- was on their minds.
So were intellectual property issues, the lack of interest in technology among US students and the lack of interest in innovation in the valley, frustration with Wall Street analysts and pop-up ads on the Web, even their inability to get broadband in their homes.
Judith H. Dobrzynski: What's the mood in Silicon Valley? When do you think you might get out of this downturn?
Barrett: I'm more concerned about synchronous world recessions than I am in what's exactly happening in Silicon Valley or the US, even. The economy's relatively weak, obviously, in the US, in the high-tech sector. It's weak in Europe. It's actually pretty strong in Latin America. It's strong in the emerging Asian economies -- India, China, for example. Over all, we're all operating at one plateau level down from where we were six to nine months ago.
Kertzman: Booms, big booms, are really followed by very small slowdowns. Many of us are taking out our old "what do you do in a down business cycle" chops and managing our businesses that way as opposed to, "Oh my God, this is the end of the world."
Estrin: I think that the past five years was the anomaly, not now. A set of very real technology issues -- PCs, cellular, the Internet -- that should cause a boom, coupled with overreaction and kind of overexuberance, and then throw the Y2K buying on top of it. What we're seeing now is somewhat a normal overreaction to overreaction on the other side. The reason this is so hard is because the technology industry is such a young industry -- you have so many managers, technologists, analysts, spectators, press that have never seen anything else. Their careers started in that 10 years as technology became it. And so now everybody's like, "Oh my God," because they haven't seen anything else.
Schmidt: Things may actually be worse than we're saying. You had this enormous overbuild that occurred in telecommunications, which was largely vendor-financed. You have all of the issues around PC market saturation in certain key markets. You have Windows XP as the next great white hope there. You have these incredible physicists who work at Intel who continue to build new processors, faster and faster. And the value proposition isn't necessarily there for the whole solution -- the next "killer app" has not yet evolved. On top of that you had the Internet, which is the world's biggest opportunity to hype something because everyone could see that it was transformative. So you have this enormous overbuilding, which will take a fairly long time to overcome. It's overbuilding at the software level, at the systems level, at the infrastructure level, at the fiber optic level. Meanwhile, the technology continues to get better. I think the slowdown could be quite a bit longer than all of us would like it to be.
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