Sat, Dec 22, 2001 page19

• Silicon valley is recoiling from a dark nightmare

  It's been a humbling experience for a place that just a year or so ago was rightly called the capital of the New Economy and a cornerstore of the business world

  • NY TIMES NEWS SERVICE
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  A year ago, Jean Allington might have been finishing her holiday shopping at Macy's or Nordstrom or one of the eclectic boutiques in this Silicon Valley suburb.

  But on a recent weekday afternoon, when most people with jobs were working, the former tech worker was perusing the local Goodwill thrift store, picking over second-hand trinkets and baubles before settling on a US$2.99 silver jewelry box for a friend.

  "I'm yet another unemployed victim of the dot-com crash," Allington explained matter-of-factly. She was laid off in April from Right Works Corp, an Internet company later acquired by a Dallas competitor. "A lot of my friends are saying this is not a year to buy expensive gifts, so we're not. We can't."

  Nor can many people here this holiday season.

  The recession has the whole nation hurting, but few places have fallen as far or as hard as the once-unstoppable Silicon Valley.

  Silicon Valley was built on high technology, and the technology industry is in a slump that doesn't seem to end.

  The local unemployment rate has soared from 1.3 percent a year ago to 6.6 percent -- the highest it's been in seven years.

  Many of those who have jobs have seen their salaries cut and their stock options vaporize.

  And the hits keep coming. Last week, equipment maker Applied Materials Inc, one of the region's biggest employers, announced it was cutting 1,700 more jobs in Silicon Valley and Austin, Texas as its business shows few signs of improving.

  "Silicon Valley goes up with tech and it goes down with tech," said Stephen Levy, a Palo Alto economist who has tracked the local economy since the 1960s.

  It's been a humbling experience for a place that just a year or so ago was rightly called the capital of the New Economy and a cornerstone of the business world.

  This time last year, some of professional party planner Rick Herns' corporate clients were spending US$200 or more per person on booze, food and decorations for employee holiday parties. Today, some of those same companies are out of business. Many of those that remain are eschewing high-dollar hotel fetes for low-budget family gatherings at the corporate parks or company auditoriums, Herns said.

  Worse, local charities that traditionally got much of their donations from tech workers now are finding those same people knocking on their doors for help.

  "The agencies we work with say they are serving more and more professional people," said Jenny Luciano, spokeswoman for the Second Harvest Food Bank in San Jose, where donations are down but requests for meals are up 12 percent. "It's tough for everybody."

  Everyone here knows someone who has been laid off. Unemployment no longer is a stigma or unusual; it's as common -- ironically enough -- as job-hopping for better salaries was a couple of years ago.

  "At least eight of my 10 best friends have been laid off," said Janell Galindez, who lost her own job as a tech support worker at Internet company Vyou Inc six months ago. She now works nights part-time at a telephone call center while -- in true Silicon Valley style -- she and a few friends are trying to start a software company.

  "It's not going too well," Galindez admitted. But the few tech jobs that she has applied for recently pay a third what she used to make. She and her friends are holding out hope they can do better on their own. "We're so poor we can't even do a garage start-up," she said. "We're working out of an apartment."

  Hope and hype aside, few really expected the dot-coms that helped drive this region a couple of years ago would last. But then the big companies -- the Intels, the Ciscos, the Applied Materials -- started shedding jobs. Now, the effects of an economy dependent on technology are rolling downhill.

  Merchants and restaurateurs are hurting because cash-strapped locals are cutting back on spending -- even more so since the Sept. 11 terrorist attacks.

  Sky-high housing prices are finally starting to fall, but foreclosures are starting to rise.

  And as consumers hunker down and wait for better times, purchases of non-discretionary goods are nearly non-existent.

  "I was planning on buying a boat," said Evan Sjostrom, an account executive at a temporary technical staffing company in San Jose. "But then I lost half of my business back in May. It's bad."

  There are a few bright spots on the horizon. Sales of consumer electronics such as DVD players and televisions -- all of which contain computer chips and other tech equipment -- are strong this holiday shopping season. The dismally slow computer business even experienced a slight uptick last month, driven by new software and rock-bottom prices. And layoffs -- while still common -- are slowing. For the first time this year, the number of unemployed didn't increase last month, declining slightly to 66,800.

  All that said, there's little indication that the technology industry -- and with it, the Silicon Valley -- will fully recover anytime soon.

  With the recession, businesses nationwide are still putting off major technology purchases. Consumer interest is expected to continue to wane as well after the holiday shopping season.

  Economist Levy predicts that while most of California and the rest of the nation will recover from the current recession by the middle of next year, it will probably take at least until the end of next year for Silicon Valley to rebound.

  Likewise, research company Economy.com in West Chester, Pennsylvania, had forecasted that the economy of San Jose, the self-proclaimed capital of Silicon Valley, would grow slightly next year. After Sept. 11, it reversed that prediction and now is predicting a further decline.

  "What I keep hearing ... is that it's going to be at least two if not four more quarters," before the local economy improves, said Carl Guardino, president of business consortium Silicon Valley Manufacturers Group.
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