Analysts: Silicon Valley needs re-tooling

February 10, 2010 12:00:00 AM PST
We're getting a first look at Silicon Valley's annual report card, and its sobering and key findings point to a stalled engine.

Silicon Valley for years has been the model for innovation, where fast chips led to the creation of computers and devices sold around the world.

And it gave the valley a level of prosperity envied around the world. However, there is concern that Silicon Valley needs re-tooling.

"Our innovation engine is stalled. We need to figure out if it's stuck in neutral for the time being or if the engine actually needs a complete overhaul," President and CEO of Joint Venture: Silicon Valley Russell Hancock said.

Hancock's group, along with the Silicon Valley Community Foundation just completed its annual index and these are some of the danger signals.

The region lost 90,000 jobs in a single year, the number of patent filings is slipping, venture capital investments have declined and empty office space makes some parts of the valley appear to be a ghost town. The vacancy rate is approaching 25 percent.

The valley still has strengths, but it also has new competition.

"Our semiconductor industry can help us be stronger in solar, and our biotechnology industry makes us stronger in areas around bio fuels, and our information technology makes an opportunity for smart grid. So we are well positioned in this sector, but it's not inevitable that we'll be a leader," Doug Henton from Collaborative Economics said.

The reason for this, according to Henton and others, is fast-emerging competition from places striving to become the next Silicon Valley -- places like India, China, and even Huntsville, Alabama.

Over the past 15 years, Huntsville has seen federal spending increase 4.5 percent while Silicon Valley has slipped one-tenth of a percent.

To compete, fine-tuning the valley's focus and goals may be required.

"We can do this. We have been doing it, but we need a concerted effort of all of us on the same page, identifying the areas of leadership that we want to stake out for the next 10 to 20 years," Emmett Carson, Ph.D. from the Silicon Valley Community Foundation said.

The report also raises concerns about cutbacks in education and other state and national issues that impact the pool of talent and the workforce.

"We cannot leave that to chance, that if Silicon Valley wants to retain its leadership role, we need to act differently, think differently. We need to be more aggressive, we need to be more strategic," Hancock said.

Even if all that happens, the picture is becoming clear that as the nation and the region emerge from the recession, Silicon Valley may not be the job engine it once was.