US techs look to revival

You can judge how fast the American IT industry is returning to health, by how slowly its Silicon Valley employees crawl to work. With a fifth of the local jobs sloughing away from the tech heartland in the last three years, once bumper-to-bumper commuter trips in the Californian county turned into drives down near empty freeways, writes Danny O'Brien in San Jose

Now the local traffic is returning. Postings on dice.com, the local online resume service, have increased by a quarter from July to December. San Jose's unemployment rate, still high at 7.2 per cent, dropped half a percentage point in November.

What's good for Silicon Valley (and bad for its morning drivers) looks to be a reflection of the sector as a whole.

The Nasdaq, darling of the tech boom, surged 44 per cent last year. Forecasts for business IT spending in 2004 are being revised upwards.

American dotcom giants, which once struggled to remain solvent, are now predicting growth. Networking hardware manufacturer Cisco's chief executive, Mr John Chambers told analysts last month that "the trend was improving", referring to his company's first increase in revenue in a year.

But while profitability and turnover is increasing for the US IT industry, that doesn't necessarily spell a sharp increase in jobs, either here in the homeland of Silicon Valley, or internationally.

At the same time as Mr Chambers announced his company's improved health, he said Cisco would not begin hiring again until productivity reached $700,000 (€548,000) per employee. The company currently measures sales per employee at $590,000. That attitude is reflected across the board here and not just in the technological sector.

Economists have described the US economy's current slow recovery as being dominated by improvements in the productivity of existing labour levels. US Labour Department figures reported that non-farm productivity leapt 9.4 per cent in the third quarter - the highest in 20 years. Faced with such improvements, most companies are content to derive their growth from existing employees.

The irony is that analysts believe much of that productivity increase came from the information technology advances devised in the Valley in the last boom.

So, for instance, the most controversial change in the work environment here - the shifting of call-centre support and low-level IT jobs to India and the Philippines from the US - was thanks to the increasing possibility of long-distance telecommuting and rapid consultation via email, both pioneered in the Valley.

But this is mainly the shuttling of existing jobs. For the IT employment picture to truly pick up worldwide, a new generation of entrepreneurs will have to create a new boom, rather than the old guard cautiously riding the advantages of the last one.

That's always been the real job of Silicon Valley - digging out new markets. There's some sign of that occurring. While no-one sees investment flooding into every part of IT again, venture capitalists in the Valley are cautiously clustering around a few narrow technologies, such as emerging wireless standards, Voice-over-IP, and, most speculatively, "social software" - a new generation of groupware for home and business use.

Is it enough? Perhaps, but the signs may not come for a while. There's plenty of productivity slack still to be reigned in, and that can delay the adoption of new technologies.

Traditionally, PC-led booms have come after a cycle of new software has demanded new hardware upgrades. In offices across the world, those vintage 2001 PCs are still handling their workload and few technologists expect additional hardware requirements until the arrival of Microsoft's Longhorn project in 2005.

Despite talk of an increase in IT spending, even the bravest pundits are keeping that jump in single digits from a very low level. Mobile telephony purchases have driven development elsewhere in the tech market, but even that shows some sign of slowing - at least at the top end, innovation-led Western and Asian markets.

If revenues aren't going to spur new developments for a while, what about the traditional source for speculative financing - the stock market? While there is no return to the spectacular IPOs of the 1990s to fund new ventures, the equity markets are less vengeful on speculative IT than they once were.

Orbitz, an Internet travel firm, floated on the stock market last month in traditional style. Its IPO spike was muted, with the stock price jumping from $26 to $30, then settling to $25. But the company received $94 million for the future expansion of its pure Internet play business: better than many of its recent predecessors on the exchanges.

The starting gun for a more wide-ranging investment boom would be the public offering of Google, the golden child of the post-crash dotcom world. Hopeful rumours of the Google IPO appear almost every month, to be disappointed by the company.

Perhaps the biggest difference the next time around, may be that, just as programmers no longer need to be so close to their employers, the entrepreneurs won't see a reason to hang so close to the bankers of the valley.

"Entrepreneurial jobs are no longer geographically bound," said Mr Chambers last week, "The next Silicon Valley can happen anywhere in the world."

It could be that the real money engine of the valley - its entrepreneur class - have already fanned out to start their work elsewhere.