Silicon Valley Faces Uncertain Future: Report

After enjoying years of steady growth and maintaining an impeccable reputation as a national hub for technology and innovation, Silicon Valley is exhibiting measurable signs of slowdown. The survey, titled the "2010 Index of Silicon Valley," cites the recession for the area's decrease in jobs, patents, incomes and venture capital investment.

Perhaps the study's most startling statistic is the loss of 90,000 jobs between the second quarters of 2008 and 2009.

Even a well-known asset of the region -- the recruitment of talented foreign workers -- weakened partly due to overseas competition and the U.S.'s lingering political reaction following 9/11, the study says.

"2009 was a rough year. We learned the hard way that Silicon Valley is not immune to the larger forces at work in the global economic recession," said Russell Hancock, Joint Venture president and CEO, and Silicon Valley Community Foundation CEO Emmett Carson, in a joint statement. "Like other regions, we have lost tens of thousands of jobs, absorbed thousands of home foreclosures, and seen our incomes decline. Despite our many strengths—from talented people to world-class technology—we could not insulate ourselves from the larger economic downturn."

The report said it's not clear whether the economic and innovative stall affecting the region is merely a phase or here to stay.

"This is not a time for complacency. At a time when we need to engage more actively in the global economy, the very foundations for that engagement are weakening. We're disinvesting in education and we're not cultivating talent. Our state is no longer able to make crucial investments in infrastructure. Gridlock in Sacramento has become a major barrier to our ability to compete abroad and solve problems here at home," Hancock and Carson said.

The study also indicates Silicon Valley is witnessing a shift away from the very fields of work that fueled the region to fame, such a software and semiconductors. Now, it says, there's more attention on media, the arts, green energy, biotech as well as medical devices.

Additionally, the recession's toll on both state and federal governments has contributed to the region's ongoing rough patch, with the survey citing California's budget crisis and political turmoil as primary factors.

Other troubling findings include:

-- Between December 2008 and December 2009, the number of employed residents in San Mateo and Santa Clara counties dropped 5.8 percent (compared to 3.8 percent nationally).

-- While fifty percent higher than the state and nation, real per capita income in the region has been falling at a faster rate since 2007.

-- The number of patents in Silicon Valley declined (though less than one percent from last year), while the total number of U.S. patents decreased by 2.6 percent. Despite the decline, Silicon Valley's percentage of patent registrations in California and the U.S. increased between 2007 and 2008.

-- Total venture capital investment was down in 2009 (though an uptick in activity was reported in the third quarter). Growing areas of investment are in Industrial/Energy, Media & Entertainment, Biotechnology, and Medical Devices.

It is now up to Silicon Valley's leaders to recapture the innovative spirit that once propelled the region, the report said.

"Of course we still have many strengths as an innovation economy, and as a vibrant community," Hancock and Carson said. "Silicon Valley competes at a very high level with other advanced regions in the global economy. But we must continue to build on these strengths if we are to maintain our position in a world that is rapidly rising to challenge us. From the rise of Asian economies to California's budget meltdown, our future will in many ways depend on how we respond to forces emanating beyond our region."