How Gray Is My Valley

The land of high tech suffers a wrenching mid-life crisis

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Silicon Valley: the place is synonymous with bright ideas, fresh fortunes and sunny forecasts. But right now the mood in this region 40 miles southeast of San Francisco suggests a name like Gloomy Gulch. Gone are the days when development spread like brush fire across the region and upstart businesses leaped from garages to the FORTUNE 500. Absent are the fuzzy-cheeked genius entrepreneurs, the companies hungry for workers and a city so wealthy it once considered giving back $1 million in tax revenues to its citizens. Says Lawrence Stone, a city councilman in Sunnyvale, which no longer has a surplus, as he recalls the glory days: "Instant millionaires. Every day there was a firm doing a public offering and spin-offs being created. Everyone was on a high-tech surfboard. It was a lot of fun."

Today the double whammy of a lingering U.S. recession and a maturing of high-tech industries has made life in Silicon Valley considerably less buoyant. Employment, profits and housing prices are down, traffic congestion is up, and the occasional layer of smog now looms overhead. "The vision we've had about this place has changed," says Stone. "Economically, we're a region at risk." In what is probably the ultimate indignity, some residents say the area is becoming like Los Angeles. "The Valley," notes Thomas Mandel, a futurist for the consulting firm SRI, "is going through a mid-life crisis."

Nothing provides a better testament to the past decade's growth binge than the headlong rise and subsequent stalling of home prices in Santa Clara County. From March 1985 to March 1990, the median price of homes zoomed from $125,000 to $235,000. Real estate appreciation ran at 3% a month, and most listings attracted multiple offers within 72 hours. Today 8,700 homes (median price: $226,500) languish on the market. "In Santa Clara County, it's a sacred thing: property values go up," says San Jose Realtor John Pinto, a Brooklyn native who came to the Valley believing it was the best place in the U.S. to live. He stops to wave at the lone pedestrian he can see through one of his plate-glass windows facing a main street. Though it is rush hour, the boulevard is eerily quiet. "This is as bad as it's been," says Pinto.

The Valley has gone through slumps before. Recession buffeted the region in 1981-82, but the explosive growth of personal computing brought the ailing industry charging back. In 1985 foreign competition, mostly from Japan, made serious inroads into the semiconductor market. From late 1984 to early 1986, the region lost nearly 33,000 jobs, or 4% of the work force. Just a year later, those jobs and more were reclaimed when a surge of new products and an infusion of venture capital helped rekindle the region's growth. Regis McKenna, Silicon Valley's pre-eminent marketing consultant, says he has seen half a dozen recessions in his 31 years in the Valley. "Every three years we go through these cyclical changes," he says. "In the course of them, people predict that the Valley is changing or coming to an end."

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