Here’s a great post from Capitalstool.com’s Stool Pigeons Wire by MDPorter in response to a comment by poster Shorty.
QUOTE (shorty @ Dec 27 2008, 09:30 PM) *
I think it’s over for Silicon Valley. A few operations will be shipped to India. The rest will steadily decay into a rustbelt-type environment racked by unemployment, poverty, crime and despair.
I wouldn’t count the Valley out quite yet, but it has almost overwhelming problems in several areas:
– The real estate bubble has yet to really get going on the downside. This may start happening later in 2009, sooner if job losses mount. The alt-A, liar, and ninja loans reset en masse starting 2010.
– Delusion in the executive ranks. The guys who run the company I work at do not seem to “get it” yet. They are talking about doing a stock buyback next year. Our P/E ration is sky high, maybe 78 if I remember correctly. Our stock could be cut 50% from its current level and be equal to the Enterprise Value that Russ has been mentioning lately. Interesting, that price would take us back to about 1995 levels.
– Delusion part II. One of the guys on my team was told that we should stop reading those “kook fringe sites” when we pointed out to them earlier in the year what was about to happen. In fact the CEO was dismissing any chance of a recession back in June. Ooops, egg on his face. Many other CEOs here were saying the same thing.
– Innovation… The iPhone was probably the most innovative phone to come out in years, and it came not from a startup or a telecom but a very established consumer player. The hot stuff from the startups have been in “social networking”. Sorry, those products are shit on a stick. Myspace, facebook, etc all are just lame. What exactly is the value in them? What are the startups doing with themselves? Cisco has bought nearly every networking startup over the last 10 years.
– Outsourcing is still happening. In fact I think two guys on my team are going to bite the dust within two months, they will be outsourced to our India global data center. Outsourcing bugs the hell out of me… how can you get job growth when all the low end and now medium ability jobs leave the country? How do people on the low end get their foot in the door?
– Saturation. This is the number one problem. Everyone has tons of electronics now. TONS. Even businesses have all they need. Even most of what they want. How’s Microsoft going to make money when Windows XP, Office 2003, and Windows Server 2003 have been deemed “good enough” (and it is) for just about everyone? The big moves in the server space has been to virtualization, which is probably nearing completion. Then what? Every sysadmin I know is tired of the marketing driven product cycles, which have been growing shorter over the years. Management is looking at the stuff saying we don’t have to spend any more money, what we have works. Big companies like Microsoft, Adobe, and even Apple have been pushing endless software upgrades on their customers for some time and people are sick of it.
On the consumer side of the saturation issue everyone has what they need.. computers, flat screens, ipods, cameras, video games, etc, etc. How much more can you buy and use? There will always be replacement due to failures or loss, but will people keep buying the same stuff over and over? I know I haven’t been. The job bought me a laptop, I give the older stuff to my wife to use, my tube TV was just repaired under an extended warranty (good for another four years I hope). All my other stereo/video stuff is ten years old or more. I just don’t realistically need or want anything else. A flatscreen TV? Hah… between work and having a one year old I don’t have much time to watch TV, besides I’d rather read the stool and related websites.
The Valley needs a new product category to innovate. Right now it’s just milking what’s already been done dry. The “stuff” is now very good, if not great. Biotech was supposed to be popular, but medical research isn’t a Valley strength. For one, you can’t outsource all the researchers to India, so most executives here can’t run a real research company. The place is too expensive for the researchers to live here. Solar power might be something, but we don’t fabricate anything in the valley anymore (Philips shut down the last chip fab a few years ago). So solar cell design doesn’t need to be done here. Believe it or not car manufacturing was being talked about, but Tesla Motors put all their plans on hold ’cause their stuff is too expensive and hybrids look stupid right now.
The Valley’s “Next Big Thing” is probably brewing out there right now, but can it make it to market in this kind of environment? hard to say. Maybe you’re right Shorty!