The Real Dream Factory

Eric Ellis

01/29/1997

Australian Financial Review

From Silicon Valley to Seattle, the West Coast's resurgent technology and aircraft industries are revving up America's economic renaissance. Eric Ellis reports from America's boom towns in the final part of a series on the US economy.

"Is that a Pentium you have there?" It's not a question one expects of a hotel room service waiter delivering breakfast. But if hospitality staff in Hollywood are stereotyped as "waiting" to be discovered, in Silicon Valley they're biding time en route to becoming the next Bill Gates, Larry Ellison or Mark Andriessen.

In San Jose, Silicon Valley's sterile capital, such questions underline how much this area lives and breathes information technology and its offshoots. The waiter has every reason to favour Silicon Valley over Hollywood -there's much more money to be made here. In the 1970s, it was Texas oil and in the 1980s it was Wall Street and junk bonds. But the 1990s belong to the Silicon Valley-generated overnight millionaires hyping dollars out of the myriad, but as yet largely uncommercial applications of the Internet, and powering America's born-again competitiveness.

"This is the intellectual clearing house of ideas and it's got no immediate danger of being toppled from its perch," says Apple Computer's chief administrative officer George Scalise, who joined Gil Amelio from National Semi-Conductors to rescue Apple.

Adds Sun Microsystems' chief research and development boss Dr Eric Schmidt: "America has got networking and the Internet to thank. While the US is half the world's market, everyone will ultimately have to come here for ideas on how technology is applied."

Silicon Valley's extraordinary re-emergence from the doldrums was further underlined by news late last year that semi-conductor demand was at a record high, fuelled by an international urge to get to the Net.

The locals who own industry leaders such as Hewlett-Packard, Apple, Sun Microsystems, Oracle, Intel and Netscape have turned Silicon Valley into the fastest-growing export region in the US. Export output from the valley rose 35 per cent to $US26.82 billion in 1995, according to the US Commerce Department.

Silicon Valley now ranks as America's third best exporter in dollar terms and is fast catching up to the industrial motortown of Detroit and populous New York.

Meanwhile, the search for the Next Big Thing goes on and, while the IT industry is divided about the chances for the low-cost, no-disk "network computers" developed by Larry Ellison's Oracle and Sun Microsystems to enable networking access for Everyman, most seem to agree the Internet is only just beginning to realise its potential. "The Internet is limitless - about where television was in the 1950s," says Sun's Dr Schmidt, one of the most respected of the valley's boffins. "Then, nobody had a TV except the fashionable or the rich. Now there is 98 per cent penetration. Networking will go, or rather is going, that way."

Sun and its hot offshoot, Marimba, are also working on new ways to speed up the Net, developing applications based on the emerging Java language, which it is hoped will become an industry standard.

Millionaires are being minted by the minute. While new Internet hot-stock firms, such as Mark Andriessen's Netscape, with its Web browser standard, and Yahoo!, the search engine dubbed the "Internet's Yellow Pages", might dominate the international business pages with massive public offerings, other success stories like Cisco Systems, a software network supplier, are sometimes overlooked.

Yet Cisco is representative of hundreds of firms. It has carved out a standard in "routing" - supplying specialised computers systems that move data from one network to another, the glue that links networks.

Cisco has made about 10 per cent of its 8,000 staff millionaires via stock options and fat salaries. Founded only in 1984 by a Stanford-graduated husband and wife team, Cisco now controls about 80 per cent of its unfashionable niche.

The caffeine and pizza-driven region is also the youngest of America's wealth centres.

Although Stanford University graduate Joe Liemandt recently moved his software company, Trilogy, to Texas, he recently became, at 28, the youngest member on Forbes magazine's rich list.

John Firmage, 26, sold his software programming company to Novell in 1993 for $US24 million and joined them as a consultant, only to get stressed out by Novell's bureaucracy. He left in 1995 and started Santa Clara-based US Web that builds home pages for companies, which in turn pay him up to $US3 million to do so.

Firmage, Liemandt and their twenty-something peers have been dubbed the Generation X CEOs - and there are literally thousands like them sprinkled across the valley.

Another celebrated case is that of Brian Pinkerton, a student whose thesis and research on Internet search engines was bought by America Online, the world's largest online company, for $US1.5 million.

Industry monitor Montgomery Securities estimates that some 140 Silicon Valley companies have either gone public, or planned to go public, in the period from January 1995 to the end of last year, taking advantage of the market hype surrounding the emergence of the Internet.

And it's not all "vapourware", as locals call new ideas. About 80 per cent of the low-tech assembly of Silicon Valley research and development results takes place here in mostly non-unionised production facilities.

The hype has naturally drawn its social problems. Silicon Valley is awash with pollution - odd since this is not a region of smokestacks. There is also a high crime rate and a new wave of immigration, attracted by jobs being created at a rate of 4,000 a month, with average salaries of $US60,000-$70,000.

The street signs in downtown San Jose are more likely to be in Spanish and Vietnamese than English. The permanent haze is a result of the explosion in car use, much of it luxury car use. San Jose, which is very suburban, has three Lamborghini dealerships and sales doubled last year.

Property prices are booming, too. The average price of a house has risen 45 per cent in the past year and commercial rents have doubled.