View from Silicon Valley- It's all in how you measure
(c) copyright View from Silicon Valley, 2005. All rights
reserved.
The Silicon Valley recovery is in evidence because (take your
pick):
1) median house prices are at all-time highs
2) SIA sales are up
3) SEMI sales are up
4) employment and jobs are up
5) VC funding is up
6) NASDAQ is up
These are all interconnected. Strength in one contributes
to strength in another. Strength in two will empower a third, and so on. If all are printing good news, surely
the Silicon Valley economy is strong.
Right?
1) Median House Price:
(+)Estimates range from 36% (National Association of Realtors'
national average) to 50% (report of local agent) of 2004 buyers were acquiring second homes or rental property.
(-)Volume peaked at 2,450 in June, 2004 vs. January
at 1,139 (-54%).
Measuring just the median price, housing is strong. Measuring
who is buying and/or volume implies housing is artificially pumped up.
2) Y-o-Y SIA:
(+)SIA's January, 2005 billings
are up 17.5% y-o-y. A -0.5% decline from December, 2004 to January, 2005 is within typical seasonal patterns.
(-)Within SIA's numbers, Asia-Pacific was up 27.9% vs. only 8.3%
in the Americas region.
Measuring overall SIA sales implies chip sales growth is
putting money into the pockets of a wide range of local residents. Regional results suggest the breadth of
Silicon Valley residents benefiting from SIA sales increases is much narrower than in the past.
3) Y-o-Y SEMI:
(+)January, 2005 three-month average billings are +22.6% y-o-y.
(-)January, 2005 three-month average bookings are -17.5%
and book-to-bill (B:B) fell to 0.80. Three-month averages disguise January's bookings were down -$675M (-54.6%!)
from December, 2004. Reports hope for a February "recovery" to 0.90 B:B which would then be the sixth consecutive
sub-1.0 B:B.
Double-dipping on last week's piece, billings imply SEMI
is strong. Measuring bookings and/or B:B implies SEMI is weakening-- rapidly.
4) Employment and Jobs:
(+)Widespread reports since September or October, 2004, and
what you see on the street seems to confirm, more jobs are opening.
(-)As of January, 2005, Santa Clara County is -5,000
(since September) or -9,900 (since October). Subtracting out government, school and health care hiring, the net is even
lower.
It looks like some companies are loudly adding jobs
but at a slightly lower rate than jobs are quietly being cut elsewhere. Measurable results indicate, so far, there is no fire behind the smoke.
(-)The most interesting quote from this article is, " 'It's
an industry that ought to be smaller,' said William Sahlman, professor of entrepreneurship at Harvard Business School."
Too much money chasing too few ideas causes the same problem as "investors" driving up the median home price in Silicon
Valley. Prices do not correspond to long-term value.
Yes, $20.9B
"is better than a sharp stick in the eye," as my grandmother used to say, but it is a far cry from $100B+. VC funding increases, "give this region its dynamism and many of its jobs."
is still accepted as fact despite the lack of measurable evidence in VC funding.
6) NASDAQ is up
(+) NASDAQ is up strongly since October, 2002. It's also
up ~+4% year-over-year.
(-) NASDAQ is actually down year-to-date.
Both timeframes are skewed by the strength of Google, eBAY and
Yahoo. The rest of the Silicon Valley 150 is actually negative y-o-y and YTD.
* *
There are certainly some positive happenings in Silicon Valley.
The strength of each contributes to strength in the others. However, some of the measurables are less positive than
they appear. Others are even negative when you consider all the details.
Conclusion:
It's dangerous to just scan the headlines and walk away feeling fully informed. Make sure you understand
ALL the numbers being reported underneath those headlines.
