Spoils of success force adjustments in Silicon Valley
Cupertino, Calif. — Imagine that you are just graduating from California Institute of Technology with a degree in computer sciences. Twenty companies offer you a job. Your wife wants to remain in California, so you accept a job at Silicon Valley Industries, with a starting salary of $35,000 a year. Where do you live?
Not in Silicon Valley, where a four-bedroom, two-bath house on a quarter-acre of land costs $250,000.
In this little vignette, which is happening quite frequently, lies a tale about the crescent of land stretching from Palo Alto to San Jose. It is now so expensive to live here that it is increasingly difficult to attract ''fresh faces'' to devise the computer games and software programs of the future.
Yes, Silicon Valley, which has always thrived on change, is itself changing. Real estate prices are now in the stratosphere, pollution leaves a smudge of smog in the air, traffic at rush hour is comparable to New York's Long Island Expressway, and workers are commuting over an hour to get to their jobs.
All of these pressures are hitting the valley in its breadbasket. ''When companies go to site a new plant,'' says J. Michael Murphy, an editor of the California Technology Stock Letter, ''they go to where people want to live. Engineers today can hold out for life style. And they don't want to live in Silicon Valley.''
The valley is changing, agrees Thomas D. Hinkelman, executive director of the Semiconductor Industry Association. ''For the past five or six years the valley has been reacting to the rapid development,'' he said in his office here. ''You no longer have a large unskilled labor force.'' So when corporations want to build a new plant, they go to Texas or Utah, or to Ireland or Puerto Rico. ''I think the valley will remain the headquarters and research-and-development center,'' Mr. Hinkelman says, ''but manufacturing will take place elsewhere.''
However, even some of the headquarters are moving elsewhere. Reid Dennis, a general partner in the venture-capital firm of Institutional Venture Partners, located in Palo Alto, has noticed the change in his business - finding and funding new ventures. His two most recent ''deals'' were located in Portland, Ore., and Boulder, Colo.
''In the case of the Boulder deal, we were able to hire a very competent chief executive officer out of Silicon Valley and move him to Boulder, where housing is 10 to 20 percent cheaper.''
And, Mr. Dennis, who was a venture-capital investor in such companies as Collagen Corporation, a biotechnology company, and Seagate Technologies, which makes Winchester disk drives, says entrepreneurs in Silicon Valley are getting greedy. ''The fact is,'' he says, ''deals elsewhere are more reasonable.''
The manufacturing end of the business is not the only part of the business changing addresses. Companies that design software, the instructions that tell the computers how to perform, are also locating elsewhere.
''We've talked about moving some operations elsewhere,'' says Tom Lavey, executive president and chief operating officer of ASK Computer Systems Inc. in Los Altos, which develops software for manufacturing companies. ''Higher pay differentials just don't make up for the real estate values.'' Mr. Lavey should know; he moved to Silicon Valley from Westfield, N.J., only five years ago.
One of the reasons real estate values have skyrocketed is because of the sharp increase in population and money. The population has swelled from 290,000 in 1950 to 1.3 million today. And, as Roger Mack, an economist at DeAnza College , notes, the median income of the valley is the highest in the nation at $31,000 a year. ''There are some communities,'' he says, in a film made for the California History Center & Foundation, ''where the median income is $100,000 a year. We have priced out new workers. . . . There are more PhDs per capita than anywhere else in the world - and more expensive homes. It is too costly to move in and too exciting to move out.''
If an engineer wanted to move in, what would it cost? Helen Pastorino, a Realtor with Century Medallion in Saratoga, pulls out her listings and skims through the pages:
''Here's a nice house in Saratoga on one-quarter acre - solar heating, two-car garage, a family room, and 2,250 square feet of space - for $250,000.'' On a monthly basis, she says, as she enters the numbers into her calculator, ''It would cost about $2,500 per month, including taxes and insurance.'' She looks up and frowns. ''Middle-class people just don't know what to do, maybe they should rent.'' But, she adds, with a smile: ''There isn't anywhere else to live. The climate is ideal, you are only 45 minutes from nature, and the work is exciting.'' She tells a familiar tale: Her town house, purchased in 1969 for $63 ,000 (''Everyone said I was crazy to buy it'') is now worth $120,000.
It's not just the high real estate prices that are jolting the valley. Seonaid McArthur, director of the California History Center & Foundation here in Cupertino, says the ''ambiance'' of the valley has changed dramatically.
In 1957, when Fairchild Semiconductor - literally the grandparent for over 25 other semiconductor companies - opened its doors, Silicon Valley was known as the ''Valley of Heart's Delight'' for the fine fruits grown in its orchards. Acres of apricot trees flourished on the valley floor. Grape arbors dotted the hillsides. In 1941, 52,000 workers picked and packed the crop. Last year, 13,000 workers were employed by the packers and canners.
''My projection is that we'll have a solid industrial park from Oakland to Gilroy'' in a decade, says James F. Riley, senior vice-president of Dataquest, an information source on high-technology companies. The park would stretch about 75 miles along the eastern part of San Francisco Bay and about 35 miles south of San Jose.
From Dataquest's new office building in San Jose, Mr. Riley can watch one-story industrial parks springing up nearby, where farmland used to be. ''This business is an example of future shock,'' he tells a visitor.
''What we're seeing is the end of a generation,'' says Mrs. McArthur. The heirs of the valley's farmers sell the land to developers. ''The people who are moving in are so caught up in the latest designs and trying to keep on top. The genteelness is gone.''
Despite all these problems, Mr. Riley says, the valley still has its advantages. ''The valley has the foremost infrastructure,'' he says. ''There is no other place in the world where you can take an idea and - without any investment in equipment - get it developed, tested, and built in one location.''
Mr. Lavey of ASK Computer says an entrepreneur in need of capital can find it in Silicon Valley without a great deal of trouble. Venture capitalists prowl the corridors at seminars, looking for bright men and women with ideas and business plans; lawyers have practically memorized the forms for new public offerings; accountants don't have to be trained to count silicon chips.
Moreover, there are excellent universities nearby: Stanford in Palo Alto, the University of Santa Clara, and San Jose State University.''