The 2012 edition of the Silicon Valley Index has just been released in a combined effort by Joint Venture and the Silicon Valley Community Foundation. Published every February since 1995, the report provides a broad spectrum of indicators showing the strength of Silicon Valley's economy and the health of its community –the two integral blocks of Silicon Valley's existence. To a diverse group of enterprises and institutions like school districts to multinational & hi-tech businesses present in the valley, the indicators provide an even greater purpose –a snapshot of the challenges ahead and an analytical foundation for leadership and decision making.
The indicators are chosen every year based on the recommendations of a team of advisors—approximately 60 indicators to the Joint Venture board. More than half of these are retuning indicators; the remaining indicators are chosen for their ability to tell how Silicon Valley is faring across a broad range of goal areas adopted in 1998 as the Joint Venture Framework for Regional Progress.
The conclusion from the report is quite clear: Silicon Valley is making an impressive recovery. It was the last region to feel the effects of a historic recession and now it appears to be the first to emerge out of it. However, the growth is led by a few key sectors which fueled the overall creation of more than 42,000 jobs in 2011. The report also chronicles how the Silicon Valley innovation engine—measured by venture capital, patent registrations, new firm formation, and even IPOs is clearly on the up tick again.
The report cautions that the uptick is not a cause célèbre'. The gains are sector specific and not widespread; small businesses are clearly not out of the rough; the public sector is still in the throes of a fiscal crisis; and median household income continues to fall as the gap between those succeeding and those struggling grows wider and wider. It warns that it is as if the Silicon Valley is becoming two valleys.
What is less surprising (to California residents) is the report's observation that even a stunning economic recovery won’t address Silicon Valley's fiscal woes. The blame goes squarely on the tax system, which it says is geared to a 19th Century economy and it doesn’t track with the 21st Century economy that is being invented (and reinvented) in Silicon Valley.
The complete report, 2012 Index of Silicon Valley, can be downloaded here.
Some of the highlights from the report are:
• The Silicon Valley economy is mounting a solid recovery from the recession.
• The region added more than 42,000 jobs in 2011. Monthly employment increased 3.8 percent in the region from December 2010 to December 2011, while the U.S. posted a gain of 1.1 percent.
• Silicon Valley’s innovation engine has heated up again.
• The region continues to grow a rich talent base.
• Income growth is mostly limited to high earners, and is not spread across other segments of the population.
• The region’s youth are showing educational gains.
• The housing picture is mixed.
• The region’s public sector fiscal crisis persists, making it difficult to finance essential public services.
Trends in Population Movement
The population in the Silicon Valley reversed the trend of migration to other states (and even out of the country in many cases) in 2011—a year which saw a net increase in the valley's population preceded by two years of decrease. Thirty percent of Silicon Valley’s population is 25 to 44, the core working age group.
Another encouraging indicator is that the science and engineering degrees conferred continue to rise in the region and country. The valley had more than 14,000 science and engineering degrees conferred in 2010, approximately 4 percent of the total in US.
Figure 1. Total science and engineering degrees conferred.
However, the number of foreign students graduating from the universities in the valley decreased—a trend that is largely correlated with the overall economic downturn in the last decade. While this trend may not be a near-perfect zero-sum game, some of the region's losses were indeed picked up by increased foreign student enrollment in countries like Australia and the U.K., where the foreign student enrollment—particularly Asian students—increased.
Figure 2. Science and engineering degrees conferred to foreign residents declined.
Status of Innovation in Silicon Valley
Innovation is the hallmark of Silicon Valley, not just in technology products but also in business processes and business models. Its ability to generate new ideas, products and processes has given Silicon Valley an important source of regional competitive advantage.
Silicon Valley still commands a lion's share of the patents issued, accounting for 49 percent of total California patents and 12 percent of total U.S. patents in 2010. This represents a growth of 30 percent in the last year. One category (computers, data processing and information storage) claimed 40 percent of the region’s total patents in 2010. Chemical processing technologies was the fastest growing category from 2009 to 2010, logging a 50 percent increase in patents. Registrations in communications increased 24 percent during the same period. Patents increased in computers, data processing and information storage in 2010.
Figure 3. Silicon Valley’s percentage of U.S. and California patents.
Another measure of innovation is the health of the venture capital investment activity; venture capital investment grew for the second straight year. Venture capital (VC) investment in the Silicon Valley increased 17 percent in 2011. With a total of $7.6 billion, regional investment has recovered to 2004 levels following the drop in 2009. The region accounted for 27 percent of the U.S. total VC investment and 52 percent of the California's in 2011. By industry, software attracts the largest share of total investment but funding flows are increasing in other areas such as energy, biotechnology and medical devices.
Figure 4. Venture capital investment.
The report concludes by aspiring for 2012 as the year when a real conversation about tax reform takes hold and that Silicon Valley’s will be an outspoken voice in that conversation. The creativity that the valley exudes naturally in the private sector needs to take hold in the public sector as well. When it does, the report concludes, that there will be truly a cause célèbre!
MP Divakar is a technologist in the Silicon Valley, specializing in semiconductor back-end, packaging, thermal management and test. In addition to juggling two startups, he manages to contribute at IEEE Communication and Power Electronics societies. He is a regular commentator at the EE Times portal.
This is one of the most comprehensive stories on the snapshot of Silicon Valley today. It's data-driven, well backed up by figures and statistics... it sure makes us all want to believe that we are witnessing "the Second Half has begun," just as the author told me.
In some ways, particularly in Silicon Valley, much depends on how one defines manufacturing. For example, a recent study on technology jobs found that apps for smartphones, tablets and social media have created an estimated 466,000 jobs in the U.S. since 2007, the year the iPhone was introduced. Whether apps qualify as "making stuff" is debatable, but something is being produced and innovation is advancing.
The apps study is here:
George, on that comment, I have often argued with colleagues and professionals as to why we even call it Silicon Valley... not much Silicon gets fab'd there any more! Perhaps we should rename it to Web Valley or Internet Valley or something along those lines! North of Sunnyvale, software dominates the scene allthe way to San Francisco.
I only addressed two topics in more detail (population movement and innovation) which are closely tied to the advance of the Valley. Housing is still a sore issue BUT that may some what improve in some areas, now that Facebook has many new millionaires! Today's NYT has an article:
If Silicon Valley Costs a Lot Now, Wait Until the Facebook Update...
I wonder what those new millionaire home owners will paint their 'Wall' with? :-)
For more on the theme that the Silicon Valley is no longer appropriately named, see Rick Merritt's excellent article from last October:
"From Silicon Valley to Software Bay."
You are right, resistion. The 2012 Silicon Valley Index report does say that between 2009 and 2010, Silicon Valley lost "Manufacturing" jobs by 6 percent; and between 2010 and 2011, it lost by 13 percent.
Meanwhile, employment related to "information products & services" gained 6 percent.
I wonder exactly what sort of "manufacturing" jobs we are losing in Silicon Valley -- more specifically?
I believe that low-skill manufacturing jobs are giving way to robotics and other more mechanized manufacturing. My bet would be that a scan of job listings would show more skilled trade jobs and fewer button pushers.
@DylanMcGrath: thanks for the link, Rick is right on track in that article. To that end, I have often commented in the (3DIC context) software and applications are a huge part of the ecosystem that the chip companies need to nurture more of.
The mention of tax reform links of course to the public finance deficit in California. It does seem to me (as an outsider) that the reliance on property taxes for public finances is going to be risky particularly if it is linked to property prices. It also seems that there are an awful lot of highly profitable companies in Valley that are paying very low rates of corporate tax. In the UK the main rate is 25%, it California it looks like 10%. This looks like a fairly obvious gap to close, especially if poor public funding damages public services on which those companies rely eg education and transport for their workers.
Was there follow up to the early statement that the tax plan was based on 19th century concepts? By the time a dollar gets paid out to corporation employees and stockholders it's been taxed numerous times, particularly if it's a manufactured product that assembles or relies on purchasing parts or products previously produced in some manufacturing process. I could have missed the discussion, I still need to go get some coffee.