Profile
Silicon Valley firms design computers and computers systems, networking equipment, and search, detection and navigation equipment, configuring these products to meet customer demand. Personal computers, consumer electronics, servers, storage devices, networking equipment, as well as sonar and radar, are a few of the products designed and prototyped in Silicon Valley.
Computer and Communications hardware,
the third-largest industry cluster, employed
more than 54,500 in early 2004. An outward-oriented industry, employment is heavily
concentrated in Silicon Valley, at about 10 times the national concentration in 2003.
Changes driving opportunities
Emergence of a large consumer/middle class in India and China: The manufacturing of computing and communications products has been outsourced to China and India for years. But now, the sales and R&D functions are also becoming more distributed in response the emergence of a middle class in China and India. The growth of these markets has helped stimulate the globalization of the R&D and sales business functions - so that product innovation remains tightly linked to shifting market demand.
Nanotechnologies are being recognized as a foundation for advances in computing. Nanotechnology refers to the manipulation of matter at the atomic and molecular scale (where the objects are 0.1 to 100 nanometers in size, hence the term). Computer companies with large research labs such as IBM and HP have developed substantial nano programs. IBM researchers have already successfully created carbon nanotube transistors that substantially outperform advanced silicon devices.
- Hewlett-Packard researchers have demonstrated the possibility of advancing molecular
scale computing and eliminating the need for transistors – the basic building block of
computing for the last 50 years. HP researchers recently demonstrated the “crossbar latch”
– a bistable-switch latch that promises to replace the traditional transistor and to
resolve some issues that have stymied progress in molecular scale computing. HP hopes to
refine the process to create microchips as powerful as the next generation of silicon-based
chips – but 1,000 times smaller and much less expensive. That advance and others in
the burgeoning field of nanotechnology could make computers small enough to be worn, embedded
in materials, or perhaps even injected.
More information: http://www.hpl.hp.com/news/2005/jan-mar/crossbar.html.
Silicon Valley firms focus on product innovation and design: Computer and Communications hardware companies like Hewlett-Packard, Sun Microsystems, Apple Computers, and Cisco Systems outsource production to firms outside the region or in Asia, and focus on designing systems, network architecture and configuring these products to meet the needs of specific customers. This mass customization approach creates high value for the consumer and high levels of productivity for the companies.
For example, Cisco Systems, a leader in networking equipment, customizes its many different products to meet specific design specifications and then contracts out manufacturing for delivery direct to the customer. The value is created in the design and customization.
Maturation of the computing industry: Total industry revenue growth is slowing and for larger firms, finding pockets of growth will be more challenging in the future. Revenue growth rates and net profit margins have declined. Industry consolidation, e.g. Compaq’s purchase of Digital Equipment Corporation followed by Hewlett-Packard’s acquisition of Compaq, is a normal component of industry maturation and is likely to continue. Computer and Communications hardware firms will need to move to different, niche segments in order to maintain high levels of revenue growth.
Industry restructuring from Hardware production to Software: During the 1980’s the industry underwent significant restructuring as Valley companies transitioned from producing hardware (in the 1980s) to outsourcing production overseas. By 1992, Computers and Communications hardware employment made up one-quarter (26%) of Silicon Valley's total industry cluster employment. By 2004, this share fell to just over 15%. By contrast, Software employment grew substantially from 7% to 27% over the same period while Semiconductor employment remained near 17% of Silicon Valley cluster employment.
Where the opportunities are
Consumer products: New consumer products are being developed with design oriented features with Valley firms focusing on the intellectual property development. For example, Apple’s iPod represents a good expression of how design has captured a new market. Apple lets the world know it develops its own products in house to the point of etching “Designed by Apple in California” on the back of each iPod. Hewlett-Packard now markets cameras and television sets.
Application of computing and networking to everyday products: Computing and networking are everywhere: in our cars, phones, and our homes. For example, Daimler Chrysler’s Research and Technology Center in Silicon Valley takes full advantage of the region’s innovative scientific, technological, and business environment to research vehicle-to-vehicle communication. Dedicated Short Range Communications, a wireless network in the 5.9-GHz band, can support real-time vehicle-to-road, vehicle-to-vehicle, and vehicle-to-stationary location for current and future transportation systems with WiFi wireless technology. This technology could enable better communication about traffic conditions, improving transportation safety.
Focus on business model innovation: As the industry matures, companies must innovate their business models to capture new market segments. An example is Dell Computer which developed a direct selling business model. Apple’s business model innovation has been to proliferate Apple stores.
Major labor market trends
Employment in computer and communications reached 54,488 and made up about 4.8% of all Silicon Valley employment in the first half of 2004. An outward-oriented industry, computer and communications hardware remain intensely concentrated in Silicon Valley, at about 10 times the national concentration in 2003.
Labor market overview
| Computer and Communications Hardware Cluster |
2004* |
|---|---|
| Employment | 54,488 |
| Pay per employee | $ 125,278 |
| Employment Concentration** | 9.96 |
| Share of Silicon Valley Employment | 4.8% |
| Number of Firms | 385 |
Source: California Employment Development Department
*2004 is the average of quarters 1 & 2 based on data availability,
**Employment concentration is given in 2003
Pay is rising, a signal of rising productivity and demand for talent. Average pay per employee rose from $120,865 in 2001 to about $125,278 in 2004, an increase of 3.7%.
Pay per Employee
| Computer and Communications Hardware Cluster |
2001 | 2002 | 2003 | 2004* |
|---|---|---|---|---|
| Pay per employee | $ 120,865 | $ 110,666 | $ 119,854 | $ 125,278 |
Approximately 57% of those employed in the Computer and Communications Hardware industry are engaged in “design” activities, e.g. managerial, engineering, services, specialized design and management/technical consulting, scientific research and creative occupations. These occupations pay wages that are 10-25% higher than the already high industry average.
Silicon Valley Firms
| Silicon Valley Computer and Communications Hardware Firms | |
|---|---|
| Hewlett Packard | Computers, peripherals |
| Cisco Systems | Networking, equipment |
| Sun Microsystems | Servers, Computer workstations |
| Apple Computer | Computers, Consumer electronics |
| Maxtor | Hard disk drives |
| SanDisk | Flash memory storage |
| Network Appliance | Network data storage devices |
| Juniper Networks | Internet infrastructure systems |
| palmOne | Handheld computing devices |
| Komag | Disk drive components |
| Foundry Networks | Networking components |
| Synaptics | Notebook computer products |
Venture Capital Investment
- Dollars awarded to computer and peripheral firms declined from more than $228 million in 2002 to about $166 million in 2004. Industry investments were a declining share of all Silicon Valley venture capital investment during the 2003 to 2004 period, declining from 5% to 4%.
- Investment in telecommunications also fell from roughly $576 million to $622 million in 2004, a decline of 7% since the peak of venture capital investment in 2002. Telecom accounted for 11% of all venture capital investment in Silicon Valley and retained its share of investment even as overall levels fell.
- Together, computers and telecom accounted for about 15% of all venture capital dollars given to Silicon Valley firms in 2004.
Venture Capital Investment in Silicon Valley Computer and Telecom Equipment Firms
| Computers and Peripherals | Computers share of all VC | Telecommunications | Telecommunications Share of all VC | Computers and Telecom | Computers and Telecom |
Silicon Valley | |
|---|---|---|---|---|---|---|---|
| 2002 | $ 228.57 | 5% | $ 576.53 | 11% | $ 804.95 | 16% | 5,045.26 |
| 2003 | $ 197.15 | 5% | $ 394.00 | 9% | $ 591.15 | 14% | 4,269.55 |
| 2004 | $ 166.86 | 4% | $ 455.46 | 11% | $ 622.32 | 15% | 4,100.51 |
| Grand Total | $ 592 | 4% | $ 1,425.99 | 11% | 2,018.42 | 15% | 13,415 |
Dollars in Millions
Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey
Cluster Infrastructure
American Electronics Association: With its main offices in Silicon Valley,
AeA, founded by David Packard in 1943, is a nationwide non-profit trade association
that represents all segments of the technology industry and is dedicated solely to
helping its members’ top line and bottom line. AeA represents small, medium,
and large member companies, lobbying governments at the state, federal, and international
levels; providing access to capital and business opportunities; and offering select
business services and networking programs.
More information: http://www.aeanet.org/.
Information Technology Association of America: (ITAA) is the leading trade
association serving the information technology industry. It supports the health, prosperity
and competitive nature of the information technology industry, advocating on legislative and
regulatory issues, compiling studies and statistics, and promoting the industry nationally
and internationally.
More information:
http://www.itaa.org/ .
Tech Net: Headquartered in Silicon Valley, TechNet promotes the growth of
technology and the innovation economy. TechNet focuses on politics and policy by uniting
its members and policy makers to sustain and advance America's global leadership in innovation.
TechNet also operates offices in the high-tech centers of Southern California, New England,
Texas and the Pacific Northwest. TechNet’s members represent more than one million employees
in the fields of information technology, biotechnology, ecommerce and finance.
More information: http://www.technet.org/.
Research Universities
Stanford University
UC-San Francisco
UC-Berkeley
UC-Santa Cruz
National Labs
Lawrence Berkeley National Labs
Lawrence Livermore National Labs
Sandia National Lab
Other Research Centers
Cluster Components
| NAICS Code | Description |
|---|---|
| 334111 | Electronic computer manufactoring |
| 334112 | Computer storage device manufacturing |
| 334113 | Computer terminal manufacturing |
| 334119 | Other computer peripheral equipment manufacturing |
| 334210 | Telephone apparatus manufacturing |
| 334220 | Radio and television broadcasting and wireless communications equipment manufacturing |
| 334290 | Other communications equipment manufacturing |
| 334511 | Search, detection, navigation, guidance, aeronautical, and nautical system and instrument manufacturing |
| 334613 | Magnetic and optical media manufacturing |