Buy, Sell or Hold? Praveen Asthana, Anderson Mannheim Somewhere in the uncertain and tortured space between irrational exuberance and illogical gloom lies the real state of Silicon Valley. To try to find out exactly where, you had to have been at the Churchill Club meeting of October 8 to listen to Tim Draper of Draper Fisher Jurvetson, Jeanette Garretty of Bank of America, Becky Morgan of Joint Venture Silicon Valley in a panel discussion moderated by Harry Saal of the Community Foundation of Silicon Valley. We’ve experienced five incredible years in the valley with rising prosperity, stock prices and home values. The economy has grown at six percent a year and the valley has added 50,000 jobs every year. We’ve seen completely new industries spring up based on the world wide web. Fortunes have been made and superstars created. But while we were busy counting our wealth, the stock market took a dive, earnings were down, and companies started to lay people off, some in large numbers. Job growth in 1998 was half the rate of 1997. It seems the business cycle has not been repealed after all. The party may indeed be coming to an end. But only temporarily so, Jeanette Garretty argued. All fast growing companies have their lulls as their infrastructure struggles to catch up with the growth, struggle to catch their breath. Jeanette felt that the valley would still grow, but the game has gotten much tougher. In the best case, Jeanette thought the valley would grow one percent in 1999; but if consumers stop their spending spree, then we’ll slip into a recession and growth will go negative. It’s hardly surprising that the Valley’s economic boom is slowing given that 24 percent of the valley’s output is exported to Asia which is undergoing considerable difficulties. But, Jeanette argued, there is no reason to believe that high technology will not continue to be a building block for the future. There is no reason to believe that the world will not grow again. The implication is that in the long term, the stock market will do just fine. The valley may have taken a hit because of the downturn in exports to Asia, but it now has new industries such as the internet. This means less dependence on Asia and a new set of revenue and profit with which to drive the train of the economy. Of course the skeptical reader will point out that few people have actually made much real money on the internet. Perhaps this is a good time to stop and catch our breath. Silicon Valley was growing so fast that its quality of life was decreasing congestion, traffic, crime etc. Joint Venture Silicon Valley has been doing considerable strategic thinking to ensure that we grow with sustainable quality of life. Tim Draper’s attitiude was “what, me worry”? This is an attitude true of most VC firms, which are flush (and I mean really flush) with cash and have the darnedest time trying to figure out where to put this cash. Draper mainly worried about the long term, and emphasized the education issues facing the valley, which could hamper long term growth. At the end of the panel discussion, most clear was the fact that optimism is still alive and well in Silicon Valley. Indeed optimism is the currency of the valley, the bedrock of its economy. From this you would have to conclude that you should not sell, and you should not hold, you should Buy. Indeed buy when there is blood on the Street.
Tim Draper, Founder, Draper Fisher Jurvetson Jeanette Garretty, Chief Domectic Economist & Head of Industry Analysis, Bank of America Becky Morgan, President & CEO, Joint Venture Silicon Valley Harry Saal, Community Foundation of Silicon Valley