Status of Silicon Valley

Last week, there were upbeat reports on the status of the valley, with various statistics:

• The number of CEOs who said their companies added jobs in 2005 in Silicon Valley rose to 55 percent from 41 percent in 2004.

• About 74 percent of those hiring in 2005 added between 1 and 100 employees.

• The number of companies cutting jobs fell from 24 percent in 2004 to 13 percent last year.

• Looking ahead, the number of CEOs who expect hiring to be better in 2006 climbed to 56 percent from 37 percent in 2005.

Two companies who have accounted for the bulk of the valley’s hiring in the last two years are Google and Yahoo. Both have chosen to keep huge percentages of their engineering in Silicon Valley instead of going the popular India route. As a result, the operating margins on their P&L’s remain in the “normal” levels of 18-25%. Given the profitability of their core businesses, which at this point does not require huge R&D support, however, these companies could be showing profitability unforeseen in history.

Instead, they have chosen to hire and keep thousands of people in Silicon Valley.

Whether hiring will pick-up significantly in the valley in the next few years, will depend largely on the engineering / development operation decisions that CEOs make. If 10% of the company is based in the valley with 90% in India, then hiring is not really going to benefit. After all, there is a BIG difference between About 74 percent of those hiring adding 2 employees versus About 74 percent of those hiring adding 29 employees.

Venture Capitalists, these days, like to optimize the use of precious capital, and insist that what CAN be off-shored, IS.

Deals are happening. CEOs are adding jobs.

The question is: 2 jobs or 29 jobs?