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Silicon Valley faces rough road to recovery

Recession and foreign competition have walloped Silicon Valley, with recovery uncertain at this point, according to a key annual report.

Silicon Valley has faced tough times before. But climbing out of its current downturn may prove more challenging than ever, says a new report.

Hit by the recession, overseas competition, and political gridlock in California, Silicon Valley--a region virtually synonymous with the high-tech industry--has lost its competitive edge and appeal, according to the "2010 Silicon Valley Index" (PDF) released Thursday by Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation. As a result, the region has been less able to attract and retain talented workers, leaving it at a standstill with recovery uncertain.

The Silicon Valley Index is written to supplement the annual "State of the Valley" conference, a town-hall style meeting set for Feb. 12 to discuss the opportunities and challenges for Silicon Valley. Joint Venture: Silicon Valley Network

"Silicon Valley's innovation engine has driven the region's prosperity for 60 years, but at the moment we're stalled," said Joint Venture's chief operating officer, Russell Hancock, in a statement. "What's hard to say is whether we're stuck in neutral, which has happened before, or whether it's time now for a complete overhaul."

The report highlights several key challenges for the valley.

Like other areas, Silicon Valley has filled many of its jobs with skilled professionals from abroad. But "the actions of our nation in the wake of 9/11" and the growth of other global regions have made the valley less appealing and accessible than it used to be, says the report. Though workers still pour in from China and India, those countries are growing on their own and now more likely to keep their talent local.

Between November 2008 and November 2009, employment in California's Santa Clara and San Mateo counties fell 6.1 percent versus a national average of 3.8 percent, says the report. Silicon Valley overall shed 90,000 jobs between the second quarter of 2008 and 2009. Total employment is now the same as it was in 2005. At the same time, funding for higher education is dropping, not just in California but across the country.

As the economy has fallen, so have venture capital investments, a primary source of funding for Silicon Valley start-ups. The reduced VC dollars available have shifted from traditional Silicon Valley business sectors like software and semiconductors to biotechnology and energy. And though Washington is now trying to invest in research to pick up the slack, the Valley so far has not been able to score a substantial share of the federal funds.

California state budget woes and political gridlock are also having a deleterious effect, not just on business but on the quality of life in the region, yet another factor making it difficult for Silicon Valley to keep and attract skilled professionals.

"While our region has enjoyed many advantages in the past, success in the future demands that we think beyond our prevailing assumptions, organize differently, draw upon still more ingenuity from our people, and forge new collaborations in order to compete globally," quotes the study. "Our vulnerabilities don't mean Silicon Valley's best days are behind it. But they do suggest we're a region at risk."

Published each year since 1995, the Silicon Valley Index is written to supplement the annual "State of the Valley" conference, a town-hall style meeting where politicians, citizens, and other concerned individuals gather to discuss the opportunities and challenges for Silicon Valley. This year's meeting takes place Friday at the McEnery San Jose Convention Center.

As co-creator of the index, Joint Venture is an organization that tries to bring together professionals from business, government, and education to discuss issues that affect the Silicon Valley region. Silicon Valley Community Foundation is a community group that provides philanthropic grants through different funds and helps people determine where and how to donate to both local and global causes.