Andrew Maykuth Online
The Philadelphia Inquirer
January 4, 2004

Upstart Google is engine in an industry that could
For Google, possibilities are growing

MOUNTAIN VIEW, Calif.-- Hannah Mestel has ridden some steep waves in California, and we're not talking about surfing here.

In early 2000, she caught the crest of the Silicon Valley job-hiring frenzy as she completed her bachelor's degree in computer studies at Stanford University. "There was crazy recruiting, lots of hiring," she said.

She went to work for a wireless-software company. Then the recession set in, and employers in California's high-tech heartland suffered a wipeout - 190,000 jobs were shed in three years. Mestel received a layoff notice early last year.

Her setback was short-lived. The 25-year-old soon landed a job as a client-services coordinator at Google Inc., the upstart search-engine company that now dominates its field.

Now Mestel could be on the verge of catching a veritable tsunami.

Google, which has grown from a two-man garage operation in 1998 to employ more than 1,000, is fast becoming one of Silicon Valley's most successful start-ups ever. Analysts estimate that the company will generate nearly a billion dollars a year in revenue, primarily from selling ads that target users of the popular search engine.

Now Silicon Valley is abuzz with anticipation that Google will organize an initial public offering next year, the first big high-tech IPO since the go-go days of the late 1990s. The speculation has coincided with a return of optimism to a region that was built on the belief that technology could enrich people's lives, along with their bank accounts.

So it is no wonder that Google's employees are electrified these days. "Everybody here is really excited," said Mestel, referring to the work atmosphere at the office park here known as the Googleplex.

Google, which sorts through billions of Internet pages to find the Web sites most relevant to words entered by a user, became the nation's most popular search engine by winning high marks for being quick and easy to use. Google's computers, which contain mirror images of nearly every public site on the Internet, conduct more than 250 million searches a day.

The mood is upbeat across this region at the southern tip of San Francisco Bay. The Semiconductor Industry Association expects global sales of semiconductors to increase 15.8 percent this year and by 19.4 percent during 2004. Tech-stock indexes are up about 50 percent on the year.

In another upbeat signal, the Semiconductor Equipment and Materials International, a trade group that follows sales of computer chip-making equipment, said the industry's future orders exceed current billings, a closely watched yardstick known as the book-to-bill ratio that indicates a business is expanding.

"It's sort of a psychological breakthrough," said Jonathan Davis, a spokesman for the trade group. The organization anticipates 39 percent growth next year.

Home sales in Silicon Valley, which stagnated for several years, are increasing once again, fueled partly by employees cashing in their recovering tech-company stock options (residential real estate remains hideously overpriced - a two-bedroom fixer-upper can fetch $500,000 in a moderate neighborhood).

Not all signs are bullish. Corporate donations to arts and civic organizations have not recovered to heyday levels. About 23 percent of commercial real estate is vacant - the market has 50 million spare square feet of office space, and lease rates have dropped substantially.

But venture capitalists are looking for opportunities rather than counting losses. San Jose State University's survey of local consumer confidence is up. So is business confidence, as measured by Santa Clara University's Leavey School of Business.

"The Silicon Valley business environment is about to begin a period of rapid improvement, and that's consistent with national consumer sentiment," said Mario L. Belotti, an economics professor who tracks Santa Clara's business index.

Silicon Valley's cyclical economy is sort of a manic-depressive version of the nation's. When it is up, it is hot. And when it goes down, it stinks. "We go through bigger booms and bigger busts here," Belotti said. "It takes a while to catch up with the rest of the nation."

Three years ago, the unemployment rate in Santa Clara County dipped to 1.3 percent, far lower than the rest of the country. Last year, it got as high as 8.9 percent, far worse than the national average. The most recent measure stands at 7.6 percent, two points higher than the rest of America, but the gap is closing.

"People are beginning to hire here and there," Belotti said. "But it's still a soft employment market."

Indeed, though signs point to a recovery, most companies are cautious about adding staff. "Executives who have become very adept at cutting costs are hesitant about adding new costs," said Davis, of the Semiconductor Equipment and Materials International. "We haven't seen a real significant return to hiring yet."

Some analysts say Silicon Valley has changed fundamentally in recent years, becoming less reliant on manufacturing as companies have relocated production facilities to take advantage of lower costs. Even software companies have moved programming jobs to low-cost centers, such as India.

Silicon Valley leaders say the region must grow as a research and development mecca, capitalizing on the existing talent pool and infrastructure, centered on universities, think tanks and corporate research centers.

"The valley's driving industries must keep renewing themselves through innovation and entrepreneurship, finding new ways to add value if we expect to preserve and improve our standard of living," said one organization, Joint Venture: Silicon Valley Network, in a recent report called "Building the Next Silicon Valley."

"The alternative is to resist change, and slip into a prolonged economic decline like other regions that once dominated driving industries - such as Detroit with automobiles or Pittsburgh with steel."

There are few dark clouds on the horizon of companies such as Google and eBay Inc., the Internet auction giant based in San Jose. Both companies are expanding into corporate headquarters vacated by tech companies that were forced to downsize during the recession.

Google's IPO could generate as much as $2 billion in cash for the company and value the start-up at more than $20 billion. Company officials do not comment publicly about reports that they hired an investment bank to explore opportunities.

But Google makes no secret about its expansion blitz. Stacy Sullivan, Google's human resources director, said the company hired upward of 800 employees last year, primarily software engineers and sales and marketing people such as Mestel. The company receives about 1,500 resumes a day submitted through its Web site.

"It is an awful lot to go through," Sullivan said. "We're still growing and developing."

Even in a buyer's market, Google appears to offer attractive benefits that are legendary in the business - three weeks' vacation, free gourmet lunches, a choice of health-care programs, matching 401(k) benefits, and on-site doctors, dentists, masseuses and gymnasium.

The generous benefit packages were inspired by the company's founders, Larry Page and Sergey Brin, former Stanford graduate students now in their early 30s and likely to become multibillionaires in the event of an IPO. Page and Brin devised Google's proprietary algorithm, which ranks the relevancy of Web pages by how often they are linked to other pages.

They created a free-wheeling work environment, where fancy titles are shunned; a grand piano was installed in the lobby; and employees are encouraged to devote 20 percent of their time to self-directed projects (though employees also put in famously long workdays).

There is another reason for offering such attractive perks: As hard as it is to imagine, today's Google might be tomorrow's mature, slower-growing Silicon Valley enterprise. It has happened many times before.

"The underlying reason for offering the benefits is the recruitment and retention of our employees," Sullivan said, "because Google might not always be a fast-growing, popular company." home page   
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