Santa Clara Valley Historical Association

Cycles, indeed, are a way of life in Silicon Valley, but the dot-com bubble had been a record-setting high and the burst of the bubble a record low. It would take time to recover.

Throughout 2000, companies retrenched, big companies swallowed smaller ones, and stocks, profits and losses were on a roller coaster ride.

As nervous businesses took an extended breather on information technology spending, times were tough for such corporate software companies as Oracle and Siebel Systems. Companies fought bitterly for what business they could get.

Hopes for an early recovery in personal computers also went unrealized. Processor speeds continued to climb, moving from a top desktop chip speed of 2GHz to 3.06GHz, but such improvements didn't improve sales. Only Apple, which introduced the stylish, flat-panel iMac, created much of a desktop splash. Sales of notebook PCs also showed promise.

Hewlett Packard overcame in-house opposition and won shareholder approval of its absorption of Compaq in May 2001.

Job losses continued as Microsoft trimmed 15,000 workers, Intel 4,000 and AMD 2,000.

And misuse of adware, spyware and PC invasions did little to improve the climate. Spyware began as a seemingly benign marketing tool, but soon became ubiquitous. Pop-ups annoyed Web surfers, spyware invaded their privacy and hackers drained individuals' computer power. Courts and legislators were urged to increase their scrutiny.

By 2003, the technology world was beginning to settle down a bit, though nervousness still abounded. There were some war jitters as the U.S. and coalition forces invaded Iraq to oust the regime of Saddam Hussein.

Western companies began increasing the practice of offshoring, using the less expensive labor in such countries as India, Romania, Bulgaria, Russia, China, Ghana and the Philippines to perform tasks previously handled by American workers. There were predictions that the value of information technology services provided to U.S. businesses from offshore labor would double to $16 billion within one year and triple to $46 billion in three years. A definite trend was under way.

But there were a number of bright spots. Spam, the unsolicited email messages that had been flooding computer users' inboxes, was regulated, first by the European Union, which adopted an "opt-in" directive and then by the U.S. Congress, which passed an "opt-out" bill.

Wireless technology also made huge gains, as Wi-Fi hot spots started to spring up in more and more public places. By the end of 2003, people could feel confident about finding such hot spots in multiple coffee shops throughout most of the world's major cities, allowing them to log on wirelessly to the Internet. Another consumer trend had arrived, fueled in large part by Intel's Centrino chip package, which was tailored for such mobile computing operations.

AMD, meanwhile, introduced its Opteron chip and Athlon 64 processor, helping launch low-cost, 64-bit computing toward prime time by providing faster video encoding, better performance on complex applications like computer-assisted design, and a richer game environment.

By the end of 2003, the Dow Jones Industrial Average had closed above 10,000 for the first time in 18 months and the NASDAQ rose by more than 40 percent from its 2002 levels. Silicon Valley's market for initial public offerings, though improving, still looked anemic with only eight area companies selling shares to the public. Only five companies had gone public here in 2002.

One huge IPO overshadowed all others in 2004. Google, the Mountain View-based search engine, had continued to increase users and add content since its founding six years previous. The company said it had had revenues of $961.9 million in 2003, compared with $238 million for rival Yahoo!, with sales rising 177 percent from a year ago. Google by now had become so popular that its name commonly was used as both noun and a verb. "To Google" something meant to find information about that something quickly. When the company made its initial public offering in August, it was by "Dutch auction" that offered 19,605,052 shares at $85 per share -- 14,142,135 of them floated by Google itself and 5,462,917 sold to the public. The sale raised $67 billion and gave Google a market capitalization of more than $23 billion. The vast majority of Google's shares remained under Google's control, and many of its employees became instant paper millionaires.

Digital music also became big business, changing the way consumers purchased their favorite tunes. The runaway success of Apple's iPod music player spawned a growing lineup of digital competitors. Apple's iTunes online music store was said to have sold more than 100 million songs, allowing buyers to burn their own CDs and signaling the end of many big bricks-and-mortar record stores.

Internet diarists began attracting increasing attention as the Web gave anyone with a computer a chance to have his or her opinions read. Blogs played a distinctive role in election politics. Dictionary publisher Merriam-Webster named "blog" the most looked-up word on its Web site.

The number of Web users overall continued to increase in 2005, growing by more than 17 million sites and topping the previous record of 16 million net sites set at the height of the dot-com boom in 2000. More small businesses were going online and firms were making the most of online advertising.

More people also were using new technology to place telephone calls over the Internet using VoIP (Voice over Internet protocol). Skype, a leading company providing such services, was snapped up by eBay in September, 2005, for $2.6 billion. And continuing advances in technology allowed cellular telephones to go beyond simply placing and receiving calls, expanding their uses to include photographs, video clips, games and mapping. Individuals also increased their personal participation in this wired world by posting audio and, later, video messages on Apple's iPod players and other personal devices, launching a trend known as "podcasting."

Technology was paying big. Executives at Silicon Valley's top 150
companies raked in $2.6 billion in wages and other compensation, reported the San Jose Mercury News, which trumpeted the fade of memories of the tech bust. Topping the list was Omid Kordestani, senior vice president of worldwide sales for Google, with $289 million in salary, stock options and bonuses. Second was Terry Semel, chairman and CEO at Yahoo!, with $183 million and Larry Ellison, Oracle's CEO, with $75 million. The Securities and Exchange Commission began looking into companies' use of stock options, proposing increased disclosure and worrying about the practice of back-dating.

Internet entrepreneurship continued to bloom in 2006 with newer sites such as MySpace, Facebook and YouTube displaying huge popularity, especially among younger Web surfers. Facebook, headed by Mark Zuckerberg of Palo Alto, originally was developed as a social networking site for college and university sites, but had grown rapidly after opening itself up to anyone with an email address. Another social networking site, MySpace, allowed users to post blurbs about themselves and say who they'd like to meet, as well as offering links to the users' friends. By August 2006 it was doing such big business that Google signed a $900 million deal to provide a Google search facility and advertising on the site. San Bruno-based YouTube, founded in 2005 by early PayPal employees Steve Chen, Chad Hurley and Jawed Karim, became the biggest deal. The site, where users post and share their own videos, saw such rapid growth in popularity that in October 2006 it was purchased by Google for $1.65 billion in Google stock.

There was a touch of intrigue as Hewlett-Packard found itself in a high-tech whodunit. An internal investigation to find the source of a boardroom leak to media was found to have used an illegal technique known as "pre-texting," which forced the resignation of several top executives. Overall, though, HP continued to muscle up in the personal computer market under the leadership of Mark Hurd, who had replaced former CEO Carly Fiorina. It was topping rival Dell for market share, an unheard of possibility only a few years earlier.

In the early months of 2007, the San Jose Mercury News was proclaiming a wide-scale Silicon Valley rebound. Although 200,000 jobs had been lost here in the tech downturn, 50,000 jobs had been added since 2005 and total employment in the region was more than 1.2 million, nearing the approximately 1.4 million at the height of the boom. Home values continued to climb. Silicon Valley household income topped an estimated $81,000.

The Silicon Valley index, compiled by Joint Venture: Silicon Network, said that the technology hub had rebooted, shaking off post-crash doldrums.

The number of publicly traded companies in the valley continued to shrink, with the majority of those disappearing by being acquired by others. Maxtor was bought by Seagate. Siebel Systems was bought by Oracle, which announced it also would swallow up Hyperion Systems.

But the valley's power to generate new startup companies and new technologies remained unabated. A study conducted by Robert Fairlie of the University of California-Santa Cruz found the creation of startups was accelerating. And a study for the U.S. Small Business Administration pointed out that entrepreneurship was higher after the dot-com bust in Silicon Valley than during the boom period.

"The idea that we are an entrepreneurial hot spot is true," said Doug Henton of Collaborative Economics, a Mountain View economic research firm that had conducted the SBA study. "I don't think we've been a large-companies place."

Big or small, Silicon Valley was back.

Read: How Far into the Future Can the Silicon Valley Renaissance Carry

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