Mercury News: Cisco’s outlook goes from bleak to bleaker. Chief Executive John Chambers compared the industry’s decline to a 100-year flood. “Candidly, we never built models to anticipate this magnitude,” he said. “This may be the fastest any industry our size has ever decelerated, which has required us to make difficult business decisions at an unprecedented speed.”
When an economy turns into a fast-expanding bubble, a fast deceleration is not the most stunning development in the world. Cisco rode the bubble as much as any company, even though it is a real business with real revenues and,until now, profits. So Chambers’ shock is a little strange.
I’m beginning to wonder, contrary to my musings yesterday, whether Silicon Valley is facing something considerably worse than expected. Three major factors are at work, and none of them is positive.
First, the national economy seems to be heading for a recession. Maybe we’re already in one. For a while it looked as though we’d get by merely with slower growth. But the Federal Reserve, determined not to panic, isn’t moving interest rates down as quickly as some would like. It’s also dawning on people that the Bush administration cares only about giving more money to rich people in coming years rather than enacting a tax cut that spurs the economy right now. We’ve gone for a decade without a recession, the longest expansion in history. We’re overdue.
Second, the psychology has turned south in a profound way. Silicon Valley has been a holdout in many respects, despite the dot-com debacle, because we all knew that the valley is still rolling in money, talent and good ideas. But Chambers’ statements yesterday are part of an increasingly loud local drumbeat of fear. Eventually, that kind of thing affects everyone.
Third, the energy situation is not getting any better. California is facing the worst of all worlds, expensive and unreliable power. We’ll be paying ten times for energy this summer what we paid two summers ago — $70 billion, or considerably more than we spend annually on education — and we’ll have rolling blackouts to boot. Gas prices will probably hit $3 a gallon in the Bay Area by July 4. I don’t think people appreciate how bad this is going to be.
I haven’t heard sufficient fear and loathing among real-estate people yet, however. They’re still managing to keep prices in the stratosphere, at least for houses under $750,000, which in my neighborhood buys not much more than a two-bedroom dump.
I would not buy a house today, that’s for sure, at least not here.