After high, low, Silicon Valley takes a pragmatic path

WOODSIDE, Calif. -- Silicon Valley is reinventing itself again.

Five years after the dot-com implosion, entrepreneurs and technology companies across this high-tech peninsula are dusting themselves off and moving into new businesses and markets.

New signs of life are everywhere. Apple Computer, a signature technology company, is being reborn as a consumer electronics giant. Yahoo is evolving from Internet directory to entertainment portal.

Search engine Google is fashioning an online advertising model to vie with traditional media businesses. And a new crop of start-ups, many fueled by venture capital, are injecting technology into traditional fields such as health care, finance, and consumer products.

Then there's bootstrap entrepreneur Jessica Hardwick, the Scottish-born founder of Cupertino, Calif., start-up SwapThing. Sitting around a table at Buck's of Woodside, a pancake house at the base of the San Mateo foothills, she and her lieutenants are plotting their conquest of the online barter business at a weekly breakfast meeting.

''People are cautiously starting to believe again," Hardwick said, motioning to the chattering dealmakers packing this western-style diner that's a mecca for innovators and venture investors. ''But they're looking at business models that work, that make sense."

In contrast to the technology boom of the 1990s, when Internet cowboys scribbled business plans on syrup-soaked napkins at Buck's and venture capitalists made funding commitments on the spot, today's environment is more pragmatic and focused on adaptability.

Like many of its defining companies, Silicon Valley itself is groping for a new identity befitting the post-bubble era. Thus far, the Valley's makeover artists have prospered more than the overall economy.

''It's less buoyant than during the boom times," said William F. Miller, former chief executive of the SRI International think tank in Menlo Park, Calif., who, at 79, recently launched his third high-tech start-up, a company that makes materials to reduce auto emissions. ''People are more sober, but they're still seeing opportunities in certain areas."

Increasingly, many of those areas lie outside the information technology sectors -- semiconductors, computer hardware and software, and networking gear -- that were long the staples of Silicon Valley. As those businesses mature, momentum is shifting from companies that make technology to companies that use it to create more elegant and efficient products and services. And emerging fields, from life sciences to multimedia to clean energy, are attracting larger investments.

But the new business mix has yet to revitalize Silicon Valley as a whole, the way previous waves rippled out from integrated circuits, computers, and the Internet into other pockets of the economy.

Google's stock price has more than tripled since its blockbuster IPO last summer, while Apple posted a six-fold earnings increase for the first quarter of this year on the strength of its sales of iPod music players and Macintosh computers. Yet the number of jobs in Santa Clara County -- the heart of Silicon Valley -- remains down 20 percent, or about 200,000 jobs, since the end of 2000, according to figures from the Employment Development Department of California.

Other economic data are a mixed bag. In a sign that personal income is growing, Santa Clara County retail sales climbed to $6.48 billion in 2004, from $6.13 billion the prior year, the California State Board of Equalization reported. And housing prices in Silicon Valley, already among the nation's highest, continue to push upward, even as commercial real estate vacancies remain stubbornly high.

''The economy here is still churning," said Richard Carlson, a Mountain View, Calif., economist, who said companies have boosted productivity and moved jobs to lower-cost regions. ''There is a significant amount of change going on, but it's not creating new jobs. Right now some of the companies are doing better than the local economy."

Robert L. Joss, dean of the Stanford Graduate School of Business in Palo Alto, Calif., feels the impact of that dichotomy in a fund-raising environment that is tougher today than when he arrived in 1999. ''That was the height of 'irrational exuberance,' " Joss said. ''There are a lot of people who still remember how wealthy they were on paper."

While few see the Gold Rush days of the 1990s returning any time soon, Silicon Valley remains better able to incubate and grow significant technology companies than any other region. Google founders Sergey Brin and Larry Page came out of Stanford, as did Yahoo founders David Filo and Jerry Yang, and a long roster of technologists dating back to William Hewlett and David Packard, who founded their eponymous company in a Palo Alto garage in 1939.

''There's a different attitude here," said Miller, who's been a serial entrepreneur, technology consultant, and Stanford professor. ''People want to be involved in something that has the potential to be big. Venture capitalists here, if you tell them you have a $2 billion market, they say, 'Come back when you have a $5 billion market.' That attitude gets diffused into the entrepreneurs. They want to make the big hits."

AnnaLee Saxenian, dean of the School of Information Management & Systems at the University of California at Berkeley, one of the schools that have fed the Silicon Valley technology industry, cites another, often overlooked factor giving the Valley an advantage over other American high-tech hubs: its strong ties to Asia.

''Because of the history of immigrants and people going back and forth, you have these well-established communities that extend from here to Bangalore or Taipei," said Saxenian, a Massachusetts native who has studied the contrasting technology cultures of Silicon Valley and Route 128. Saxenian said growing numbers of Asian-born engineers and computer scientists start companies in Silicon Valley and quickly reach across the Pacific to open satellite operations in their native lands.

Ron Sege, former chief executive of Ellacoya Networks in New Hampshire who now runs Tropos Networks in Sunnyvale, Calif., has deployed some of his workforce in India and Southeast Asia. ''You get a better product, and better connections to the market," Sege said.

While those overseas sites may be draining computer programming jobs from Silicon Valley and elsewhere, Saxenian said there is evidence the valley may be evolving into a new role in the high-tech ecosystem. ''As a place where new technology gets defined, new products get imagined, and new applications get developed, Silicon Valley is going to continue to lead the way," she predicted.

And the high-tech industry here, by some measures three times as large as its Boston area counterpart, retains the critical mass of technology, talent, and capital, to generate momentum in new, and often unexpected, directions. ''Networking is part of the fabric of life in the valley," said Mitchell Kertzman, another Boston transplant who is a partner at Hummer Winblad Venture Partners in San Francisco. ''If you get enough components in physical proximity, it starts a reaction."

Silicon Valley venture capitalists are scrambling to ignite that reaction. Their investments, after soaring to $34.2 billion in 2000 and tumbling to $6.3 billion in 2003, ticked up last year to $7.4 billion -- a level many here see as the new normal. ''We had the boom; we had the bust; and we're now seeking an equilibrium," said Steven N. Baloff, general partner at Advanced Technology Ventures in Palo Alto.

As to what businesses will drive Silicon Valley in coming years, that will be up to the big dreamers who breakfast at Buck's.

Jamis MacNiven, the loquacious Buck's proprietor who serves up eggs, waffles, and tall tales to valley luminaries such as Intel's Gordon Moore and Oracle's Larry Ellison, is accustomed to being asked about the prospects of the start-ups being hatched at his tables. But on that subject, MacNiven is uncharacteristically mum.

''Nobody's saying," he declared, ''because nobody knows."

Robert Weisman can be reached at weisman@globe.com.