Reuters is reporting that today’s market fluctuations might have a significant long-term impact on the resurgent Silicon Valley economy. In an article focusing on San Jose networking giant Cisco, reporter Noel Randewich spells out how the spending cuts sparked by the so-called “debt crisis” might affect Silicon Valley and the world economy.
“Wall Street underestimated the effect of cuts in government spending on the networking industry,” Randewich writes, “and may have to curtail its expectations again with growing fears of a global economic slowdown.”
Almost 20 percent of Cisco’s sales come directly from government purchases of its networking equipment. Cisco founder and CEO John Chambers has been warning investors for some time that a decrease in government spending might put the brakes on an economic recovery, speaking last August about “unusual uncertainty” in the economy.
Meanwhile, venture capitalist Tim Draper also sent up an alarm: “Countries with the best rule of law, the best bankruptcy protection, the freest trade, the freest markets, and the best credit ratings are the countries that rule the day. The U.S. just dropped a notch.”
But Draper, who was George W. Bush’s staunchest ally in Silicon Valley, clearly blamed government spending for the economy’s difficulties. “I hope the U.S. changes structurally so that spending is limited to the amount raised in taxes the year before,” Draper told VentureBeat. “With this simple change, the U.S. will again be the number-one preferred country to invest in.”
In the same post on VentureBeat, other Silicon Valley VC’s remained upbeat about the big picture. Saad Khan, a partner at CMEA Capital, told VentureBeat: “I don’t think one day or one week’s stock market fluctuations are going to impact that. In Silicon Valley, things are pretty insulated from the rest of the U.S. in general. The ecosystem is alive and thriving. Leases have doubled for commercial real estate for places like downtown Palo Alto or Mountain View.
“It’s still very much boom time here.”
