Oregon tech may be suffering an innovation deficit, contributing to a broader malaise.
PORTLAND — The Silicon Forest is in a slump.
Tech was Oregon’s hottest sector coming out of the Great Recession, handily outpacing other industries in job and wage growth. By 2013 tech accounted for nearly 12 percent of all Oregon wages, as big a share as wood products in its heyday.
Something’s changed. The industry didn’t add any jobs the last 10 months of 2016 amid a sell-off of the state’s biggest technology companies and a sharp decline in startup funding.
In recent years, tech wage growth has fallen behind the Oregon average.
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It’s a puzzling development, given that tech remains a robust field nationally and the rest of Oregon’s economy is sizzling. Statewide unemployment is at its lowest point on record, at 3.8 percent.
So what’s going on?
There’s no clear answer, but Oregon tech may be suffering an innovation deficit, contributing to a broader malaise.
“People move to Oregon to settle down and get out of it,” lamented Josh Hartung, chief executive of Portland autonomous driving startup PolySync. “The net effect is we don’t shoot as high as some of the other cities on the West Coast, and also frown on those that do.”
That’s not a new complaint — Portland has been fighting its tag as a “lifestyle” city, devoid of ambition, for decades. A half-dozen tech startups that emerged from the 2007-09 recession — among them data-center manager Puppet and online banker Simple — appeared to have the city on its way to changing its image.
With job growth slowing, though, and a dearth of bright prospects, that old narrative seems to be back. Stagnation has hit both Oregon’s aging hardware ecosystem and its emerging software sector, according to Josh Lehner, with the Oregon Office of Economic Analysis.
“Within the broader tech sector it seems to have slowed down in the last six to nine to 12 months,” Lehner said. His calculations show that Oregon tech employment leveled off even as the sector continued its rapid ascent nationally: at the end of March, the four most valuable companies in the world (Apple, Google, Microsoft and Amazon) were all U.S. technology businesses.
Tech jobs pay an average $106,000 annually, according to government data, more than double the state’s median wage. That underscores just how vital the industry is to Oregon.
Yet the falloff in job growth is being reflected in the sector’s wages: Over the past two years, pay across Oregon industries has outpaced gains in tech.
Oregon’s slowdown coincided with massive job cuts at Intel that began last spring. The company is the state’s largest private employer, and last year’s restructuring was the biggest in its history.
Though those cuts took a wrenching personal toll on 15,000 individual employees across the company — Intel hasn’t said how many of those were in Oregon — the net effect was relatively muted at its Washington County campuses. Intel said recently it employs 19,300 in Oregon, just 200 below its all-time high in 2015. That indicates Intel hired almost as many new workers as it shed with the cutbacks.
More than Intel, then, Oregon’s high-tech slowdown may reflect some longstanding issues:
• Oregon’s Silicon Forest sprouted around a single hardware company, Tektronix, which became a freewheeling idea factory that attracted engineers from around the country. Tek helped lure Intel to Oregon, and spun off dozens of companies that seeded an entire ecosystem. After Tektronix began a long-term decline in the 1980s, though, no other company emerged to fill the same role, not even Intel.
• The state’s largest technology companies were growing slowly, if at all, even before a multibillion-dollar sell-off that began in 2014. They hadn’t expanded beyond their niches in years, so when the tech industry began consolidating they were prey for larger businesses. Mentor Graphics, for example, was the only billion-dollar company to emerge from Tektronix — but under investor pressure last year, it agreed to become a small part of the portfolio of German engineering giant Siemens.
• The spate of takeovers only exacerbated Oregon’s dubious status as a tech outpost, far from the corporate innovation hubs in Silicon Valley and elsewhere. Microsoft, Google and Salesforce, for example, have had outposts in the Portland area for years, but none has grown into a major research site for those companies.
• Intel continues doing cutting-edge work in Hillsboro, but few other Oregon outposts are leading their companies’ research or adding jobs. Take the data centers popping up across central and eastern Oregon. They carry such brand names as Facebook, Google, Apple and Amazon, but nearly all the work is done by faceless computers, not by inventive engineers.
• Those outposts do pay well, and are major contributors to Oregon’s economy. But comfortable, six-figure salaries reduce the incentive for entrepreneurs to set out on their own — the way they did a decade ago, when the tech economy was in the tank.
• And while some members of the latest class of Oregon startups have developed promising businesses, they’re in narrow sectors such as social-media marketing. Portland is still a bargain compared to Seattle or Silicon Valley, but it’s still not a compelling draw for ambitious young companies that want to do more than save money.
In the past two years, nearly all of the state’s large tech companies -— including TriQuint Semiconductor, FEI, Cascade Microtech, Planar Systems and Mentor — found out-of-state buyers.
Those companies date to another era, aging businesses that hadn’t expanded beyond their core markets. And though the change in ownership hasn’t produced large-scale job cuts, the new owners have given no indication they intend to expand their Oregon outposts.
And as the old guard leaves the scene, Oregon has yet to produce a new generation of high-tech stalwarts to take their place.
Oregon upstarts have delivered uneven returns for investors. There have been a handful of prominent deals — such as Elemental Technologies’ $296 million sale to Amazon in 2015 — but also plenty of disappointments. It took Webtrends’ owners 12 years to find a way out of that company, and Jive Software sold recently for less than half its 2011 IPO price.
“What I would like to see more from Oregon entrepreneurs generally is shooting higher and talking louder,” said PolySync’s Hartung.
PolySync moved to Southeast Portland last year from northern Idaho, in search of a broader talent pool to help the company grow. It now employs 30, and Hartung said he’s been very satisfied with the skills he’s found in the city.
Yet he also said the city’s culture favors those who choose to be practical and sensible over those who would risk falling on their face for the chance of accomplishing something profound.
“That’s reflected in our tech sector, as well, which tends to be enablement technology. We build the solid back-end which enables other people’s hype,” Hartung said. “The question we have to ask is, ‘How do we get a little bit of that hype?’ ”
Rick Turoczy, an evangelist for Portland startups and general manager of the Portland Incubator Experiment, agrees that Oregon has traditionally played a supporting role in building up new technologies. And that may be part of why the local tech scene is in a lull.
“Oregon does a really good job once the market has been established,” Turoczy said. “We don’t ever seem to be the ones establishing the market.”
Ebb and flow
At the moment, technologies such as autonomous vehicles, virtual reality, artificial intelligence and a class of connected devices called the Internet of Things all seem to have the potential to dramatically remake our relationship with the world. But none of those technologies has found mainstream acceptance, and so aren’t yet ready for the kind of complementary role Oregon tech has historically played.
As those new technologies ripen, though, Turoczy said he expects to see a rebound among Portland startups. He said technologists working at larger businesses have been nurturing new ideas on the side, quietly harboring some entrepreneurial instincts as well.
“There is an ebb and flow to it,” Turoczy said. “People who have been at those companies four to five years are starting to get the itch to want to do something new.”
Though Oregon tech hasn’t been growing lately, it hasn’t contracted, either. That’s something of an accomplishment, given the scale of disruption at Intel and all the big companies that have been sold.
And while Portland lacks some assets other tech hubs enjoy, namely a major research university and an established investment community to help new companies grow, the city remains an attractive destination for educated professionals and continues to draw from other parts of the country.
So maybe a pause isn’t such a bad thing, especially considering the economic burdens that rapid tech growth has created in Seattle and San Francisco. Turoczy said Portland’s tech culture has always been different, and if it isn’t producing headline-grabbing startups, the city may be achieving something meaningful in its own way.
“People here, they’ve always been more motivated by curiosity and craft than financial reward,” he said. “We’re not so focused on the business being the be-all and end-all of our existence. I don’t think that’s necessarily a bad thing.”