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Silicon Valley loses out to Scotland as hi-tech firms flee jams and steep prices

Cadence Design Systems is not a household name, but in computing it is known as one of the highest of hi-tech companies. An explosively growing supplier of chip design software to giants such as Motorola, Toshiba and Philips, it has annual revenue of $750m (pounds 460m), writes Tim Cornwell in Los Angeles.

It is a leader in the development of the "frankenchip", Silicon Valley's word for the coming generation of microchips. System chips, as they are more properly known, telescope all the computing functions of the average desktop machine - currently carried by half a dozen chips - intoone fingernail- sized piece of silicon. They promise technology out of Star Trek, such as fax machines on watches.

Cadence has a smart headquarters at Milpitas, on the edge of the Silicon Valley sprawl. It has bought an abandoned farm next door, one of the few remaining in one of the most expensive areas in the US, for further expansion.

Most of the work on "frankenchips", however, will not take place in sunny California but thousands of miles away in Livingston, near Edinburgh. This spring Cadence will inaugurate a new "campus" there, aimed at the system chip market.

"It means all the houses in Scotland will soon go for a million dollars, and the traffic will be horrible," joked Gary Smith, an analyst withmarket- research firm Dataquest. His remark pinpoints the reason for Cadence's surprising move, which is being watched closely in Silicon Valley: the valley may enjoy a unique buzz and great synergy, to quote two of the industry's favourite words, it may be an hour to San Francisco or the beach, and not much farther from the wine country of Napa and Sonoma, as well as skiing at Lake Tahoe, but it is becoming impossible for employers and their staff.

The boom that began in 1996 has given San Jose and surrounding Santa Clara County the highest housing prices and some of the worst traffic in the US. The price of an average home is now $330,000, twice the national figure. The average speed of rush-hour traffic is 21mph.

Traffic congestion is the main concern of people in the San Francisco Bay Area, which covers the cities of Oakland and San Jose as well. Moves to limit San Jose's expansion with a green belt, and make housing in the city more compact, have squeezed residents out of Silicon Valley. Some people have begun commuting to work by train from Stockton, about 120 miles south. Others who travel by road set off as early as 4am.

For companies the biggest headache is finding and keeping staff - the local unemployment figure is officially 3 per cent, but effectively that means nil. More to the point, a desperate shortage of trained manpower is making it hard for firms such as Cadence to find the expertise they need to bring products to the market quickly. Since it is estimated that only 30,000 people around the world have the programming skills required by Cadence, potential employees can afford to pick and choose.

By some counts there are about 200,000 unfilled openings in Silicon Valley, with companies such as Netscape adding 100 jobs a week. The prospect of trained graduates is a major lure in the Scottish deal - that and the absence of the big Silicon Valley law firms which Cadence and others blame for drawn-out disputes over software copyrights.

The Cadence deal, negotiated with the British government and with a special training programme involving leading Scottish universities, promises 1,800 jobs paying an average of perhaps pounds 60,000 a year.

"One of the interesting things about the deal is that the world is looking for new centres, where you get a critical mass together and all sorts of things happen," said Gary Smith. "The valley is out of room. It's been overbooked for quite a time now."