2014 BAY AREA ECONOMIC ENGINE Many diverse economic drivers, most on independent trajectories. November 2014 The 7.5 million people in the Greater Bay Area represent 19.6% of the State’s population and 2.4% of the Nation’s. The Bay Area is California’s fastest growing region and Santa Clara and Alameda (at 1.5% growth) the fastest growing counties. San Francisco’s population also grew a robust 1.3% in 2013 in spite of its housing shortage. Based on 2013 figures the Bay Area is the only region in California where the rate of people migrating in from other areas in the United States is greater than the rate of those leaving. The Bay Area’s GDP of $616 billion, up 3.6% in 2013, ranks 21st in the world when compared to national economies, between Switzerland and Sweden. If it were a state, the Bay Area would be ranked between Illinois and Pennsylvania. At $90,528, San Jose has the second highest GDP per capita in the US (after energy belt Midland, TX at $100,178) in 2012. Wages are high but so is productivity: The Bay Area per capita productivity is 2.5 times the U.S. average. Average wages are approaching twice the national average: In Q1 2014 the national average weekly wage was $1,027, which compares to $1,944 in San Francisco and $2,074 in San Jose. The Bay Area has more Fortune 500 companies (30 with combined sales of $1.14 trillion) than any U.S. region except New York. The Bay Area’s infrastructure for innovation is second to none. Of the 134 high-tech start-ups worldwide that gained a $1bn valuation in the last 10 years, 52 were from the Bay Area, 27 from the balance of the USA, 26 from China and 21 from Europe. The tech sector drives the Bay Area job recovery but the benefits are showing up in hospitality, construction, trade and business services. The San Francisco SMSA had one of the highest job growth rates in the Nation from 8/2013 to 8/2014 up 3.3%. This compares to the San Jose SMSA at 3.2% and the East Bay at 2.1%.

Traffic light colors to give current status.  Arrows give likely direction for next 12 months. Economic Sector





 

Status

Indicators & Developments

Higher Education & Research Labs

Major Bay Area employment sector. Magnets for worldwide talent. Cuts in public funding fade with State tax surplus.

The Bay Area has more graduate programs ranked in the top 10 nationwide than the consistently 2nd ranked metro area - Boston. National Labs were a foundation for the Bay Area’s tech bent: The Stanford Linear Accelerator Center (Menlo Park), Lawrence Livermore National Laboratory (Livermore) and Sandia National Laboratories-California (Livermore), as well as the Lawrence Berkeley National Laboratory (Berkeley), the NASA Ames Research Center (Mountain View), and SRI (Menlo Park) which is now private. Not just Quality also Quantity: 97 colleges, universities and academies in the Bay Area. Roughly 100,000 foreign students are in the Bay Area, largest; China 20.8%, S Korea, 12.9%, India 11.8%, Taiwan, 6.0%, Japan 5.8%. Much of this talent stays: Foreign born talent now makes up 46% of employees in Bay Area STEM jobs (Science, Technology, Engineering and Math) 52% in Silicon Valley, vs 25% for the USA. The Bay Area embraces diversity.

Banking and Finance

Banking sector smaller but healthier. 6 straight quarters of 20+ VC-backed IPOs: Good exits brings in more VC funds.

Bay Area is the West Coast’s banking capital. Silicon Valley grows as the world’s venture capital hub and gets most of the VC money: In 2013 $29.7 billion invested of which Silicon Valley got 41.5%. In the first half of 2014 already $22.7 billion invested and Silicon Valley got 52.9%, outperforming the rest of the nation combined. 2014 IPO market has 200+ deals, most since 2000, raising $67 billion, up 23% from 2013. Alibaba IPO created many local winners. Charles Schwab is Bay Area’s 47th largest employer, but plans to focus most of its growth in cheaper employment markets. Franklin/Templeton is #5 in funds. Visa #1 in credit brands. PayPal #1 in e-payments, plans rollout as separate company. Bay Area center of epayments with Apple Pay, Dwolla, Intuit GoPayment, We Pay and Google Wallet.

 









International Trade

Bay Area is a major transit hub to Asia. Volumes are stable, but less is manufactured locally. Competition looms.

2013 shipping and air freight volumes were flat. Oakland is the 6th largest container export location in the US and second on the West Coast after LA/Long Beach. Oakland’s port can dock post-Panamax container ships with a 50 foot draft and is spending $1.2 billion to expand into 100 acres of the former Oakland Army Base and double railcar storage. Port of Oakland traffic of 2,346,528 TSU’s in 2013 is up just 0.1% from 2012 levels. West Coast ports face competition with the completion of the expansion of the Panama Canal, in late 2015 and new deep-water ports being expanded at Prince Rupert (Canada) and Lazaro Cardenas (Mexico). Oakland’s Airport is second only to LAX on the West Coast in air freight with 504,019 metric tons in 2013, up 6.2% in the first 9 months of 2014. SFO has impressive freight volumes by value, with $39.8 billion, fifth in the US in 2013.

Tourism & Conventions

Occupancies rising: SF’s RevPAR up 13% in 2013 but only 232 rooms under construction. Airbnb @ 5,000+ listings in SF, agrees to collect 14% room tax.

Tourism is San Francisco’s biggest industry. 16.9 million visitors in 2013 (up 2.3% from 2012) spending $9.4 billion (up 5.1%). San Francisco’s 33,643 hotel rooms near full capacity in peak months, averaged 83.9% occupancy in 2013. Pier 27 Cruise Ship Terminal opened in 2014. Conventions at Moscone Center generated a record 92,000 room nights in 2013, plans $500 million expansion for 2018 completion: Oracle OpenWorld and Salesforce’s Dreamforce conventions see 60,000+ & 140,000 registered attendees respectively in 2014. SFO’s 45 million passengers in 2013, up 1.1%, San Jose passengers up 6.8%, Oakland down 3.0%. Silicon Valley with 28,000 rooms and 1,134 rooms under construction, achieved, 77% occupancy in 2013 with RevPAR of $122, up 16%.

Biotech & Medical Equipment

Holding steady. Bio’s VC share falls despite recent IPO successes. NIH research threatened.

Northern California is the birthplace of gene research. Bay Area is the largest biomedical node in the State, followed by San Diego, LA, Orange County. The Bay Area has over 2,027 biotech companies employing 99,904 in 2013. 22% of VC funding, $6.4 billion, flowed to Biotech & Medical Devices for 2013 down 2% from 2012. NIH funded $3.2 billion to CA biotech in 2013 of which Bay Area companies and institutions received $1.3 billion. NIH funding gets consistently cut in Republican budgets: They now control Congress.

Robust unit sales with falling prices means USA CE sales grow only 2% in 2014. Smartphones and tablets grow to 35% of CE sales

Consumer electronics sales in the USA are improving slightly; expected up 2.0% to $211.3 billion in 2014, with 1.2% growth projected for 2015. Smartphones and tablets reach 35% of consumer electronics sales. Tablets are flat, up 4% in units but down 3% in revenue. Smartphones in 2014 will be up 7% in revenue. Both Android & iOS are local. Apple releases iPhone6 and 6+, sells 10 million in first three days. Apple makes Cupertino and Sunnyvale the location for consumer electronics designers. Nearby: Panasonic, Sony, Amazon’s Kindle designers, Barnes & Noble’s Nook group, Samsung’s phone & TV designers. Automotive electronics are also Bay Area based, sales up 20% in 2014. Electronics and software now account for more of a car’s cost than steel.

Businesses start to spend again. Enterprise software up 5.5% in 2013. SaaS to have 17%-18%% CAGR in 2014 & 2015.

Selling IT as a capital item, with software installed on customers’ boxes, is being replaced by IT as an operating expense hosted by vendors in the cloud. The traditional licensing model grows only 5.5% vs SaaS growth in the high teens. Oracle’s is 2nd largest software company, with software sales up 4% (0% growth in licenses and 7% growth in cloud services). Most recent quarter vs year earlier: Symantec-Norton down 1%, Adobe up 1%, Autodesk up 27%, Intuit up 12%. Synopsys up 8%, Cadence up 9%. All Cloud: SalesForce up 38%, Workday up 74%, NetSuite up 34%, Marketo up 62%.

Bay Area owns Social Media. Avg. American user spends 3+ hours a day = Eyeballs for sale.

Social media no longer for the young and eats up 3+ hours per day for the average US user. 82% of business owners say social media is important for their business. Ad revenue up 39% in 2014 reaching $8.5 billion, with mobile topping non-mobile for the first time. Expected compound annual growth rate (CAGR) of 18% to 2018. The Bay Area dominates with 8 of the top 8 sites by market share Feb 14: Facebook 59.1%, YouTube 23.8%, Twitter 2.2%, Google+ 1.54%, Yahoo Answers 1.11%, Pinterest 0.96%, LinkedIn 0.87%, and Instagram 0.54%.

Consumer Electronics Including Mobile Devices

Enterprise (Business) 

Software including Software as a Service, SaaS



Social Networking & Collaboration

Page | 2 

  Video pumps web traffic. On-line sales up 13% in 2013, expected to increase 57% by 2018.

Cisco estimates worldwide data traffic to increase 3 fold and mobile data 17 fold over the next 5 years. E-commerce in line to be up 16.4% in 2014. Of the 10 most visited sites on all platforms in September 2014 – 8 are in the Bay Area, almost all have engineers here: #1 Google, #2 Yahoo, #3 Facebook, #4 AOL, #5 Microsoft (Seattle but large campus in Sunnyvale), #6 Amazon (Seattle), #7 CBS Interactive/Cnet , #8 Apple, #9 Amazon, #10 Mode (formerly Glam) Media.

Late 2013 saw the release of 8th generation consoles: leads to 34% increase in unit sales. PC gaming is not dead, revenues in 2014 surpasses consoles.

Gartner predicts 2014 sales to hit $101 billion up from $93 billion in 2012. New PlayStation 4 and Xbox One invigorate industry, with console sales projected to hit 46.5 million units in 2014. 59% of Americans play video games. Half of games are bought by women. Sony has 2,000 workers in 1,000,000 sf PlayStation campus in San Mateo. Electronic Arts cuts titles and relies more on blockbusters (FIFA, Madden, etc.) and breaks even in most recent quarter. Mobile games sales expected to double from $17 B in 2013 to $35 B in 2017. Smartphone games and free-to-play games expand gaming universe to women and older players. As of 7/14 there were 1.2 million apps in the Apple Store vs 1.3 million in the Android Store. Large Bay Area operations for Electronic Arts, Zynga, Lucas Games (Disney), Sony , YouTube, Kabam, Ubisoft, Gracenote, SEGA, TellTale Games, 2K, Aeria, Gazilion Entertainment, Leapfrog, Namco Bandai, Planet Moon, Sourcebits.



Personal Computers and Workstations

Desktop and notebook sales down 6.7% in 2014 after a decline of 11% in 2013.

Worldwide PC shipments will be down 6.7% in dollars in 2014, with a 5% decline predicted for 2015 (Gartner). HP plans to sell its PC business. Exception: Apple’s iMac sales up 21% in most recent quarter vs 2013. Office suites in the cloud, such as Microsoft Office 365, give even less reason to upgrade hardware. Contract manufacturers have big operation here – Sanmina (sales up 11.9% for 2014 Q4 vs. prior year). Flextronics (sales up 1.9%).



Semiconductor & Semicon. Equipment, Memory & Wafer Fab Manufacturers

2014 chip sales up 8%. Moore’s Law still reigns. Reductions in silicon device size and power-use to continue through 2020.

Semiconductors are the reason it is called Silicon Valley. For year ending 9/14 worldwide chip sales up 8% after similar increase in 2013. SEMI equipment sales down 8.5% in 2013, but up 15% in 2014 and to continue the upward trend through 2018. Wafer Fab market expected to increase 16% in 2014 after a fall of 8% in 2013. DRAM pricing stays firm, a $41 billion market in 2014. Intel Q3 2014 sales up 8% over 2013; admits initially missing the tablet market, deploys $11 billion to make the 14-nanometer chips demanded by the tablet makers. AMD sales fall 2.2% and plans to cut 7% of workforce.

Enterprise IT Hardware & Systems

Cloud changes everything. Servers redesigned for virtualization.

Worldwide IT spending should be up 2.6% in 2014 after a flat 2013 (but most of 2014 increase is exchange rate changes). With SaaS, investment shifts to cloud suppliers like Amazon and Google who cut out the middlemen, making their own boxes, laying and buying fiber and even building substations. Server sales up 1.2% in units, and up 2.5% in revenue due to a stronger dollar. HP regains top spot over IBM and Dell. Cisco and Oracle both now sell servers. The line between software and hardware blur as software-defined everything evolves.

Cisco predicts in 2015 there will be more mobile devices than people on earth. M2M goes mainstream.

Telecom industry shifts from selling minutes to selling bytes and broadband speed. Global mobile data traffic grew 81% in 2013 and is expected to grow 11 times by 2018 when two-thirds of the world’s mobile traffic will be video. Telecom-consolidation and integration with content continues. Investment in 4G is paying off: 4G accounts for only 2.9% globally but 30% of mobile traffic. US top telecom-providers have small Bay Area footprints but Bay Area has some of largest Telecom and network equipment firms. Machine-to-Machine (M2M) connections are expected to grow from 341 million in 2013 to 2 billion in 2018. Net neutrality a major battleground in 2015: Silicon Valley vs Telco’s.









Web

Computer Games & Apps

Telecom, Wireless & Broadband

Page | 3 

 

Film and Media

2014 big year for Computer Graphics (CG) & animation, both Bay Area specialties. Both the hardware and the creative talent are developed here.

Film, digital special effect, CG, sound engineering, animation, commercials – all Bay Area strengths. Hollywood actors in front of a “Blue Screen”, the Bay Area CG artists supply the rest. Disney with purchase of Pixar and Lucas is now largest Bay Area media employer. 10 of the top 10 grossing films in 2014 were either animations or more CG than reality. 2015 may not be different: Avengers: Age of Ultron and Star Wars: Episode VII expected to be the two top grossers. PDI DreamWorks SKG splits work between Glendale campus and 200,000 sf facility in Redwood City. Dolby (takes new space in SF’s Mid-Market) & THX (Started by George Lucas) set the standards for sound. Netflix is the streamingvideo model to beat, but Bay Area rivals; Apple TV, Android Market (Google) and Vudu (Walmart) are competition. Streaming Audio is also largely local: Pandora, Rhapsody, Beats/Apple, iTunes Radio, Google Play, Rdio

Healthcare

Entering long term growth phase. Affordable Care Act a net plus. Local Hospitals lead in research.

A major Bay Area industry: World sources patients to the Bay Area’s top hospitals. UCSF rating in the top 10 in many specialties. Transplants pioneered at Stanford. Massive hospitals’ rebuilding in Bay Area but most missed the 2013 seismic deadline. Healthcare & Bio research accounts for 1 in 5 jobs in San Francisco, over 100,000 jobs. McKesson largest distributer of drugs: most recent quarterly sales up 36%, mainly due to mergers, such as Celesio in early 2014. Local chains; Sutter, Kaiser & CHW grow.



Defense, Aerospace & War on Terror

Peace cut spending, but we are bombing again. Satellites are big. Surveillance and modernization happens here.

Defense cutbacks started. Lockheed closed 4 buildings in Sunnyvale with 2,000 layoffs in 2014. Lawrence Livermore Labs offers “voluntary” redundancy to trim 10% of workforce. Yet, defense technology spending continues. The drones and missiles may be made elsewhere but their brains come from here. SRI researches many items including chemical weapons. Loral & Lockheed both have satellite & space divisions near NASA. Livermore & Sandia have a large share of the potential $1 trillion to be spent in next decades to modernize all nuclear warheads. Many NSA & Homeland Security projects in Silicon Valley, such as Palantier, exploding in Downtown Palo Alto, funded by the CIA’s own VC fund.



On-line Advertising and Search

Growth continues with mobile push. On-line ad revenue will double over the next 5 years.

From its earliest days with the start of the Hearst Corp, San Francisco has been selling exposure to eyeballs. Google dominant but Bing gains market share mainly from Yahoo. Yahoo under shareholder pressure to buy AOL with Alibaba loot. Google outgrows Mountain View “Googleplex”. To fill recent leases and purchases would take 30,000 new Google employees: Planned growth? Or, just defensive leasing?





Unmentioned – the Bay Area One-Offs - outstanding companies who stand on their own: Chevron, Clorox, Gap, Levi, PG&E, Bechtel, Safeway, Fair Isaac, Del Monte, URS Corp., Ross Stores, Robert Half, Core-Mark.

November 2014 © Eric Von Berg, Principal Newmark Realty Capital, Inc. PHONE: 415‐956‐9922 [email protected] Blog: http://capitalwisdom.blogspot.com/ Sources: US Department of Commerce, Bay Area Economic Forum, Brookings MetroMonitor, UCLA Anderson Forecast, Bay Area Council, SF Travel Association, SF Chronicle, BayBio, ComScore, Money Tree, Consumer Electronics Association, SEMI, SIA, CEA, e3expo, Fortune, IEEE Spectrum, Search Engine Journal. California EDD, Chronicle 500, Gartner, Accenture and company web sites.   

Page | 4 

 

Bay Area Companies in the 2014 Fortune 500

 

Page | 5 

Bay Area

State

Rank

Company

Rank

Fortune 500 Rank

1

1

3

Chevron

San Ramon

220.4

2

2

5

Apple

Cupertino

170.9

3

3

15

McKesson

San Francisco

120.5

4

4

17

Hewlett-Packard

Palo Alto

112.3

5

5

29

Wells Fargo

San Francisco

88.1

6

6

46

Google

Mountain View

60.6

7

7

53

Intel

Santa Clara

52.7

8

8

55

Cisco Systems

San Jose

48.6

9

10

67

Safeway

Pleasanton

43.0

10

12

80

Oracle

Redwood City

37.2

11

17

178

Gap

San Francisco

16.1

12

18

180

eBay

San Jose

16.0

13

19

183

PG&E 

San Francisco

15.6

14

23

238

Visa

Foster City

11.8

15

24

250

Gilead Sciences

San Francisco

11.2

16

26

256

URS

San Francisco

11.0

17

27

262

Synnex

Fremont

10.8

18

29

277

Ross Stores

Pleasanton

10.2

19

34

337

Franklin Resources

San Mateo

8.0

20

35

341

Facebook

Menlo Park

7.8

21

36

346

Core-Mark Holding

South San Francisco

7.7

22

37

350

Applied Materials 

Santa Clara

7.5

23

41

378

Symantec

Mountain View

6.9

24

42

384

Agilent

Santa Clara

6.8

25

47

411

Net Apps

Sunnyvale

6.3

26

48

422

San Disk

Milpitas

6.1

27

49

432

Sanmina

San Jose

5.9

28

50

451

Clorox

Oakland

5.6

29

51

459

Charles Schwab

San Francisco

5.5

30

52

474

Advanced Micro Devices

Sunnyvale

5.3

City

Revenues ($ billions)