Silicon mountain: what happened to Colorado's tech industry? Experts say future industry growth lies in small-company development.

• Author: Graham, Sandy
• Position: Q4 Tech Report

Colorado, its boosters used to claim, could be the next Silicon Valley, that Bay area bastion of high-technology companies such as Apple, Sun Microsystems, Hewlett Packard and Intel. And when fans of that viewpoint looked across the Colorado high-tech terrain in the late 1990s, they saw headquarters of major telecom and cable companies, data storage giants, burgeoning software companies, and a crop of brash young Internet firms--not to mention good-sized divisions of some of those same Silicon Valley behemoths listed above. It seemed then, after having been jilted repeatedly by the energy and mineral industries over the decades, Colorado finally had found a lasting economic relationship--with high-tech.

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But then came the dot-com collapse of 2000.

It and the economic effects of 2001's terrorist attacks took a heavy toll on tech-dependent states like Colorado. From 2001 to 2002 alone, Colorado lost 27,000 high-tech jobs--13 percent of its total tech jobs. Losses continued in 2003 and 2004.

Last year, however, Colorado's high-tech industry reportedly reversed the slide and may have returned to its pre-2000 levels of employment. "Last year, I was hearing there were more people than jobs. This year, I'm hearing more jobs than people," said Su Hawk, director of the Colorado Software and Internet Association, which represents what the group prefers to call the state's advanced tech industry. She was unable to provide exact figures.

The most recent statistics available are from 2004 and contained in Cyberstates 2006, an annual report published by the American Electronics Association. That report showed that Colorado's high-tech employment dropped by "just" 2,500 between 2003 and 2004, to 159,800. Nationally, high-tech employment did turn the tide, adding 61,100 net jobs for a total of 5.6 million workers in 2005, the first increase in tech jobs in four years. Although some people believe Colorado tech employment, too, is now on the rise, a new round of mergers and acquisitions have taken out several big names in the industries that make up the tech sector.

Last year, for instance, Sun bought StorageTek, while McData Corp. is about to be swallowed by competitor Brocade Communications Systems, which like Sun is based in Silicon Valley. As August ended, Colorado's job outlook was buoyed by the announcement that Lockheed Martin had won a $3.9 billion contract to build the next generation of spacecraft for NASA. The contract should mean about 600 high-paying engineering jobs for Lockheed's Jefferson County operations--and could infuse the Denver-area economy with about $2 billion over the next decade.

Still, 2006's job count looks less promising. "Even with the Lockheed contract win it may not offset the job loss from Quantum, Sun/StorageTek and McData. I'm not sure we'll have a net increase in jobs this year," said Jack McDonnell, a former head of McData who is now chairman and chief executive of Crosswalk Inc., a two-year-old, Westminster-based data storage company. The Lockheed announcement, some say, is another sign that the future's bright for Colorado's high-tech industry. But whether it ever will live up to the promise that many expected a decade ago is less clear.

Will it--should it--rival Silicon Valley someday? "We need to accept the fact that the high-tech economy in Colorado will be grown by small and medium-sized companies," said the CSIA's Su Hawk. Corporate headquarters tend to be on the coasts or in a nerve center of finance or where huge companies have spawned new companies--such as Seattle has seen from Microsoft's success, she explained.

John Kelley, president and CEO of McData, called Silicon Valley "a beast in itself" that would be difficult to replicate in Colorado. "I think that trying to shoot for innovation and new opportunities (in Colorado) is key," he said. "It's honorable and desirable to enhance development of things that fit the workforce we have here" rather than trying...