Former Gold Rush Area Mines High-Tech Wealth

GRASS VALLEY, Calif. — Grass Valley was one of the richest towns of the California Gold Rush, and one of the noisiest. Its unrivaled gold output had to be pounded out of solid rock by stamp mills that rattled the surrounding hills like a symphony of wrecking balls.

Today Grass Valley is as quiet as rustling pine needles. But while many other Gold Rush towns have withered, it continues to thrive, largely because its mines and stamp mills have given way to an unlikely concentration of high-tech companies.

Grass Valley, a town of just 9,475, and the surrounding area boast more than 50 high-tech firms, including key research outposts for such giants as 3Com and National Semiconductor. It is the birthplace of the modems most people use to connect to the Internet, and is such a powerhouse in video technology that most television content has at some point passed through a Grass Valley device.

It is an economic model that rural areas around the country would love to replicate, areas that despite recent gains have largely been bypassed by the high-tech economic boom.

Rural counties represent 20% of the U.S. population but account for just 8% of its high-tech employment, according to statistics from research firm Regional Financial Associates. In California, high-tech employment in rural counties has quadrupled this decade, but it still accounts for less than 3% of the state’s 840,000 high-tech jobs.

In that light, Grass Valley is a rare example of how technology can flourish in rural spaces, while it shows the few advantages such areas can claim over Silicon Valley and other technology meccas.

“We know we’re perceived as a quaint, little, historic Gold Rush town,” said Larry Burkhardt, president of the region’s economic resource council. “But our companies are on the leading edge of the tech industry.”

Nestled in the Sierra foothills about 60 miles northeast of Sacramento, Grass Valley and neighboring Nevada City are historic, postcard towns that lack almost every key ingredient of most high-tech hubs. The area has no university, no ready supply of venture capital, no major airport and not even convenient access to a freeway.

But in some ways, Grass Valley’s history mirrors that of Silicon Valley. Its high-tech base emerged in accidental fashion, sparked by a pair of Stanford-trained engineers.

In 1954, Charles Litton sold most of his Bay Area company--which later became Litton Industries--and moved the rest to an abandoned hospital building in Grass Valley, near his favorite weekend retreat.

Five years later, he was joined by former classmate Donald Hare, a gifted engineer who had taught Bill Hewlett and David Packard at Stanford.

Hare founded Grass Valley Group, whose control boards, switches and routers led a revolution in television effects, enabling split-screen views and graphics used in everything from the evening news to Super Bowl broadcasts.

Hare’s company, which he later sold to Tektronix, triggered a high-tech boomlet, spawning spinoffs and start-ups that turned the area into a video technology hub and a major supplier to Hollywood.

“If you’ve never heard of Grass Valley, you haven’t worked in the industry,” said Chuck Garsha, director of multimedia engineering at Paramount Pictures.

High tech is neither Grass Valley’s largest employment sector nor its greatest source of income. As in most rural areas, local government and schools are the largest employers in Nevada County. And the region has become such a haven for retirees that aggregate dividend and interest income is expected to surpass the sum of residents’ wages and salaries this year.

But it is easy to see why high-tech jobs are so appealing to rural areas. Technology companies typically pay well, can theoretically place their workers in any location with computers and phone lines, and tend to be gentle on the environment.

“We’re just a bunch of nerds sitting in front of computers all day,” said Roy Kaller, manager of National Semiconductor’s research lab in Grass Valley. “We’re very quiet. We don’t pollute.”

That is a big consideration in Sierra foothill towns that often struggle to balance growth and preservation.

Candidates campaigning against sprawl recently won a majority on Nevada County’s Board of Supervisors. The issue is so dear to voters that board Chairman Peter Van Zant can practically equate new jobs to the number of pine trees they displace.

Each new retail job eats up about 2,000 square feet of space, he said, while cubicle-dwelling technology workers take up only 500 square feet apiece. “Environmentally,” Van Zant said, “technology is better.”

And for certain technology workers, rural is better.

Employee turnover frequently runs into double-digit rates at Silicon Valley companies but is minuscule in Grass Valley. The few who do leave companies rarely leave the area, largely because of intangible qualities the locals call “pine cone compensation.”

Dan Castles, for instance, is a typical Grass Valley transplant. Transferred from Tektronix headquarters in Oregon several years ago, he knew he could never go back one December evening when he was strolling down Broad Street in Nevada City and looked up to see Christmas lights flickering in the surrounding hills.

“I walked out into the middle of the street, took out my cell phone and called my wife in Portland,” Castles said. “I told her, ‘I wish you could see what I’m seeing right now.’ ”

Such experiences are almost a cliche in Grass Valley, where many of the homes are vintage Victorians, the red maples take full spectral advantage of fall, and the local radio station still plays “Fibber McGee and Molly” on Tuesday nights.

Real estate prices are climbing, but still enticing by Bay Area or Southern California standards. Among the recent listings in a Nevada City real estate office window was a “custom, 2,300-square-foot home on 5 acres with cathedral ceilings, hardwood floors and a river rock fireplace.” The price: $289,000.

Of course, the rural life isn’t for everyone. Executives say they have particular trouble recruiting recent college graduates who crave night life.

“You step out onto the sidewalk around here after dinner,” Kaller said, “and the streets are dead.”

But some of the nation’s top engineers refuse to live anywhere else. 3Com’s presence, for instance, stems from its accommodation of a star employee who left the company for a Grass Valley job and wouldn’t come back.

“They kept trying to recruit me back to Chicago,” said Andy Norrell, the architect of the 56-kbps modem and many of its predecessors. “I told them we were building products to make the world smaller. Why don’t we test that notion ourselves?”

Norrell, along with George Landsburg, built 3Com’s presence into a 40-employee “advanced development center” whose recent recruits include engineers from India, Taiwan and Poland.

Norrell left the company last year but remains in Grass Valley, where he is working with another generation of start-up firms.

High-tech has had a noticeable impact on the community. Technology workers who command salaries approaching six figures help support the region’s three theater groups, frequent concerts and upscale restaurants.

The Holbrooke Hotel, operating since the 1860s, frequently rents its rooms and banquet halls to overseas travelers visiting local high-tech firms. “We recently had a group from Japan,” said hotel manager Peggy Levine, “so we did a chef specialty with ahi tuna and saki.”

But Gold Rush towns know better than most that nothing lasts forever. All of Grass Valley’s gold mines were shut down by the 1950s. The timber industry faltered in the 1960s. And its high-tech fortunes have at times appeared to be fading in the 1990s.

Tektronix has laid off more than 1,000 of its 1,400 Grass Valley workers so far this decade and is rumored to be trying to sell the unit.

Other companies have shrunk or left. Flashpoint, a San Jose software company that just two years ago set up a research lab in Grass Valley, recently decided to close the operation as part of broader cutbacks.

Even Charles Litton Jr., who still runs his father’s company from the same converted hospital building, has seen discouraging signs.

He expected technology companies to clamor for spaces in a new business park he is developing. But so far the only takers have been health-care firms catering to the region’s swelling community of retirees.

Rattled by these trends, Grass Valley has for the first time set out to recruit high-tech firms, creating a council to promote the region, sending representatives to trade shows and placing ads in high-tech publications. “Technology has a new home town,” one ad says, “Shouldn’t it be yours, too?”

But Grass Valley is a latecomer to the game. Tech companies these days are swamped by suitors offering tax incentives, trained workers and cheap land. Most high-tech growth over the last decade has been concentrated in semi-urban hubs that offer a combination of these amenities, places such as Park City, Utah, and Austin, Texas.

Even Silicon Valley’s gradual spread across Northern California has stopped short of the foothills. Most companies opt for Sacramento suburbs, such as Roseville, where Hewlett-Packard has put 5,500 employees, and NEC is set to spend $1.3 billion expanding its chip-fabrication plant there.

Grass Valley’s only recruiting win so far came in January with the arrival of a seven-employee engineering lab that designs industrial recycling systems.

“Everybody wants to recruit high-tech employers these days,” said Steven Cochrane, an economist who tracks Northern California for Regional Financial Associates. “But rural areas are still at a significant disadvantage.”

Grass Valley has bounced back anyway, mainly because the technological offspring of Litton and Hare continue to spawn.

As a top Tektronix executive, Castles was responsible for making many of the layoffs at the company in recent years. But he, too, left the company and is now running one of Grass Valley’s most promising start-ups, Telestream, whose main product is designed to let movie and television studios see daily footage over the Internet from their far-flung filming locations. The product, already being tested by Paramount, Fox and others in Hollywood, could replace studios’ reliance on videotapes sent by overnight delivery.

Like many Grass Valley executives, Castles has a view of pine trees from his office window. But he can also see the company that prints his manuals, and another that manufactures his circuit boards.

Telestream has hired about 50 employees over the last year and is poised to hire more. Because of such start-ups and expansion by existing employers, Grass Valley’s high-tech employment, which had plunged as low as 1,000 in 1994, bounced back up to 1,600 last year.

“There’s so much talent up here,” Castles said. If any of it were inclined to leave, he said, “we’d have seen the decline of a business that has a great deal of importance here.”

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A New Mother Lode

Gold nuggets have given way to silicon chips in Grass Valley, a Sierra foothill town with more than 50 high-tech companies. Some of the largest and most influential:

Tektronix Inc., digital video equipment, 375 employees

Innovative Metal Fabrication, gaming and computer manufacturing equipment, 110 employees

Precision Printers, graphics for electronics and touch screens, 105 employees

Nvision Inc., digital television equipment, 85 employees

TDK Systems Inc., computer electronics, 80 employees

Telestream Inc., Internet video transmission, 50 employees

3Com Corp., computer modem design, 39 employees

High Country Tek, electronics design, 35 employees

Litton Engineering Laboratories, glass and fiber optic equipment, 32 employees

Graham-Patten Systems, digital audio products for television, 25 employees

National Semiconductor Corp., analog chip design, 15 employees.

Ensemble Designs, video equipment, 15 employees

Source: Nevada County Economic Resource Council and company interviews.