A Maturing Silicon Valley Slows Down : Technology: The computer heartland is beset by rising costs, the drought and relentless competition from Japan.

High-tech culture was born in the Silicon Valley, but relentless Japanese competition and California’s labor and housing costs, traffic jams and dwindling water supplies are tarnishing the legendary computer heartland.

“We’ve grown so fast and so rapidly that we are facing a certain period of maturation,” said Gary Burke, president of the Santa Clara Manufacturing Group, an association of companies in the area.

Computer executives and industry analysts say it’s not clear whether companies in the valley can maintain their lead in the race to develop the latest and greatest in high-tech wizardry.

Some worry that the next generation of advances, such as the new palm-top computer, might come out of Asia or elsewhere.

Burke said the valley is facing rising housing and labor costs, traffic congestion and a five-year drought.

“The unpredictability of water supply has caused some companies to delay expansion because they can’t be sure the water supply will be there when they need it,” he said. A road atlas of California won’t show Silicon Valley, but it is there nonetheless, a sprawling, seemingly endless maze of offices and industrial parks around Santa Clara, San Jose and other communities at the foot of San Francisco Bay.

The area, which took its nickname from the ever-present material in computer chips, is known for its workaholic lifestyles and overnight millionaires.

Small companies, or “start-ups” as they are called here, are everywhere in Silicon Valley. They are trying to emulate the success of Apple Computer Inc., which began in a valley garage and grew into a multibillion-dollar company.

“The valley has got one thing going for it and that is the American entrepreneurial spirit,” said Mike Murphy, editor of the California Technology Stock Letter.

But he said emerging companies face a number of difficulties, not least of which is the cost of capital. In Japan, companies can raise funds at a cost of between 4% and 6%, while American firms pay between 12% and 14% for new capital, Murphy said.

While the valley has had many successes, the loss of the chip-making industry to Japan is regarded as the biggest setback.

Despite its roots in Silicon Valley, 50% of the trade in computer chips is now controlled by Japanese firms, compared with about 36% for the United States.

“Ten years ago we thought this could never happen to us,” Andrew Grove, chief executive of semiconductor maker Intel Corp., said in a recent speech. “An industry that was created in our lifetime is disappearing before our very eyes.” But even in the chip business, some see rays of hope. While Japan dominates the memory chips essential for the operation of computers and other gadgetry, the United States has been a step ahead in designing more sophisticated microprocessors and developing ingenious software.

Some analysts believe that while the valley might not be a great manufacturing center any more--a lot of companies have moved plants offshore or elsewhere in the United States--it will remain a research and development center.

“I think there will be still a lot of invention in Silicon Valley--but not so much production,” said longtime valley resident Howard Bogert, an analyst at the Dataquest research firm.

“It’s an expensive place to make things,” he said.

“I think this place will stay healthy, just not as booming.”