Silicon Valley starts to feel the sting of layoffs

By Gabriel Madway

SAN FRANCISCO (Reuters) - The economic slowdown has finally begun to hit home in Silicon Valley, with tech companies large and small shedding jobs in advance of what is widely expected to be a difficult year.

The scene may remind some of 2001 and 2002, when the Internet bubble exploded and dumped hundreds of thousands of engineers in the area onto the unemployment rolls.

But the situation is far different this time, with the financial and housing sectors to blame, not tech. And few, at least at this point, see the layoffs having a long-term impact on the Valley's fabled reputation as a cradle of innovation and risk-taking.

"In 2001, we were the epicenter, we were the cause," said Stephen Levy, director of the Center for Continuing Study of the California Economy. "Now it's a world-wide recession event."

Although layoffs have just begun in the Valley -- with more expected -- many say employment will hold up better than it did after the dot-com bust, even as the world suffers through the most paralyzing financial meltdown in a generation.

Even so, that provides little comfort for the growing ranks of unemployed IT professionals struggling to get by.

Vivek Sharma, a business systems analyst from India who is in the U.S. on an H-1B work visa, said he was working as an independent contractor on a project for Macys.com before the company abruptly cut the cord in October.

"The job market is completely dead," Sharma said.

UNEMPLOYMENT RATE CREEPS UP

The unemployment rate in Santa Clara county, home to Silicon Valley, rose to 6.9 percent in October from 6.5 percent in September. That's above the national level of 6.5 percent but below California's jobless rate of 8.2 percent.

The numbers will likely get worse. The past few weeks have seen near daily job cut announcements from Valley companies including Sun Microsystems Inc (JAVA.O: Quote, Profile, Research, Stock Buzz), Applied Materials Inc (AMAT.O: Quote, Profile, Research, Stock Buzz), KLA-Tencor Corp (KLAC.O: Quote, Profile, Research, Stock Buzz), National Semiconductor Corp (NSM.N: Quote, Profile, Research, Stock Buzz) and Lam Research Corp (LRCX.O: Quote, Profile, Research, Stock Buzz).

Smaller private companies are also wielding the ax, with high-profile names such as electric car start-up Tesla Motors and social-networking site LinkedIn shedding workers.

Employment consulting firm Challenger, Gray & Christmas has tallied 140,422 job cuts overall by technology firms through October 31, up 31 percent from all of 2007. More than two-thirds of this year's layoffs have come since July.

Still, that is a far cry from 2001, when the technology industry slashed 695,581 jobs.

After the tech bubble burst, Santa Clara County alone lost more than 200,000 jobs, 20 percent of its job base. The county's annual unemployment rate hit 8.4 percent in 2002.

But the tech sector has matured a great deal since then, some say, perhaps leaving it less vulnerable to such a shock.

"Technology is really not the center of the storm this time," said Challenger Chief Executive John Challenger. He said IT has become more embedded into most companies' DNA and less discretionary, making technology spending less less volatile.

UNCERTAINTY FOR 2009

Next year is shaping up to be a difficult one for Silicon Valley, with more layoffs expected.

A recent survey of more than 500 top executives in the San Francisco Bay Area by the Bay Area Council revealed that 40 percent plan to cut their workforce in the next six months.

"Companies just aren't sure what the next six months are going to look like, so we're seeing companies cancel searches, withdrawing offers," said Jeff Hocking, managing director of the San Francisco office for executive recruitment firm Korn/Ferry International (KFY.N: Quote,Profile, Research, Stock Buzz).

In addition, he said people who already have jobs are now more difficult to poach. "The cost of change has gone up."

However, there are still bright spots in the gloom. Hocking said the firm continues to have success in recruiting executives to clean-technology firms.

Levy sees the same scenario. "Venture capital is holding even and probably in the intermediate term poised to grow with all the alternative energy (investment)," he said.

A Dow Jones VentureSource study released last month showed that VC investment in renewable energy leaped 71 percent from the previous quarter, even as investment in information technology fell 10 percent.

(Editing by Brian Moss)