Layoffs will grow and smaller firms may find they can't survive

It took longer for the slowing global economy to be felt by technology firms in Silicon Valley than it took for the impact to be felt elsewhere in the tech world. However, when the recession finally made its way to Silicon Valley, it hit many firms very hard.

DailyTech wrote that Silicon Valley first felt the economic pinch of the recession in December 2008. Reuters reports that layoffs are now mounting as many technology firms in Silicon Valley rush to strengthen their positions by reducing expenses and cutting jobs.

Silicon Valley lost 11,700 jobs last year reports Reuters, and that number is only the beginning according to analysts. Adam Charlson, senior partner at executive search firm Korn/Ferry International said, "Organizations are saying, 'What is the absolute nuclear winter? Let's plan for that.' What you're seeing now is organizations putting those plans into reality."

The loss of 11,700 jobs lost looks like a big number, but that is a mere drop in the bucket compared to the layoffs that gripped the area after the dotcom burst in 2000. Steven Levy from the Center for Continuing Study of the California Economy said that the 11,700 figure doesn’t reflect recent layoffs.

Levy told Reuters, "The headline is that the recession has hit Silicon Valley," Levy said. As a result, he said he was "substantially revising downward" employment predictions for 2009.

The jobless rate in California was at a 14-year high of 9.3 percent in December, the national average unemployment rate at the time was 7.2 percent. Some analysts see the layoffs going around the Valley as preemptive measures by firms that were too slow in cutting jobs during the last recession. Andy Miedler, a senior analyst at Edward Jones said, "Layoffs and cost-cutting are unfortunate, but companies have to make tough decisions in a rough economy to preserve their own financial position."

In 2000, many of the technology firms didn’t survive the recession that plagued Silicon Valley, this time companies are preparing for a worsening economy early. Reuters points out that layoffs in the tech hub may not be as horrible as they seem at first glance.

Engineers and researchers who have been let go from firms may decide to go to work on projects of their own, which could lead to a new round of innovation. Another bright spot in the tech industry is the so-called "cleantech" arena.

The engineers and researchers leaving technology firms may be able to find work with cleantech firms. Cleantech is widely predicted to continue to grow and offer jobs.

Out of work employees may be able to find jobs, but many of the start-up firms that are powered by venture capital may find that they can no longer survive. Reuters reports that venture capital funding fell 71 percent in Q4 2008 compared to the previous year.

These new start-ups that often provide software and services to the larger Silicon Valley firms could find that as these big companies reduce spending there is simply no alternative for fledgling companies to consider other than closing their doors.

"This is about the Internet.  Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If they can't deal with the Internet, they should shut it off." -- RIM co-CEO Michael Lazaridis
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