San Francisco: Silicon Valley, the technology mecca once considered immune to fallout from the global financial meltdown, now faces the biggest cutbacks since the dot-com crash.
“Lots of my friends have been laid off,” Peter Raulwing, a project manager for Microsoft Corp., said during lunch at a Starbucks in Palo Alto, California. “I absolutely watch what I spend. I feel lucky I’ve survived, but you never really know.”
He has reason for concern. Global spending on computers and software will slide 8% next year in the US, Western Europe and Japan, according to Goldman Sachs Group Inc. With a 7% unemployment rate, Silicon Valley has about 4,000 fewer jobs today than this time last year, the Center for the Continuing Study of the California Economy said last week.
“The recession finally reached Silicon Valley,” Stephen Levy, the Palo Alto-based research organization’s director, said. The center based its conclusions on government unemployment data.
Technology companies with headquarters in Silicon Valley—a corridor of office parks stretching between San Francisco and San Jose—have announced at least 38,000 job cuts since September. Hewlett-Packard Co., Yahoo Inc., Adobe Systems Inc., Sun Microsystems Inc. and Palm Inc. are among the firms paring their workforces.
The region will probably feel more pain starting next month, said Madeline McMenamin, a senior consultant for workforce consulting firm Watson Wyatt Worldwide Inc.
“People are finishing their forecasts and budgets for the next year, and those will reflect continued downsizing,” McMenamin said from Santa Clara, California. “We need to brace for tough times.”
Raulwing said he’s put off buying a 42-inch flat-screen television, has postponed vacations, and is dining out less to save money.
“It feels more scary,” said Lutz Haentzschel, a software developer sitting with his laptop at a coffee shop in Palo Alto. He moved to the Bay Area 17 years ago and works for Siemens AG, Europe’s largest engineering company. “I’m waiting for my shares to recover.”
Tighter credit and slumping home prices mean Stephen Johnston can’t get the refinancing he needs to consolidate his loans and save on taxes.
A software engineer at Microsoft, Johnston and his wife own a house in Fremont and another in Hayward—across the San Francisco Bay from his Palo Alto office. Johnston said he went further into debt with an eight-month remodel of their Fremont home. To save $4,000 a year on petrol and bridge tolls, the two-car family now drives only one, increasing Johnston’s commute time to 2-and-a-half hours.
“I leave my house in Fremont, drop off my daughter at day care 6 miles away, commute with my wife across the bridge to Redwood City, and then drive to Palo Alto,” Johnston said.
While there isn’t much optimism in Silicon Valley right now, the slowdown will be less severe than the fallout after the dot-com bubble in 2000, said Doug Henton, chief executive officer of Collaborative Economics Inc., a consulting firm in Mountain View, California. About 200,000 jobs disappeared from the region in 2001 and 2002, he said.
“The last time around, whole swaths of the technology market vaporized,” John Challenger, CEO of executive search firm Challenger, Gray and Christmas Inc., said from Chicago.
“We won’t have the same impact this time. This recession is from banks and others dragging technology down with it. And people in the Valley realize how important personal networking is.”
Trip O’Dell is counting on that network. He and 600 colleagues at Adobe Systems Inc., the biggest maker of graphic-design programmes, lost their jobs this month. With a two-year-old daughter and another baby on the way, O’Dell plans to create games for Apple Inc.’s iPhone or develop applications for Facebook Inc.’s social networking site.
“The benefit of being on the wrong side of a layoff is you have access to all these others with talent who suddenly have a lot of time on their hands,” said O’Dell, 35. There are still opportunities for people who use personal networks to find new jobs and start companies, he said.
Silicon Valley’s workers will have to spend more time networking next year as companies continue to cut jobs, Challenger said.
“The first quarter is going to be rough waters,” Challenger said. “The strength of the workforce lies in their flexibility, and how they use their knowledge of each other.”