The impact of the economic slowdown has started to be felt unmistakably in Silicon Valley (See: Google slashing contractor jobs) 

Technology companies of all sizes have started to downsize, ahead of an expectedly difficult 2009. The scenario could well be reminiscent of 2001 and 2002, when the internet or dot com bubble exploded, leaving scores of software professionals and engineers unemployed.

However, this time, it's the meltdown in the mortgages financial sector that is the cause of the woes, which is not limited to the technology sector alone. Reports suggested that at least for now, most did not see the partly impending layoffs as having a long-term impact on Silicon Valley's reputation as being a cradle of innovation.

Reports also suggested that though the layoffs have begun and are widely expected to escalate, employment numbers would hold better than it did after the dot-com bust. However, the unemployment rate in Santa Clara county, which is where Silicon Valley is geographically located, rose to 6.9 per cent during October from 6.5 per cent in September, higher than the national average of 6.5 per cent, though lower than California's jobless rate of 8.2 per cent.

Unemployment numbers are now expected to rise higher, and faster, as employers in the valley including Sun Microsystems Inc, Applied Materials, KLA-Tencor, National Semiconductor and Lam Research announced job cuts in the past weeks. Smaller companies such as the electric car start-up company Tesla Motors, and business-networking web site LinkedIn also rolled back on jobs.

In 2001-2002, when the dot com bubble burst, Santa Clara County lost over 200,000 jobs, or around 20 per cent of its job base, pushing the US annual unemployment rate to 8.4 per cent for 2002.

Silicon Valley is bracing for a difficult year ahead, with more layoffs expected. A survey of over 500 top executives in San Francisco Bay Area conducted by the Bay Area Council shows that around 40 per cent of them planned reductions to their workforces in the coming six months. 

Recruiters were reported to be finding the going getting tougher, with companies cancelling searches and withdrawing offers already made. Moreover, people who already have jobs have become more difficult to poach, adding to their cost of search. 

Amongst other Valley firms, Analog Devices has announced plans to reduce operating expenses by 10 per cent and reduce output, with job losses being a logical, though unannounced, part of that plan. Aruba Networks too announced a similar plan around a week ago. Symantec was reported to be scaling back on around 4.5 per cent of staff, while Sun Microsystems was reported to be cutting 5,000-6,000 jobs, between 15-18 per cent of its staff.

Retail chain Circuit City, which has filed for Chapter 11 bankruptcy a few weeks ago, has said it is planning to shut down 155 stores, reducing its workforce by 20 per cent overall. Hewlett-Packard had also announced layoffs of around 24,600 people in September, with plans to replace around 12,000 jobs over the next three years.

Clean technology and life sciences companies are still reported to be hiring, being especially open to employees from a variety of backgrounds as the area is rather new. 

The downturn could have an ugly side as well, as was evident from the triple murder at a semiconductor startup around two weeks ago, where the shootings occurred at the Santa Clara offices of Siport, a semiconductor firm whose venture capital backers include Intel. The three victims were chief executive Sid Argawal, vice president of operations Brian Pugh and human resources manager Marilyn Lewis. Authorities said that the killer was Jing Hua Wu, an engineer who had been fired by the company earlier in the day.

With business spending on technology drying up, report predict that tech business would see substantial cuts, including at companies such as Cisco Systems, Qualcomm, all of whom have reported the recent trend of falling sales. Internet pioneers Yahoo and eBay  were also reported to be set to reduce jobs as they battle internal issues along with the slowing economy.