Technology Bellwethers Are Cutting Jobs

Microsoft has joined the list of major technology companies that have announced job cuts. On Thursday, they announced that they'll be reducing their workforce by about 5%. That's the first significant workforce reduction in the company's 34-year history.

Earlier in the week, Intel announced a 6% workforce reduction, following a 23% decline in fourth quarter revenue. AMD reported an even larger 33% decline in fourth quarter revenue, and announced a correspondingly larger 9% workforce reduction.

Perhaps more ominously for the Bay Area, Microsoft executives are suggesting that the slump in consumer and business spending is more than just a recession-related phenomenon. CEO Steven Ballmer said that it may take years for spending to return its former level. In keeping with that prediction, he indicated that Microsoft will scale back its acquisition activity, in the belief that corporate acquisition prices will decline still further.

Admittedly, there is more to the tech industry than Microsoft, Intel, and AMD. But these are bellwether companies, whose cost-cutting initiatives have effects that reach beyond their own doors. And cutbacks on a scale of 5%-9% are significant. To put them into perspective, a 5% increase in the national unemployment rate would amount to an economic disaster. (Worst-case predictions have the unemployment rate peaking at around 10%, compared to a current rate of around 7%.)

Those former Microsoft, Intel, and AMD employees are going to need jobs. Considering the plight of the stock market, venture funding will be way down in the near term. With Microsoft scaling back its acquisition plans, there will be even less money available to finance job creation in Silicon Valley. I don't see how the Bay Area can avoid a significant increase in unemployment.