• Bloomberg News, Wednesday, December 24, 2008 11:45 AM

Bloomberg provides yet more proof that the recession has finally hit Silicon Valley. Once considered immune to the economic fallout, firms in the area are cutting back their spending and laying off workers by the thousands. "Lots of my friends have been laid off," said one project manager for Microsoft Corp. in Palo Alto, California. "I absolutely watch what I spend. I feel lucky I've survived, but you never really know." With a 7% unemployment rate, Silicon Valley now has 4,000 fewer jobs today than at this time last year, the Center for the Continuing Study of the California Economy said last week.

Tech companies based in the region, which stretches between San Francisco and San Jose, have announced at least 38,000 job cuts since September. HP, Yahoo, Adobe Systems, Sun Microsystems and Palm Inc. are among the major firms that have announced layoffs.

Unfortunately, the pain looks set to continue, says Madeline McMenamin, a senior consultant for Watson Wyatt Worldwide Inc. "People are finishing their forecasts and budgets for the next year, and those will reflect continued downsizing," McMenamin said. "We need to brace for tough times." However, John Challenger, CEO of executive search firm Challenger, Gray & Christmas Inc., doesn't think this recession will be as severe as the dot com crash in the early 2000s, where about 200,000 jobs disappeared from the Valley. "The last time around, whole swaths of the technology market vaporized," he said. "This recession is from banks and others dragging technology down with it."

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