Silicon Valley economy: Recession hitting IT hard at its epicenter

A few weeks ago, over a delicious dinner of Thai food with my uncle visiting from the Palo Alto area, I went on and on about my job here at SearchCIO.com and about all the various social media platforms on which my work now relies, including Twitter, LinkedIn and, of course, this blog.

As I slurped down the last of my to-die-for pad see ew noodles, I apologized for spending so much of our time together blabbing about this aspect of my work. My uncle just laughed.

“You’d be very popular in Silicon Valley,” he said. “This qualifies as a very normal conversation where I live.”

As home to the Googleplex and the launch pad of the dot-com boom in the late 1990s, Silicon Valley has long been reputed as a sort of Mecca for technology-minded businessmen and -women and the innovative IT pros that support them — and the Silicon Valley economy has thrived on these industries. But this economic recession is causing some to wonder: How long will Silicon Valley tech companies remain the top dogs in IT?

In fact, Silicon Valley tech could be losing its edge, according to the 2010 Index of Silicon Valley report. The area lost 90,000 jobs from the second quarter of 2008 to the second quarter of 2009, and unemployment in Silicon Valley is higher than national levels, even worse than in 2005, when technology companies were still recovering from the dot-com bust of the early 2000s, reports The New York Times.

When these Silicon Valley tech companies do hire, they usually employ some brand of IT outsourcing, whether domestic or offshore. As we have reported on SearchCIO.com, companies are looking to run as lean as possible in 2010, with the aim of boosting profits while keeping expenditures relatively stable.

Although I haven’t heard of any heir apparent to Silicon Valley, I do wonder what will happen if the region doesn’t see a turnaround soon. There are fears that a prolonged downturn in Silicon Valley could cause a real brain drain. Already there is evidence that immigration to the region has declined, and questions about whether up-and-coming tech enthusiasts will be willing to pay inflated real estate prices — especially if their salaries aren’t keeping up and layoffs loom as venture capital financing sinks.

The story’s final quote, from Judy Estrin, former CTO of Cisco Systems Inc., was perhaps the most telling:

“Silicon Valley is both a barometer of the rest of the country and a spark for the rest of the country, and if we don’t protect that innovation culture here, it’s going to be hard to sustain an innovation culture in the country.”

I’ll be keeping an eye on the Silicon Valley economy’s continued struggles not only via Thai food fests with my uncle, but thanks to contact with our CIO readers as well. To be sure, these are troubling times for IT, even at the industry’s epicenter.