A plugged-in reader’s comment:

Remember all the excitement over Google millionaires buying up places with cash? We are now entering a period of huge tech layoffs (see Sun as one of many examples). I’m simply pointing out that this is yet another factor that is going to have a substantial negative impact on the market, particularly in the southern half of the city (which is much more than Ingleside and Visitacion Valley).

Said example: Sun to cut up to 6,000 workers, 18 pct of staff. And of course, the foreshadowing: The Google Chart Of The Day (10/24).
UPDATE: A plugged-in Sun employee chimes in:

Sun employee (for the moment), checking in. I don’t think they are going to do layoffs for a few weeks, but I do think that 6k number might actually be a little low in the end.

A huge percentage of Sun’s engineers telecommute at least part time so the impact will be spread out over most of the Bay Area.

What they’re really talking about with this layoff is a cut in product lines, from top to bottom. There are a couple that are really housed elsewhere and it may not hit the Bay Area much at all. I think it will probably cause more pain in the RE market in Broomfield CO than it will here.

TIC Troubles Via The WSJ (But We Wouldn’t Discount That Downturn) [SocketSite]
Sun to cut up to 6,000 workers, 18 pct of staff [SFGate]
The Google Chart Of The Day (And A Bit More Foreshadowing) [SocketSite]

54 thoughts on “From Underwater To Unemployed (And Sorry, But It’s Just Starting)”
  1. I dont think this story will get many comments because —
    its bad news;
    theres nothing to do about it, and its hard to refute conclusion
    and the are very few metrics available for predicting this economy and financial recession;
    the diversification and decoupling that was presumed to happen at some level does not appear to be happen locally or globally

  2. All I can say is, I hope my friend who bought a condo in September isn’t one of the unlucky ones who got laid off today. Yes, the friend works (worked?) at Sun. I’ve been there (bought a place, then lost my job a few months later). It really sucks.

  3. Well, a lot of people are still doing just fine (like my neighbor just bought a vineyard for fun) and many are going to be a lot wealthier next year than they ever have been in the past.
    2009 is going to be the best time ever (for those who have cash) to buy homes, cars, equities, vactions etc. I’m looking forward to seeing what bagains develop.

  4. Sun has been hurting for a while – they’ve already laid off more that 6,000 in the last 2 years.
    Besides, Sun is in San Jose, not San Francisco. Its 80 minutes by Caltrain to get down there – and that’s not counting the bus or the shuttle on either side!

  5. ^ there will always be those with wealth. the problem for san francisco real estate is that there are now a lot fewer of them in our ranks and fewer still that have available cash or credit.
    it amazes me to see how little those in the industry seem to understand what is happening with demand. a multi-million dollar sale here and there might make realtor headlines and newsletters but it does not make the market.

  6. Wait a minute. I thought the consensus was that there was a lot Sillivalley employees living in SF driving real estate prices up. And yes, I know someone that commutes to Sun from San Francisco.

  7. Sun employee (for the moment), checking in. I don’t think they are going to do layoffs for a few weeks, but I do think that 6k number might actually be a little low in the end.
    A huge percentage of Sun’s engineers telecommute at least part time so the impact will be spread out over most of the Bay Area.
    What they’re really talking about with this layoff is a cut in product lines, from top to bottom. There are a couple that are really housed elsewhere and it may not hit the Bay Area much at all. I think it will probably cause more pain in the RE market in Broomfield CO than it will here.

  8. >> When the hell are RENTS GOING TO GO DOWN!!!!!!!
    After the earthquake. Not before. And I’m talking something north of 7.0.

  9. isn’t there a prominent office building somewhere near mission/howard and beale, with a big Sun logo downstairs?

  10. There’s a satellite office right behind the bus terminal. It has a server room and a few onsite permanent employees as support staff. Sun takes up one floor of that building (the other big tenant is Gymboree, on three floors IIRC). It functions as a drop-in office for engineers and execs and meeting space. I will not be surprised if they close it down or move it into a smaller space. Bummer, because I can take the Transbay bus pretty much from door to door when I need a conference room.

  11. Of course, if this was limited to Sun, it probably would not have a huge impact on anything concerning this site. But Sun is obviously just one of many going through this. You can’t believe how swamped our labor & employment group is right now with work managing large tech layoffs, most of which are still in the planning stage (the lawyers get involved early on). And it is not just the Bay Area, and not just tech. Our New York group is even busier. But much tech spending is discretionary and this downturn is g0ing to be severe for our area. Even Cisco and Intel — two monopolies for chrissake — have given recent guidance noting huge revenue declines in the next few quarters. This is a very big development and it is moving fast and (as SS notes) just starting.

  12. Not to deny the macroeconomic conditions, but Sun is and has been a complete and total disaster since 2001. The current climate is accelerating the inevitable, nothing more. Pooch-screwing on an unprecedented scale. The GM of network computing.
    My Little Pony (Jonathan Schwartz) may be brilliant, but he couldn’t run a bake sale. And [Removed by Editor] McNealy didn’t leave him with much.

  13. Sun was the Internet pioneer and could’ve been the birthplace for Google, Yahoo, Amazon, Java, and many more top companies. But they were so stupid in holding on to their own proprietary hardware and software platforms. Scott McNealy was the problem

  14. Kind of sad. Sun was a real pioneer. In these last few years, though, they’ve been dying little by little. I am actually surprised they have that many employees, you’d think people would have seen the writing on the wall years ago and left.

  15. whether Sun was a ‘disaster’ the last few years those are still probably 3-4k bay area jobs going away. Sun is mostly HQ’ed here and there are many forty-fifty somethings at the Sun campuses who should have gotten out in 2002 who have been collecting $150-225k a year just for showing up.

  16. Need to clear up a few misconceptions in this thread:
    The SF Sun office is much more than a datacenter and support staff, and Sun isn’t going to get rid of it anytime soon. Sun is actually the primary leasee even though Gymboree (through a sub-lease from Sun) has more of the space (all but a couple of floors). Sun signed a long-term lease (like 99 years) during the boom and isn’t in position to pay the buyout for it. That office is primarily sales, marketing and corporate staff, BTW.
    Also, it has been announced that the layoffs will take effect in Q1 of ’09, so no one has lost their job…yet. I agree with sun_engineer that Colorado and other places will feel this as much as the Bay Area.
    Finally, not all or even most Sun employees in the city take CalTrain down to Menlo Park. Most take the company shuttle. Between employees who work in the SF office, telecommute or take the shuttle (or train), there are hundreds of Sun employees in SF (probably more than 1000).

  17. Sun has been a disaster for years. Has it ever made money since the .com days?
    In bad economy, the weak companies will go out of business. We will see a lot of web 2.0 companies going out of business. The impact won’t be as strong as 2000, but still significant.

  18. I’ve mentioned the impending tech slowdown many times on SocketSite, but many of my arguments were just dismissed and sometimes I was called a tech-hater. remember that I have MILLIONS of dollars of potential future household income at stake, since half our income comes directly from tech.
    The fundamentals for tech going forward do not look good. that has been obvious for some time now.
    my thought is that the real tech pain will start in early 2009. the reason: a lot of capital expenditure budgets are being made right now. given the slaughter that is in almost every industry it is most likely that those capex budgets are being shaved to the bone for next year.
    I agree that Sun itself may not affect the SF market much… instead it’s what Sun represents. Sun (and other tech firms)laying off means we have unemployed Bay Area employees… those employees become more willing to work for cheaper, which puts pressure on other employees at other firms to drop their compensation as well.

  19. “We will see a lot of web 2.0 companies going out of business.”
    Yes. More above average wage earners in San Francisco are about to [lose] their jobs along with those at the businesses where they have been spending their their money. Bad news for Ritual Roasters.
    “The impact won’t be as strong as 2000, but still significant.”
    No. This is a global recession and it’s going to hit us HARDER than in 2000 when it was just web 1.0 companies that got crushed. Everyone is going to suffer this time around.

  20. Is there a east of the Mississippi Fed bias? Why is there no talk of bailing out tech companies and silicon valley, and all that has been bailed out has been Wall Street failures and Detroit.

  21. Can you all believe that this whole downturn has one and only one starting point: overvalued Real Estate.

  22. If you are under 40 working in tech, you are (probably) not ready for what (probably) will
    happen in tech starting in ’09.
    And I just noticed Sun’s retained earnings went negative (again) this latest quarter — Sun generated much wealth for its (initial) investors, executives, and (earlier) certain employees, but as a business, it has lost money since inception.
    This from a company that was (arguably) the google of the 1990’s.
    The stock market + a 15 year tech credit bubble is an awesome wealth transfer device 🙂

  23. I’m happy to defer to Turin’s knowledge about the SF office. I live in my little engineering bubble and often don’t notice the marketing going on around me. 🙂
    That said, as a whole tech is going to get ugly. I’ve believed it for a long time, but most people I know just don’t get it. I also have a teaching credential and while I really don’t want to do that full time again (or live on the salary) I’m prepared to do what I have to. I think the thousands of low to mid-level coders who have never done anything else are in for a very rude awakening. My tech prediction: cloud computing is where it’s at – and Sun has probably already missed the boat on that one. Maybe Amazon is hiring. I hear Seattle is nice.

  24. “The fundamentals for tech going forward do not look good. that has been obvious for some time now.”
    I call BS. Going forward in the short term perhaps, but not in the long term. The web (and tech) is here to stay. It just probably won’t be the tremendous explosive growth that everyone thought it was going to be. I think there is still a strong long term demand for much of the tech and innovation coming out of the Valley.

  25. “The fundamentals for tech going forward do not look good. that has been obvious for some time now.”
    How can you even value a tech company? Not even Warren buffett can do it. In a field with such rapid change, how can there be any short term or long term vision for the industry? Not to mention, how do you know who will monetize the “asset” they have?

  26. “Can you all believe that this whole downturn has one and only one starting point: overvalued Real Estate.”
    I disagree. the starting point was the massive credit bubble caused in part by overleveraging and over-expansion of credit. the first part that cracked was housing, but the starting point was the credit markets. however, even had housing done well we still would likely have seen this: either with Commercial Real Estate or perhaps one of the LBO deals etc.
    I call BS. Going forward in the short term perhaps, but not in the long term. The web (and tech) is here to stay
    fine. In the long run we’re all dead. Obviously my forecast about fundamentals of tech looking poor is a short/medium term forecast (a year or two). The rest of your post doesn’t make much sense. fundamentals can be bad regardless of whether or not tech is here to stay.
    the auto industry has been around for >100 years. housing industry has been around for hundreds or maybe even thousands of years. they’re not going anywere. And yet the fundamentals for both of those are also poor going forward (for the short/medium term measured in months/years)
    Yes, at some indeterminate time in the future things will look up again for tech… but it’ll be a while. it certainly isn’t going to be when we have retrenchment of advertising and capital expenditures by businesses and decreased spending by consumers during a severe longterm recession!

  27. “Can you all believe that this whole downturn has one and only one starting point: overvalued Real Estate.”
    The overvalued Real Estate was just the first domino of the credit bubble. The real stating point was just too much debt being created. If all that overvalued Real Estate had been bought with cash we wouldn’t be in this mess.
    In the 1960’s there was $1.53 of new US debt for every $1 of new GDP, in the 70’s it was $1.68, in the ’80’s it was $2.93, in the ’90’s it was $3.16 and so far in the 2000’s there has been $5.15 of new debt created in the US credit markets for each new dollar of GDP.

  28. To amplify @ex-SF, tech is here to stay, but the last 15 years were abnormal, and remaining tech workers may have to adjust expectations, and “younger” ones who only experienced the .com “bust” have no idea what may be coming.
    As I love repeating, Oracle, Genentech, Apple, and Microsoft were all started in the 1970’s, and Intel IPO’d in 71. You do not need a credit bubble to innovate in tech — or in other businesses: Gap *thrived* in the 70’s, for example.
    However, to make oodles of money from stock options or crazy acquisitions (or lever a house in Noe :)), a credit bubble is practically a prerequisite.

  29. ex SR-er, Rillion, I hear you. I was just venting on how we got there. After seeing so many cheerleaders overbidding themselves (and overbidding on the properties I sold, Merci Beaucoup), I cannot help but thinking that the collective insanity around RE is causing hardship to some who had nothing to do with this bubble.
    But that would be too simple: we all profited from that bubble, either through RE gains, refis, corporate profits or trickle-through money that flowed from the above-mentioned.
    These 2 bubbles (RE and Credit) went hand in hand, one feeding each other. It was started by a need to put housing cash into the hands of the consumer. And it ended when housing values became out of touch with the real economy. It was fun while it lasted.

  30. To quote the NYTimes :
    “For all the gloom, the tech industry is still far healthier than Wall Street. Unlike the banks, many technology companies are flush with cash. Cisco has close to $27 billion; Google, $14 billion; and Apple, $24 billion. It is likely that some of these funds will go toward acquiring struggling competitors. “The guys that aren’t as strong will be good pickings,” Mr. Coleman said.”
    Not all tech companies are in the position of Sun. Some trimming by some companies will be prudent, but I don’t see a massive implosion in the vein of the banks.
    How the Mr. Market decides to treat those stocks, however, is a whole ‘nother ballgame. I’m sure there are plenty of people out there that will dump these stocks as soon as the media outlets start screaming ‘tech crash!’.

  31. yes, I agree with you mediated.
    there will be clear tech winners from the coming storm. companies with a unique or non-easily duplicated product will fare better, as will those that have cash on hand (not cash due to stock price, but actual cash).
    one would assume these companies are Google, Microsoft, Apple, and many others who are “under the radar” such as EPIC, the dominant electronic medical record company based out of Madison WI.
    (it is very difficult to challenge Microsoft’s operating system, Google’s search engine, and Apple’s product line…. ask Safari, cuil, and Zune)
    however, consolidation is in general not good for employment numbers or salaries. the banking industry is going through consolidation and some banks will clearly come out stronger than before (like perhaps Wells Fargo as example). but overall employees in the banking sector are having a hard time (not including executives who get reocrd bonuses and golden parachutes).
    Likewise, I’d imagine that we’ll see some pretty ugly numbers from many of the tech companies which will put pressure on their employment numbers and salaries… the strong will gobble the weak but then you’ll see increased “efficiency” in the forms of salary/wage concessions and or layoffs. On the other side of this you’ll have the dominant players part 2.0, but they’ll be leaner and meaner. they’ll have to be to survive.
    there’s also the wild cards. Places like Facebook. sure, Facebook is dominant right now in it’s sphere of existence. but not too long ago it was MySpace. And both of them are in the end advertising companies with a tech flair (like Google and Yahoo! for that matter). Is Facebook non-duplicatable? or is it another Friendster/Myspace/social network at the whim of teenagers? we’ll see.
    all of course in my opinion.

  32. What I have been seeing for the last year in tech is that a smaller company gets acquired by a large company, and then the entire acquired company is laid off: the product development work is moved off shore, and the overhead is absorbed by the larger company with far fewer people.
    So a company of 75 gets acquired, everyone gets laid off, two more accounting positions from city college are added, and the rest of the work moves offshore.
    In the case of Sun, what you are seeing is the weaker players being forced out. Without a credit bubble, the buyers of Sun products start looking at their costs. “Do we really need to support a separate platform and pay all that money for it, when our own customers are demanding we cut costs?” Answer: not unless it’s absolutely necessary. So Sun lays off, as do a lot of other weaker players.
    Although Tech has done better than Wall Street, it’s only been because of timing. The credit bubble bursting imploded Wall Street almost immediately because it was ground zero, but now its effects are radiating into the broader economy. And that hurts tech. The weaker players, like Sun, will suffer almost immediately, but the stronger ones will lay off too.
    It’s just a natural adjustment to the new world order of a lack of easy credit that kept businesses in business who had no business being in business.
    So will Tech disappear? Hardly. But it’s going to have to go though a retrenchment, just like Wall Street.

  33. I haven’t seen cases as severe as what tipster mentions (acquired company laid off, operations moved offshore), but have noticed an increased trend towards offshore employment since the economy soured.
    The job market in India and China was booming in 2006 and salaries were rising in the double digits. This was a good thing for US based employees because higher overseas salaries meant less incentive to move jobs offshore.
    Now that the downturn has set in worldwide, salaries overseas has stagnated and there’s no more of a go go go competitive sense for hiring.
    The salary multiple between the USA and its offshore job markets is still at about 4X and that definitely catches the eye of management. When falling revenues place your balance sheet between a rock and a hard place, you do whatever is needed to stop the bleeding.

  34. “So will Tech disappear?” I think it will; there will be no more tech. Things will be so bad that we will all be using pens, paper, and abaci soon, be prepared. I am predicting this to happen about 3 weeks after the huge Alt-A reset and I have already began stocking relevant items.
    Re Sun: Most Sun employees have been underwater for like 8 years! These layoffs are anything but surprising- Anyone ever done business with these guys? I don’t think Sun ever had a huge layoff after the Dot Com bust as McNealy resisted this. Also, their bread and butter was the financial industry.
    “The GM of network computing.” -That’s really out of line. Sun has been one of the most innovative companies in sv.
    sun_engineer: Are you really ? Sun practically invented cloud computing ‘The Network is the Computer”. Amazon EC2 runs on OpenSolaris!
    The rate of Tech Spending is certainly slowing, and it will probably slow more. However, technically, it is still predicted to grow next year. I am watching Cisco closely- they are maintaining their guidance. It will be interesting to see if they can do that.

  35. Sun is so not a bellwether for “tech” and the financial prospects for the Bay Area. As several commenters above have noted, it’s an old-school hardware manufacturer that hasn’t been competitive in almost a decade. Same is true of HP, to name another obsolete large employer around here.
    The fact that these bloated, clueless companies are in financial trouble is no more indicative of the prospects for technology than the fact that GM is going under suggests that people are turning their backs on automobiles. The dinosaurs haven’t evolved in the same direction as the market, so they’re going to be extinct. What’s surprising about that? There is a universe of difference between low-margin hardware vendors such as Sun and high-margin software and services vendors such as Google. Sure there will be short-term pain, but the colossal business efficiencies yet to be harvested through more aggressive technology adoption suggest that tech will lead the way out of the recession, rather than fuel the fire.
    You guys may know real estate (actually, I have some doubts…), but you’re clueless when it comes to technology, so shaddup and learn something!

  36. “The fact that these bloated, clueless companies are in financial trouble is no more indicative of the prospects for technology than the fact that GM is going under suggests that people are turning their backs on automobiles.”
    Great analogy. How are the economies of Flint and Detroit doing these days sunnyvalesteve? Real estate in those two markets?
    It doesn’t matter if the companies doing layoffs are bloated and clueless or that in the long term tech will be fine. Unemployment is rising and it’s high wage jobs – bankers, tech, brokers – that are being lost in the Bay Area today. Talk about clueless.

  37. sunnyvalesteve: Sun is actually more than a hw company (your BlueRay player runs on their software and i wager this comment is stored in their database software). Sun is not currently in any financial trouble, they are in trouble with their shareholders and they are making adjustments now that should have been made long ago.

  38. Citigroup announced they will be cutting about 10% of their global workforce (about 350K employees). I’m not sure how that affects the Bay area though. Is there anyone in the financial services industry out there who knows what kind of presence they have here? The CNBC article is linked to my signature.

  39. The focus on Sun in this thread is a little too miopic – the employment market in the Bay Area surrounding tech is starting to slow down, and big companies that have highly compensated employees are starting to lay them off. While we’re nowhere near the Dot Com Bust days at the moment, the reality is that this recession is going to drive hard and deep across all segments of the economy, not just tech. The tech bust was driven by VC pulling their money out of tech, but the broader economy remained OK, thus was able to support the local housing market. That will not happen this time.
    Regarding Sun, Sun’s recent sales got pummeled because they sold a lot of high-end hardware into the financial firms and Wall Street, whom everyone knows has been getting pummeled for months. Ergo, Sun gets it where it hurts. Sun’s business was stabilizing just fine over the last couple of years, but obviously they were too reliant on one segment of the market and not diversified enough.
    Anyway, anyone who thinks SF is immune from this recession is delusional.

  40. Here’s a Business Times article from Sep 30 that mentions that Citigroup has 200K square feet at 1 Sansome. That space could handle up to 1,000 employees (although it’s probably less).
    Note that the article talks about the impact of the Wachovia acquisition – which of course went not to Citi but to Wells Fargo. Wells announced yesterday that they are wacking all of the Wachovia top brass. That will hit mostly Charlotte – but note from the Biz Times article that Wachovia has as many as 1,000 in the area.
    This is still the beginning – banks and investment banks are going to be downsizing for years (and everybody is a bank now, right?). Goldman Sachs announced last month it was cutting 10%. The world should rejoice that there will be fewer Goldman snouts at the feeding trough – but the downside to this is that there are now another 3,200 ex GS-ers looking to assume their exalted positions in the new world disorder.
    Most of these firms have a big SF presence. Many others here have commented on the direct and ripple effects of downsizing. It’s really going to be felt in the next few months.

  41. Just to add a little personal perspective, at my small tech consultancy, we are seeing a pretty sharp slow down. Nov/Dec are generally slow for us, so I am not entirely sure that it’s not just the seasonal slow down. But I have a feeling that it’s not just the seasonal slowdown 🙁

  42. @TechDefender – Yes, I am really – while you are correct that we practically invented cloud computing, McNealy didn’t monetize it. We still don’t have an offering to directly compete with Amazon web services, for example. Until we do that, we’re not really in the game. That’s one of the stated internal goals in the memos that came out about the RIF. I think that it’s the right direction, but we’re losing because we’re late to the party.

  43. as a counterbalance:
    HP just beat estimates.
    so although the outlook for tech is pretty grim, there will be some relative winners. (as I said above)

  44. the diversification and decoupling that was presumed to happen at some level does not appear to be happen locally or globally
    The BRIC countries (Brazil, Russia, India and China) are all still growing and are expected to continue growing throughout all of next year. While all of them are slowing down, none are expected to fall into a recession. China, for example, is predicted by The Economist to grow at 7% next year, hardly a recession, though it is a slow down from this years 10%+ growth rate.
    All of them have large reserves and sound banking systems and all are spending to stimulate the local economy. The downturn in commodity costs is particularly going to help China (and hurt Russia).

  45. sun-engineer, there is no real party going on- very few companies have made good money in ‘cloud computing’ so I wouldnt fault McNealy for that; its basically just a marketing term. Amazon already has the infrastructure in place and briliantly leverages unused cycles for ec2. Sun missed the boat when it do a massive reorg 6-7 years ago.

  46. “Cisco Systems Inc., the world’s biggest networking-gear maker, plans to shutter its North American offices for five days for the first time in more than a decade as it seeks to shave $1 billion in costs.
    The company’s U.S. and Canada offices will be closed Dec. 29 through Jan. 2, Terry Alberstein, a spokesman, said in an e-mail today. Some teams including technical support will be working.
    Customers are withholding orders because of the financial crisis, forcing Cisco to suspend hiring, business travel and relocations in a bid to cut expenses. Chief Executive Officer John Chambers forecast a revenue decline for the first time in five years for the second quarter, which ends in January.”

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