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Will the Credit Crunch Hit Silicon Valley?

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[qi:006] Updated: The San Francisco Bay Area is living, it seems, in a protective cocoon of its own, oblivious to the current credit crunch and fiscal crisis that has been roiling the rest of America. This morning, while there is talk of a bailout plan being finalized, it hasn’t stopped almost everyone from cab drivers to doctors from worrying about the jaw-dropping sequence of events that has unfolded over the past few weeks.

I’ve been thinking about the impact of tightening money supply on larger technology companies. There are big players, like IBM and the telecom operators, who tap the commercial paper market to raise money pretty frequently. It seems logical that their ability to raise more money could be hampered. Curious, I got in touch with about a dozen or so big tech companies to take the pulse of their sentiment. So far, not many of them seem worried.

For instance, a Cisco Systems (s CSCO) spokesperson pointed out that his company had about $26 billion in cash, cash equivalents and investments. “As a result of our strong balance sheet and quarterly cash generation, we have very little requirement to access the credit or debt markets.”

I couldn’t get any takers at Microsoft Corp. (MSFT) to comment on the credit crunch and how it would impact their business. I wasn’t going to ask anything about the AOL-Yahoo-Microsoft menage a trois. Google declined to comment, mostly because it’s in a quiet period right now ahead of earnings. Like Cisco, those two companies have a ton of cash and very little need to tap credit markets.

There are a lot of names missing from the list, but many were not able to get back to us on time. I suspect on Monday we will update the story accordingly. Stacey has reached out to chip companies as well and will find out what they’re thinking. Update: Nvidia said it would lay off 360 people earlier this month in part because of the current economic conditions, but mostly because they are having a hard time financially, thanks to chip recalls and poor pricing decisions.

One sector I have worried the most about is telecom, where companies frequently go to the debt market and raise short-term capital. I have not heard back from AT&T (s ATT) and Verizon (s VZ)  declined to comment. I think telecom companies do use commercial paper to raise money for their needs, and they will indeed feel some sort of an impact.

Level 3 (s LVLT), one company I thought should be worried about tight debt markets, got back to me pretty quickly. Their spokesperson said that their “liquidity position is strong. We had $666 million in cash and marketable securities on the balance sheet as of the end of Q2, 2008…We do not have any debt due until Sept 2009 ($362M) and feel comfortable that we can pay that off with cash. We also have some (some) $500M due in March 2010, which we will have to refinance, but feel that we have plenty of time to get that taken care of.”

In addition to telecom, as CNET’s points out things might get rough for clean technology companies. That shouldn’t come as a surprise since many of the cleantech projects are big-ticket items. In addition, large investment banks such as Merrill Lynch and Lehman Brothers were big players in raising financing for many cleantech companies. (You can follow the cleantech sector on our sister blog, Earth2Tech.)

14 Responses to “Will the Credit Crunch Hit Silicon Valley?”

  1. Any rational company or person would look at their exposure to the effects of the credit crunch. While the negative impact looks like it’ll reach everything and everyone, opportunities can present themselves.

    Although, among the big players that provide services (e.g., IBM), I think there will be a big hit. Also, many startups that are beyond seed stage and are attempting to grow in this economy should expect some trouble as well.


  2. The credit crunch is going to hit every industry and everyone. It depends on your cash flow whether you will be affected negatively or positively. Companies like APPL, CSCO and MSFT have a boatload of cash and probably could setup their own banks since most banks are disappearing these days. If you are a startup and looking for money, it will likely be more difficult since everyone is trying to conserve cash.

    During difficult times were when companies like MSFT, CSCO and GOOG were created.

  3. Its not just the tech companies who are scratching their heads, trying to figure out what the fuss is about. 2/3 of the american public dislike the “bailout” plan that has been all but agreed upon by our govt.

    I guess us kids have to go up to bed while the grownups figure out whats best.

  4. Yes, it will impact silicon valley

    I wrote about it

    Companies to announce salary cuts, rather than layoffs
    Letter to CEOs of companies:
    Dear Sir, In light of the current economic crisis, it will be better for companies to apply salary cuts, instead of layoffs. Such layoffs will depress the economy further, and the people who remain on board the companies will have to work harder, which will have much more toll on their body and mind. On the other hand, if there are salary cuts, not only will everyone be weather the storm, but also it will bring US salaries closer to those of other countries, and will have much more overall ameliorating effects on everyone.

    Best regards, Avinash
    Published at :

    Wrote :
    HP CEO :
    Intel CEO : [email protected] ,
    Cisco CEO : [email protected]; [email protected]
    Sun Micro : [email protected] , [email protected]
    Posted by Avinash Agrawal at 10:44 AM 0 comments