In Silicon Valley, some exit start-ups for old stalwarts

As the dot-com bust gave way to revival, many Silicon Valley engineers left large companies to join start-ups, drawn by excitement and the promise of fat payouts. Last month, Ameet Kher headed in the other direction.

From late 2006, the 35-year-old software engineer worked at a small telecommunications-equipment maker called Ditech Networks Inc. of Mountain View, Calif. Last year, the company swung to a net loss and laid off employees. Seeing headlines about an economic slowdown, Mr. Kher got nervous and started hunting for another job. Offers came from two tech start-ups, but he wasn't interested in start-ups anymore. He wanted to join a big company.

"I know there's a downturn coming," Mr. Kher says. "I didn't want to take any more risk." On Feb. 4, he joined BlackBerry maker Research In Motion Ltd. as a senior software engineer.

Mr. Kher is part of a new flight to safety among tech-industry workers as the economy struggles. In growing numbers, these workers are gravitating to larger companies that they hope can better weather a downturn. Ian Arcuri, an engineer in Research Triangle Park, N.C., left a local tech start-up to join giant Cisco Systems Inc. in October. "If I have to live through an economic downturn for three years, then I'd like to be at a company with a big war chest," he says.

There's no data on these job shifts, and recruiters and companies say the trend is nascent. Start-ups certainly aren't being abandoned en masse. But early signs of a mind-set shift are unmistakable, evoking memories of previous migrations to stabler jobs. During the dot-com bust that began in the year 2000, dozens of Silicon Valley start-ups withered or disappeared, while many large tech firms survived. Sure, big tech companies eventually began firing as well, but engineers who leaped to safety early were more likely to survive cutbacks.

Some see a window of opportunity to jump now. "Right now, people can still move to safer jobs. There isn't a complete job freeze as there was" in the dot-com bust, says AnnaLee Saxenian, who has studied the Silicon Valley labor market and is dean of the School of Information at the University of California at Berkeley.

The weakening economy is bringing into focus the risk that technology start-ups face. After a decade of working for such firms, engineer Thomas Hanley last year started getting stiffed on the occasional paycheck, so strapped was his employer, which he declines to name. Having just started a family, the 33-year-old Mr. Hanley took a job at Silicon Valley software maker Intuit Inc., a $2.7 billion company. Intuit actually provides health benefits, in contrast to the tech start-up he escaped. "I couldn't do that anymore," Mr. Hanley says of the hand-to-mouth existence of many start-ups.

The dream of nearly every start-up IPO riches is taking longer to materialize, when it happens at all. Tech start-ups today take an average of just over seven years to get to an initial public offering, up from about three years in 2000, according to research firm VentureOne. And the number of tech IPOs remains far off the peak of the dot-com boom: Last year, just 34 tech start-ups went public, down from 105 in 2000, according to VentureOne. (VentureOne is owned by News Corp., which publishes The Wall Street Journal.)

Half a year ago, recruiter Mark Hill couldn't find certain types of engineers to consider abandoning their jobs at start-ups. But today, "I get calls back pretty quickly," says Mr. Hill, of the recruiting firm Harwood Allen.

Across Silicon Valley, the social status of big-company workers suddenly is elevated. David Roman was hardly the envy of his peers when he joined Hewlett-Packard Co. as a marketing executive in 2005. In a valley of sizzling start-ups, giant H-P was "not the type of company you aspired to join," he recalls.

But late last month, attendees of a Silicon Valley marketing event besieged Mr. Roman about job opportunities at H-P. Arriving at his office the next morning, he found five resumes from event participants in his email inbox. Calling H-P a "cooler" place to work, Mr. Roman says, "We're the hot ticket in town right now."

Of course, some tech start-ups are thriving. Slide Inc., a San Francisco-based start-up that makes software programs for social-networking Web sites, recently raised $50 million in funding to use for hiring in case a recession materializes. The Web start-up, which currently employs about 70 people, plans to double its work force by the end of the year and also move into an office space that is twice the size of its current 8,300-square-foot digs. Slide spokeswoman Tammy Nam says, "If there's a serious recession, then we're in a much better position to be competitive with a serious war chest."

Workers shifting to large companies now appear more likely to hang on to those jobs, at least for the moment. While layoff rates at big concerns soared amid the slump earlier this decade, large companies are shedding workers more slowly just now. According to the Bureau of Labor Statistics, layoffs comprising more than 500 workers at a time typically those made by large companies accounted for fewer than a quarter of the country's total layoffs in 2007's fourth quarter, down from about a third of all layoffs in late 2001.

Moreover, an analysis by Moody's Economy.com found that big companies had the largest net job gains through early last year, outstripping job growth at small firms.

In the past, layoffs from large companies sent workers in underperforming regions packing to faster-growing ones. According to the California Department of Finance, more than 108,000 people evacuated Silicon Valley between 2000 and 2003, a period when one in five jobs in the nation's tech capital disappeared. Tech workers dispersed to the East Coast, to up-and-coming tech centers such as Austin, Texas, and to India and China.

This time, however, there is little relocation so far, especially with the housing slump, credit crunch and rising oil prices affecting all corners of the economy.

As Silicon Valley recovered from the tech slump in 2004 and 2005, dozens of Web start-ups flourished, and many engineers sought big paydays by joining tiny companies such as YouTube and Facebook Inc. Venture capitalists poured $9.9 billion into young companies in the area last year, up from $6.8 billion in 2003, according to VentureOne.

Nonetheless, Silicon Valley is now displaying some signs of weakness.

In January, the unemployment rate in Silicon Valley's metropolitan areas of San Jose, Sunnyvale and Santa Clara rose to 5.3 percent from 4.8 percent a year ago. And while the region added a net 28,000 new jobs last year, that was down from 33,000 in 2006, according to Joint Venture Silicon Valley, a nonprofit group representing local businesses and government agencies. Meanwhile, the unemployment rate in North Carolina's Raleigh-Durham-Cary region where Research Triangle Park is located was 3.6 percent in December, virtually unchanged from 3.7 percent a year ago, according to the state's employment commission.

An urge for safety is gripping tech workers like Ravi Narayanan. Through late February, the 45-year-old was a vice president of operations at semiconductor start-up WISchip International Ltd., which was acquired in 2005 by a larger Swiss-based semiconductor maker called Micronas Group. Last October, amid weakening business conditions, Micronas restructured its business, leaving unclear the fate of the unit formerly known as WISchip. "It could be a cold winter," Mr. Narayanan recalls thinking.

In December, he began seeking a new job, specifically targeting fast-growing large companies with several thousand employees. Last month, he joined the Silicon Valley offices of Tyco Electronics Ltd., which employs 94,000 workers and last year produced $13.5 billion in sales across 150 countries.

His move came not a moment too soon. A Micronas spokeswoman says the company is closing the office that employed Mr. Narayanan.

Outside Silicon Valley, tech workers are also searching for safer havens. Mr. Arcuri, the engineer who joined Cisco's Research Triangle Park offices last year, had worked at five tech start-ups since 1995. Most recently, the 42-year-old was a project manager at mobile-video start-up Integrian Inc. in Morrisville, N.C. When he joined Integrian in 2004, he hoped that it would go public and turn his 40,000 stock options into a huge windfall.

In mid-2007, however, he threw in the towel on start-ups. With the economy struggling, his third child on the way and no IPO for Integrian in sight, Mr. Arcuri began surfing the job boards of big tech firms such as Cisco and International Business Machines Corp.

"I saw the entire economy getting shaky; it was a safe harbor thing" to go to a big firm, he says.

In October, Mr. Arcuri joined Cisco's customer-advocacy division as a program manager. While earning about the same salary as at Integrian slightly more than $100,000 a year he says Cisco offers better benefits, a strong bonus program that gives him up to 15 percent of his annual salary and more-flexible working hours.

Of course, his security isn't guaranteed. Cisco last month reported a pullback in customer orders amid slower tech spending. The San Jose, Calif., company's stock is down more than 11 percent so far this year. Some on Wall Street posit the $35 billion networking giant may trim costs through layoffs of its 64,000-person work force. A Cisco spokeswoman says no companywide layoffs are currently planned, but notes, "Cisco constantly reviews ways to streamline."

Mr. Arcuri says he recognizes his move to Cisco hasn't immunized him. "But am I less susceptible than at a start-up? Probably," he says.

For Mr. Kher, shifting to a large company is a return to his career roots. The India native moved to the U.S. in the 1990s to obtain a graduate degree, then worked at big companies such as Nortel Networks Corp. and Cisco in Research Triangle Park. In late 2006, he uprooted from North Carolina to Northern California to join Ditech, excited by the growth potential of a small firm.

At the time, Ditech was on an upswing. The company, which went public in the late 1990s, was reporting growing sales and profits from customers such as Verizon Wireless, a joint venture between Verizon Communications Inc. and Vodafone Group PLC. Ditech, with 160 employees, makes software and gear to improve the voice quality of phone calls on wireless and Internet telephony networks.

"Ditech was my first small company," says Mr. Kher, who moved his wife and toddler to a two-bedroom condo in Sunnyvale, Calif., for the chance to make it big through Ditech's stock-options program. "I wanted to take a chance (because) smaller companies can have a bigger upside potential than a large company."

Late last year, Ditech's sales dropped. The company blames the slowdown on the disruption that its telecom customers were undergoing as they transitioned to next-generation wireless networks. Ditech's revenues have declined to less than $7 million a quarter, down 70 percent from more than $22 million a quarter a year earlier. In November, it announced layoffs of 20 percent of its work force.

Mr. Kher grew concerned, especially when several colleagues fled for nearby Cisco and other large Silicon Valley companies. A self-professed "Wall Street junkie," Mr. Kher trades his own portfolio of tech stocks, and his fears heightened after he watched reports on CNBC about the stock market's volatility and a possible recession. "The economy will go down eventually," he recalls thinking.

In December, he posted his resume on several Internet job sites. His wife, also a software engineer, encouraged him to pursue a variety of options. But "I wanted to go back to a big company," he says. "Start-ups throw money at you, but after two quarters, they can disappear." He adds that he and his wife have discussed buying a house this year, despite the area's high home prices. In January, the median price of a single-family home in Santa Clara County was $750,000, according to the California Association of Realtors.

Loc Tran, a recruiter at technical staffing firm Ryzen Solutions in San Jose, spotted Mr. Kher's resume on the Web and called. "Ameet wanted a big company with growth potential," says Mr. Tran. "A start-up was a hard sell because the probability of a company doing well is one in 100."

A week before Christmas, Mr. Kher took time off to interview with new employers. He got offers from two networking start-ups, both of which had several rounds of venture-capital funding under their belts and fewer than 100 employees. The third offer he got was from RIM, the $3 billion maker of BlackBerry smartphones that employs 7,500 workers world-wide.

Based in Waterloo, Ontario, and with offices in Redwood City, Calif., RIM wooed Mr. Kher by sketching out a possible leadership role in the future. Mr. Kher says big companies were also offering a 10 percent compensation increase, including sign-on bonus, with engineers of his experience making $120,000 to $140,000 in salary a year. He declined to detail his RIM pay package.

Elizabeth Roe Pfeifer, RIM's vice president of organizational development, says she has recently seen that "the economy is causing more pause" among engineers, with more job candidates aiming to move from smaller to larger companies "in search of greater stability, funding and opportunity."

After getting his RIM offer, Mr. Kher says Ditech matched the package, hoping he would stay. Ditech's CEO also stopped by his cubicle to ask him to remain. By then, he had decided to opt for the safety of a big firm. "It's back to what I'm used to," he says.