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Tuesday, 2 July, 2002, 09:57 GMT 10:57 UK
Valley firms laze their way back to profits
Hewlett-Packard sign
Hewlett-Packard: Holiday will "help improve efficiency"

Silicon Valley will represent something of a ghost town this week as many companies temporarily shut down to save cash and jobs.

Cost conscious hi-tech firms are stretching the traditional one-day 4 July holiday to two days, or even a whole week, as they struggle to recover from the worst recession in the valley's history.

The majority of employees like the idea of taking time off. It's almost like summer vacation from school

Holly Campbell, Adobe
A host of big name tech firms are asking, and in some cases even demanding, that thousands of workers take extra time off for what would be a shortened week anyway because of the Independence Day holiday on Thursday.

Firms using mass closures to slash their bills include Sun Microsystems, Hewlett-Packard, Verisign, Broadvision, Adobe Systems, Novell, Silicon Graphics and SGI.

Growing trend

In a memo, HP told its 74,000 US employees that shutting up shop would "help improve efficiency and enhance our ability to execute through the current US market softness".

HP is already in the midst of a massive cost cutting exercise following its $18bn merger with Compaq Computers.

A total of 15,000 jobs are currently being axed following the deal.

Sun has told employees to take holiday time or unpaid leave for the week, the first of its fiscal year and its slowest.

Verisign, which has asked its 3,000 workers to take six vacation days over the next four months to reduce expenses is also considering shutdowns during other national holidays such as Labour Day and Thanksgiving.

Verisign's stock has plummeted from a $62 high to just under $7 over recent months, and was listed by Davis Skaggs & Co as the second worst returning stock in the second quarter.

Popular measure

Over at Adobe, 2,100 Northern American workers have been asked to take four days off during the week.

It's estimated that turning off the lights and halting production will save less than 0.5% of the company's operating costs.

Last year the San Jose based company sliced $3-4m from its expense budget by closing the week of 4 July.

Spokeswoman Holly Campbell says: "The majority of employees like the idea of taking time off at the same time. It's almost like summer vacation from school."

'Cyclical strategy'

Accountants say these forced vacations and plant shutdowns really help the bottom line for a company in a number of ways.

Some employees take unpaid leave, reducing operating expenses. If workers take paid time off, its gets the liability off the employers' books.

And businesses can reduce costs without chopping jobs, saving investments in recruiting and training. Shutdowns also save on energy costs.

Paul Saffo of the Institute for the Future says: "Company closures, like lay-offs, are a cyclical business strategy in the valley."

Jam buster

This is the second straight year that parts of Silicon Valley has put up the shutters.

Last year the San Francisco Chronicle said the effects were clearly easy to spot.

"Giant parking lots at Sun's headquarters were as empty as a baseball stadium in the off-season," explains journalist Verne Kopytoff.

"And Highway 101, usually stop and go on weekdays, was mostly clear along the peninsula."

Legal issue

Last year the practice was met with some criticism from California's Labour Commission which raised questions about companies requiring workers to take holiday time.

State attorneys at the time claimed that managers might become eligible for future overtime if they were forced to take time off.

This year, in the midst of the downturn, the commission has modified its stance.

Commission attorney Miles Locker now states that firms may tell managers to stay home for the week without making them eligible for future overtime.

This week's shutdowns underline just how much the hi-tech industry is suffering amid the continuing slump.

Such action would have been unimaginable in the boom years of the late 90s when product demand went through the roof and workers toiled for 18 hours a day and slept under their desks to meet orders.

See also:

07 Jun 02 | Business
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