Year in review: Lows for the high-tech economy

The year 2008 wasn't quite the annus horribilis of the tech industry--that honor belongs to 2001. But it was close.

What seemed like a decent if uninspiring year for the industry, despite bad news from the real estate markets and creeping trouble in the financial sector, went south in September.

Not long after Lehman Brothers went into bankruptcy and the extent of the wreckage on Wall Street was becoming apparent, one of the first big tech companies to sound the alarm bell was German software maker SAP.

For people who follow the booms and busts of the tech industry, SAP's place among the first to announce earnings trouble was a shocker: big corporate software companies are supposed to be among the last tech companies to run into trouble. The theory is that customers invest in this sort of software to create efficiencies and save money while they scrimp on other technology, like PCs and new-fangled stuff like social-networking software.

But in this worsening recession, common wisdom need not apply. The modern tech industry has never experienced this deep of a slump in the overall economy, so how it will fare is unclear. Some fear it could be years until the economy--and the tech industry with it--rights itself. Others are quick to point out that tech has experienced neither the over-employment nor the over-investment of the dot-com years, and as a result there isn't as much fat to be cut now.

The caveat: the dot-com bust was for the most part self-contained. Non-tech industries didn't crash the way tech did seven years ago. This time around, it's everyone's problem, and there's little question tech will suffer. Already, Silicon Valley giants like Sun Microsystems, Symantec, and Applied Materials have announced major layoffs. Others, such as Hewlett-Packard, have politely asked their employees, in a cost-cutting effort, not to show up for work for a while around the holidays.

The question mark is what happens to start-ups and the venture capitalists who fund them. By now, the October tough-love meeting that venture capitalists at Sequoia Capital had with the companies in which they've invested is legendary. The basic messages were "R.I.P., good times" and start scrimping.

Now, there's even concern regarding the survival of some second-tier venture capital firms, as it becomes harder for them to call in money from their investors.

But don't get too pessimistic about tech: perhaps more than any other sector of the economy, the tech industry is accustomed to booms and busts. The PC bust of the late-1980s consolidated the industry around companies such as Intel, Microsoft, and Dell. The dot-com bust cleared the way for consolidation around the likes of Google and Yahoo. And through it all, Apple has risen and fallen and risen again. Perhaps a little culling of the Web 2.0 herd will allow hot, young companies like Facebook to thrive.

There's one other reason for a bit of solace: this time, no one is blaming the world's financial problems on the excesses of Silicon Valley.