Should Google Cut Deeper?

The Silicon Valley rumor mill is churning again. This time, unconfirmed reports have Google (Nasdaq: GOOG  ) extending job cuts from contractors and recruiters to coders.

Mary Hodder, a UC Berkeley graduate student who is well connected in the Valley, first reported the rumblings last night on Twitter. "We think [Google] is quietly laying [people] off so as not to alert press. [Managers] have mandate to reduce [headcount], no matter how critical the project," she wrote.

Google hadn't responded to my requests for comment as of this writing. But imagine if Hodder is correct. The more-than-20% gain in its shares since reporting bear-busting earnings suggests that we investors think of Google as something more than your average techie. We rank the Big G above Yahoo! (Nasdaq: YHOO  ) , Microsoft (Nasdaq: MSFT  ) , Cisco (Nasdaq: CSCO  ) , and Sun Microsystems (Nasdaq: JAVA  ) , which, combined, have eliminated close to 16,000 positions since October.

So if the rumor about Google laying off engineers is true, what does that mean for shareholders? These are the guys behind the Big G. Cutting them out would be one big mistake.

Think of the timing. CEO Eric Schmidt recently told investors to expect $460 million in non-cash charges to reprice stock options and retain talent. But if Google is so desperate to cut costs that it is clearing out engineers, is it really going to be able to shed $460 million from its talent payroll? Yet cut anything less, and engineering reductions would be -- for shareholders, at least -- a net loser. I suppose I'd be quiet, too.

Hodder, meanwhile, says she's seen proof of the cuts, citing documents in a response to Seesmic.com founder Loic Le Meur, another well-connected entrepreneur. Hodder also spoke of worn-out coders working 18-hour days and, for the recently cut, meager severance plans. Not exactly the sort of news that inspires shareholders, is it?

Nope, especially when Hodder isn't the first to write of engineering layoffs at the Big G. Owen Thomas of Valleywag recently reported that executives were preparing to cut 5% of the engineering staff.

I hope they're wrong; the options repricing is evil enough. Yeah, I understand it's probably a necessary step to thrive in the Valley's options-obsessed compensation culture. Boo-freaking-hoo. Google has close to $16 billion in cash and short-term investments. What's the point of all that moola if it isn't to attract, retain, and train coding talent?

Or maybe the bigger question isn't if Google is laying off engineering talent, but rather why would it want to now, when it's better positioned than most peers? If you can answer that, Fool, you're smarter than I.

Have a different take? Are you able to comment upon or confirm the rumor? Write to me here. I'll follow up the minute there's more news to report.

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Fool contributor Tim Beyers had stock and options positions in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy might have had too much caffeine.


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  • Report this Comment On February 10, 2009, at 1:04 PM, birdyspice wrote:

    i've already "reported" this a few months ago just in the comments of news articles about other google layoffs.

    i too have a lot of friends that work at youtube/google that have been let go. I've seen people fired for "cause" when their previous ratings were better than satisfactory. i've seen people who had made no previous mention of leaving all of the sudden saying they are moving on to "better things" even in this struggling job market. that's FISHY!

    I've personally talked to a friend who was ordered by management to find a reason to rationalize letting go of a couple of people because Google required them to make some cuts in their department. even though the workload required the headcount, they were still instructed to make cuts.

    "Do no evil"? Yeah right!! I wonder how many of these people are having a hard time collecting unemployment because they were fired instead of laid off like a normal honorable company would do. what a shady way to artificially inflate profits.

    at real comanies who aren't just flash in the pan like IBM where i worked a few years ago, they let go of superfluous middle management who make higher incomes but don't actually do anything. google is cutting their bread and butter. what a shame.

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