What If It’s Worse Than We Think?

[qi:115] When the financial crisis reached full bloom last fall, it took many technology companies some time before they were able to appreciate the impact it would have on them. This year, we’re seeing the fallout in the form big losses or shrunken profits, layoffs and other signs of retrenchment.

Alongside the pain, however, there’s a sense of optimism — that the worst is over and the tech industry just has to muddle through until the economy recovers. But the worst may not, in fact, be over; Financial Meltdown 2.0 might be lurking around the corner to deliver a second, possibly harsher blow.

The tech world is at a crossroads. But the choice of which road we take isn’t ours. It belongs to the financial markets and the regulators who are still struggling to right them. On Monday, Treasury Secretary Tim Geithner is expected to unveil another plan to address the big banks’ bad assets and stop more homeowners from falling into foreclosure. Details of the plan may offer a signpost as to where we’re headed.

Down one road is a scenario described by Cisco (s csco) CEO John Chambers this week:

“The majority of our customers are guessing 2010 while a smaller group sees the upturn towards the end of 2009. Given the coordinated activities of global central banks and the extremely large stimulus packages that are being implemented in almost all of our major countries, I tend to be a little bit more optimistic than most of my customers.”

The other road isn’t so sunny, and it’s the road we’ll head down if Geithner’s fix doesn’t work and the markets slip into another crisis. Some of the people who saw the banking crisis coming early on are suggesting that course is the more likely one. George Soros argued last week that bank assets are still deteriorating despite the first round of rescue money, a fact evident in bank stock prices. Others, like Eric Sprott, Bill Gross and Mark Faber, are now discussing a depression as if it’s a near certainty.

Not a recession, a depression.

If executives at technology companies are also talking about this, it’s not very audible. Last week’s news focused on new ways of looking at the ocean floor from your computer, or being able track (even stalk) your friends. These are interesting enough innovations, but what are companies planning to do if another crisis hits?

Right now, an economic depression is still far from certain, but the possibility is real enough that companies will need to prepare. What will it mean?

At first, it will favor large, cash-rich companies like Google (s goog), Microsoft (s msft) and Cisco, or any company that can finance itself through its own operations. Others with decent promise but weak cash flows might hope to be bought. VCs will be forced to trim portfolios. Companies that have cut staff to the bone will have to cut more, even at the risk of hurting future growth. But even healthier companies might see their cash flows dwindle over time.

For the past few years, most tech companies have progressed incrementally, tossing out a new feature or a new gadget and seeing what takes root. But an even tougher economy would demand harder questions, rethinking what a company does at the most basic level: Why is your company here? What is it offering and why would someone else want to pay for your stuff?

In short, what would your company look like in a dramatically different economic landscape? To be clear, let me say again that the landscape may not necessarily change. Maybe John Chambers’ optimism will prove to be right. But we have reached a point where we need to at least be asking, what if things are worse that we think?