LAST year, Google handed out US$1,000 ($1,450) cash gifts to most employees .

This year, to reduce cost during the economic downturn, the company is giving employees mobile phones instead, reported Bloomberg.

But they're no ordinary phones.

They're the G1 Android phones, first launched in October, offering many of the same features as Apple's iPhones, including web browsing.

The holiday gift is separate from the performance bonus handed out by the company, according to a person familiar with the matter.

About 85 per cent of workers will get a handset powered by Google's Android operating system, said the person, who asked not to be identified.

Chief executive officer Eric Schmidt said last month that Google is seeking to control expenses and add fewer jobs as the global slump curbs online advertising growth.

'The current economic crisis requires us to be more conservative about how we spend our money,' the California-based Google said in an internal memo that was posted on technology industry blog Valleywag.

The memo lists 17 countries where the phone won't work, including Brazil, Russia, India and China.

Employees in those countries will receive about US$400, the cash value of the phone, Google said in the memo.

Google, which offers employee benefits such as free gourmet lunches and massages, has clamped down on costs as the recession squeezes online ad revenue.

Mr Douglas Anmuth, an analyst at Barclays Capital in New York, lowered his forecast for US Internet ad spending last week by 11 per cent to US$25 billion in 2009.

Google added 519 workers in the third quarter, compared with 2,130 in the same period a year earlier.

Google said last month it would reduce the use of contract workers.

At the end of the quarter, the company had more than 20,000 regular employees, up from almost 11,000 at the end of 2006.

Technology companies throughout Silicon Valley and beyond are grappling with a slowing economy, forcing them to cut workers and roll back other expenses.

Printer and computer maker Hewlett-Packard is freezing salaries to lower expenses, people with knowledge of that decision said.

This story was first published in The New Paper on 27 December 2008.