Many early-stage startups are giving up, but for startups that raised enough during better times, a new tactic is emerging. Alternatively called hibernation mode, conservation mode or survival mode, it is brutal but increasingly common.

Numerous startups had raised just enough money to complete their initial design, assuming additional funding would come once the chip was working. Without new funding, some companies are laying off most of the engineers that helped to develop the product, retaining only key engineering talent plus a management and sales team.

This new structure allows the startup to continue selling its product, hoping to gain enough design wins to attract funding. In the meantime, the company's burn rate, or monthly expenditure, is greatly reduced, stretching one or two quarters of funding into a year or more of life.

In the network processor segment alone, Silicon Access laid off 150 of its 220 employees in the past year; Internet Machines said goodbye to 40 percent of its staff; Cognigine discarded two-thirds of its staff; and ClearSpeed shrunk from more than 100 employees to 23. All of those companies remain in business, selling their existing products.

Some of the cutbacks were due to overstaffing and changes in business plan. And the cutbacks may not be permanent: If a company can survive this long winter of despair, it can hire a new engineering team if it gets more funding.

But, in the meantime, a hibernating company cannot develop follow-on products, except perhaps for simple derivatives. Even if the company eventually finds funding, it will be behind its competitors in developing next-generation products. This uncertain road map makes it even more difficult to gain design wins.

Hibernation is particularly harsh on the engineers who have worked long hours to achieve a tapeout milestone only to be laid off, in some cases before seeing first silicon. Hoping to get valuable stock options, they get only a pink slip.

Market consolidation, much needed in many cases, is being delayed as these companies refuse to give up. Some will survive using this strategy, but most will find that even cryogenically preserved products won't stay good for long in rapidly changing markets.

Linley Gwennap is founder and principal analyst of the Linley Group (www.linleygroup.com).