SAN FRANCISCO (Bloomberg) - Google Inc., owner of the world's most-used search engine, is giving employees mobile phones instead of cash gifts this year as it reins in costs during the recession, according to a person familiar with the matter.

About 85 percent of workers will get a handset powered by Google's Android operating system as a holiday gift, said the person, who asked not to be identified. Google handed out $1,000 cash gifts to most employees last year.

CEO Eric Schmidt said last month that Google is seeking to control expenses and add fewer jobs as the global slump curbs online advertising growth. T-Mobile USA Inc. began marketing the G1 Android phone in October, offering many of the same features as Apple Inc.'s iPhone, including Web browsing. The holiday gift is separate from the performance bonus handed out by the company, the person said.

"The current economic crisis requires us to be more conservative about how we spend our money," Mountain View, 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 $400, the cash value of the phone, Google said in the memo.

Google rose 91 cents to $298.02 at 4pm New York time in Nasdaq Stock market trading. The shares have lost 57 percent this year.

Krista Bessinger, a Google spokeswoman, did not return a call seeking comment.

Google, which offers employee benefits such as free gourmet lunches and massages, has clamped down on costs as the recession squeezes online ad revenue. Douglas Anmuth, an analyst at Barclays Capital in New York, lowered his forecast for US Internet ad spending last week by 11 percent to $25.1 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 Co. is freezing salaries to lower expenses, people with knowledge of that decision said. Technology services company Unisys Corp. said yesterday it was cutting about 4.5 percent of its workforce and halting some pay raises.

Half of chief information officers are looking to cut consulting-services costs, 35 percent want to reduce computer and server expenses, and 23 percent are seeking savings on software, according to a Goldman Sachs Group Inc. survey.