(FORTUNE Magazine) – Tech executives have plenty to worry about. Stocks in the dumps. PC sales at a crawl. Layoffs from San Jose to Austin. And then there's the people problem: the reverse brain drain. With tech entering the third year of its slump, a significant number of foreign-born engineers who flocked to America in the '90s are heading home, either by choice or, increasingly, because they've been laid off and have lost their work visas.

Take Rama Velpuri. The Indian-born engineer is a U.S. citizen with a degree from Louisiana State, and he spent the '90s working at Oracle. But when he started his own software firm, Oramasters, he decamped for Hyderabad, India. There he runs his company for only $30,000 a month (including payroll for his 25 employees) and pays $1,000 a month for a five-bedroom house in Hyderabad's tony Jubilee Hills (complete with three maids, a chauffeur, and a gardener).

There's plenty of evidence that thousands of less lucky foreigners have been forced to leave the U.S. too. Thom Stohler, a lobbyist for the American Electronics Association, points out that the number of temporary work visas, known as H-1Bs, has dropped from more than 163,000 in 2001 to a projected 90,000 in 2002. Girish Gaitonde, CEO of Xoriant, an IT services firm in San Jose, says he employed 400 H-1B workers in 2000 but has only 125 today. And stories are circulating in the Valley of immigrants abandoning their cars and homes to move back in with their parents abroad.

But beyond the outflow of techies, Intel, Microsoft, and others have begun worrying publicly about a much broader problem: overall U.S. tech dominance. Speaking at the Agenda technology conference in Scottsdale recently, Intel CTO Pat Gelsinger fretted that "perhaps the current downsizing of the U.S. IT industry is not a temporary thing. Maybe we are headed for becoming a second-class citizen in the world of IT." Microsoft strategist Craig Mundie, sipping cocktails at a reception later, seemed to agree. "If the U.S. cedes its leadership in IT" to countries like India and China, he ominously opined, "there will not be a second chance."

Equally worried was Ray Bingham, CEO of Cadence Design Systems in San Jose, whose software helps automate sophisticated semiconductor design. "China produces 600,000 engineers a year, and 200,000 of them are electrical engineers," he said in his presentation at the conference. By contrast, the U.S. last year granted 70,000 undergraduate and 37,000 graduate degrees in electrical engineering. Compounding the problem, 54% of engineering doctorates went to foreign students, many of whom returned home after graduation. Tech executives are also disheartened by what they see as a disastrous diminution in national commitment to IT research and development, and by the low penetration of broadband in the U.S. compared with other countries. Given those shortfalls and the obvious advantages entrepreneurs like Velpuri enjoy in other countries, it's hardly surprising that more than a few tech executives are wondering where that leaves the U.S. "When I look 20 years down the road, I have trouble believing there'll be much software development in the U.S.," says Kanwal Rekhi, a prominent Silicon Valley angel investor. Sure puts tech's current list of troubles in perspective.