Tech Sector's Mixed Signals

The tech sector can't pop open the bubbly yet, since pink slips are flying and shipping jobs overseas is as en vogue as 1980s fashion trends. But there are signs of growth that give reason to at least put the champagne on ice, with PC sales rising and small businesses planning to plunk down serious cash on technology purchases, according to a new batch of studies.

First, the bad news: The third quarter was not a happy time for a lot of tech companies and workers. Job cuts at technology companies rose 60 percent compared with second-quarter numbers, hitting 54,701 announced cuts, CNET's News.com reported, picking up on a report from job firm Challenger, Gray & Christmas. About 56 percent of the cuts hit computer companies -- makers and distributors of computer parts and software. "There are certain areas in the technology sector that are thriving. Demand is high for those who specialize in network and IT security. Tech support is another area looking for people. However, it could be some time before overall technology job creation returns to the pace we saw in the late 1990s," chief executive John Challenger said in a statement.

InternetNews.com reported the numbers, too: "So far this year, high-tech firms have announced 118,427 job cuts, which account for 16 percent of the 724,320 announced job cuts from public and private companies in all industries through September 30." From Reuters: "Computer companies alone saw job cuts jump 127 percent [from the second quarter], to 30,624. Manufacturers in the sector are having trouble making money since they have been forced to lower prices in order to attract consumers, Challenger said. So they end up firing workers in order to maintain healthy profit margins. Worse yet, the growing number of layoffs is not being countered by any move to hire, Challenger added."

Challenger said high-tech job cuts are climbing as the end of 2004 approaches. "Behind this trend is the fact that technology companies have virtually no pricing power," Challenger said in his statement.
• CNET's News.com: Study Finds Dramatic Loss of Tech Jobs
• Reuters via washingtonpost.com: Job Cuts in Tech Sector Soar, Report Finds (Registration required)
• InternetNews.com: Tech Job Cuts Leap 60%

Some regional papers are focusing on how job losses have affected their own states. From the Boston Herald: "Local high-tech officials said yesterday that they believe the technology sector has bottomed out and a turnaround has already begun, despite recent major layoffs at such firms as AT&T and Nortel." However, the paper reported that "Massachusetts lost about 200,000 jobs during the recent recession, with high-tech suffering the most hits of any sector, according to state data. Joyce Plotkin, president of the Massachusetts Software Council, said small- and medium-size software companies are seeing 'only small incremental growth.'"

The Los Angeles Times, meanwhile, reported on new overall job data for California and it's not uplifting: "California employers added a net 4,900 jobs in September, the Employment Development Department reported Monday, in a modest showing that suggested the state was having trouble revving its economic recovery into higher gear. The increase followed a revised gain of 4,300 net nonfarm jobs in August and a net loss of 9,300 in July, making September the third straight month of sluggish job creation after four consecutive months of solid growth," the paper reported. "The labor market just doesn't have much 'oomph' right now," Joseph Hurd, senior economist with the UCLA Anderson Forecast, told the paper. As for tech, "the technology sector is adding jobs slowly as it continues to struggle to recover from the dot-com bust. High workers' compensation and health benefit costs, and uncertainty about propositions on the state ballot that could increase business expenses, are discouraging employers," the L.A. Times reported.
• Boston Herald: U.S. Tech Job Cuts Jump Up by 60%
• Los Angeles Times: Job Growth in California Still Lackluster (Registration required)

CNET noted that with the bad, there's some good going on in the tech sector: "The report adds to the mixed signals that have emerged about the information technology job market. Technology services companies like IBM and BearingPoint are hiring in the United States, though they are increasingly looking for employees who can combine technology chops with business savvy. Payroll employment in computer systems design and related services hit 1.14 million in September, up 32,700 since September 2003, according to the U.S. Department of Labor. And research firm Meta Group recently predicted salaries of IT staff will increase by as much as 15 percent over the next three years."

However, add to the mix outsourcing, which has hit some areas of the tech sector hard. "Tech manufacturing and development operations are being reallocated around the world as companies look for ways to reduce costs. The market for offshore IT services will balloon from $7 billion in 2003 to $17 billion by 2008, IDC predicts," NewsFactor Network reported. "'Customers' continued need to look to offshore is also expanding from traditional IT services, such as application development and maintenance, to areas traditionally limited to being delivered locally,' said IDC analyst David Tapper. He says such services range from application and infrastructure management to IT consulting," NewsFactor said. And this telling quote: "During the dot-com boom, companies went offshore because all the talent in the U.S. was tied up," IDC analyst Barry Mason told NewsFactor. "Now, it's about savings -- it doesn't cost anything to send software back and forth from India."
• NewsFactor Network: I.T. Jobs Dwindle in U.S., Offshore Hiring to Surge

As I noted in Filter yesterday, a Congress-mandated panel released a study on Friday that shows outsourcing is on the rise and hurting jobs. The study by the U.S.-China Economic and Security Review Commission put job loss due to overseas offshoring at 406,000 jobs. The San Jose Mercury News reported that the study "estimated that as many as 406,000 U.S. jobs will move to Mexico, China and other countries this year -- nearly double the number of jobs lost to production shifts in the global economy in 2001. The [panel] issued the study after examining news media reports of 'firm and job relocations’ that resulted in job losses during the first three months of this year. Those findings were projected on an annual basis, and compared to findings from a similar study conducted over seven months from October 2000 through April 2001."
• San Jose Mercury News: Study: 406,000 Jobs Going Offshore (Registration required)

Hardly Blue

In other positive news for the technology sector, tech bellwether IBM yesterday said it logged better-than-expected earnings for its third quarter. The Wall Street Journal said the company "reported what its chief executive called 'one of our strongest third quarters in recent years' -- benefiting from growth in new services lines and emerging markets such as China and Russia -- and urged analysts to boost their outlooks for the year. Big Blue reported a better-than-expected 0.8 percent increase in net income, despite costs of a recent lawsuit settlement. Excluding the charge, earnings rose 15 percent. Revenue rose 8.9 percent. The results, powered by strong sales of large computers known as servers, showed further improvement in IBM's financial picture."