After reports of nearly three years of surging revenue and profits, the news coming from America's high-technology heartland is almost unrelentingly bad:
Apple Computer Co., the pioneer of personal computing, announces it will lay off 1,200 employes and projects a third-quarter loss.
Data General Inc., an aggressive Massachusetts minicomputer company, says it will lay off 1,300 employes amid sagging sales.
Intel Corp., one of Silicon Valley's most innovative semiconductor companies, is expected next month to announce it will lay off more than 1,000 employes.
International Business Machines Corp., indisputably the world's largest and most successful computer company, told analysts that its earnings for the first nine months of this year will be below the comparable period last year. The company warns that profits for the entire year could be flat.
The recession now gripping America's high-technology companies is both broad and deep. It effects virtually every sector of the information-processing industry -- from the silicon chips that are the digital building blocks of computers to the software that runs them.
Some experts argue that the computer slump reflects a fundamental change in the industry, that the pace of new computer technology has been too fast for America's industries to absorb, that the hardware and software to link computers into productive networks has been too slow in coming, and that personal computers can't deliver the power and performance their producers have promised.
While conceding some truth to all those observations, industry analysts and participants who take a more global view of information processing argue that the main reason for the slump in U.S. sales isn't the technology at all -- it's basic economics.
Although they have enjoyed extraordinarily high growth during boom times, America's high technology can't escape the impact of the macroeconomic forces that determine whether capital goods such as computers are sold.
"The government has pursued a deflationary course for some time," said Frederick R. Adler, a venture capitalist who is also chairman of Data General's executive committee. "There was an almost euphoric disbelief that normal disinflationary mechanisms would affect the computer companies. But as a disinflationary cycle impacts, computer manufacturers are certainly not immune."
The intermingling of a strong dollar, a weakening economic environment and a declining level of capital expenditure, far more than any intrinsic technological weakness, has effectively short-circuited the industry's growth.
To make the industry's situation even worse, the boom times of recent years spawned dozens of new computer hardware and software companies aggressively bidding for market share against more established competitors.
Perhaps the single greatest factor contributing to the computer industry's decline has been the strength of the dollar.
"There are two defining characteristics to the situation," asserted Marc G. Schulman, an industry analyst with Hambrecht & Quist. "Demand for computers in the United States has been extremely weak in relation to the U.S. economy, while demand in Europe is extremely strong in spite of a weak European economy. It's a mirror-image situation that can only be explained by the dollar."
Indeed, Schulman and other analysts point to sales figures to bear out that claim. Industry giant IBM has enjoyed tremendous overseas growth while enduring comparatively flat domestic sales. In the first quarter this year, Digital Equipment Corp. chalked up foreign revenue growth of nearly 50 percent over the first quarter on 1984. Similarly, Data General's overseas revenue growth hit 44 percent over a similar time period.
In stark contrast, DEC's domestic revenue growth from the first quarter of 1984 to the first quarter of 1985 was a meager 3 percent. Similarly, Data General's growth was barely 5 percent.
"This disparity in foreign and domestic growth is the greatest I have ever seen in the 13 years I've followed this field," Schulman declared.
The other "defining characteristic" Schulman cited is the weakening demand for computing power from the nation's industrial sector. During the boom years of capital spending that began in 1982, investment in producers' durable equipment grew twice as fast as the postwar average. According to IBM figures, the computer industry's share of capital equipment spending during this boom leaped 50 percent from 1980 to 1984.
In effect, some of that growth was disproportionately high, some industry watchers say.
"Many companies went on a capacity binge," said Ulric Weil, a computer industry analyst with Morgan Stanley, adding that they expected to use that capacity as their business continued to grow.
Indeed, IBM's chief executive officer, John F. Akers, described the size and speed of the industrial computer investments as "front-end loaded" as companies took advantage of a robust economy and tax changes that encouraged the capital spending.
However, the strong dollar made foreign-manufactured goods cheaper relative to American-made goods, and that has corroded the profitability of the companies that invested so heavily in computing capacity.
By contrast, the strong dollar encouraged a surge in exports from overseas, so European and Asian industrial companies have been on a buying binge for computer power.
Beginning about a year ago, these price-competitive imports have squeezed American companies' profit margins, leading to a substantial cutback in capital expenditures.
The latest available Commerce Department figures indicate that industry order rates for office, computer and accounting equipment plummeted 30 percent from March to April of this year.
It is important to note that computerdom's recession is different from recessions in most other industries. The information-processing sector still is growing overall, but the level of growth is far below expectations of but six months ago. Although revenue is climbing, earnings simply aren't there. The domestic slump really has eaten into profits.
The onset of this dollar-inspired American industrial recession, combined with what clearly has turned out to be a surplus of purchased computational capacity, has taken much of the growth and most of the profits out of America's computer companies.
What has made that gloomy economic picture even gloomier for U.S. high-technology companies is the near internecine combat for market share ignited by the dozens of new venture-capital-backed computer-related companies spawned by the recent boom years.
As Rep. Ed Zschau (R-Calif.), Silicon Valley's congressman, has noted, each new high-tech product area has quickly attracted scores of new companies to compete with more established manufacturers. The story is the same from computer memory and other silicon products to the range of computer products and peripheral equipment such as disk drives.
Because the companies know they have a few years at best to cash in on their new products before even newer, more powerful models come along, there is a rapid buildup in manufacturing capacity -- and, inevitably, overcapacity in one product area after another, Zschau noted. The current layoffs reflect that proliferation and over-building.
Clearly, so many competing companies just can't survive. The pain of the industrywide shakeout in semiconductors to personal computers to software has afflicted all industry players as all the competition has compressed profit margins further.
The coincident timing of the downside of the economic cycle and the collapse of so many young companies has exaggerated the depth of the industry's recession, in the opinion of most industry insiders.
However, Data General's Adler and IBM financial officer Allen Krowe stated that they sense signs of weakening in the overseas computer sales as the U.S. economic recession begins to impact Europe and Japan.