Layoffs loom like dark clouds over Silicon Valley
Commentary: It's probably only the beginning of an ugly downturn
Commentary: It's probably only the beginning of an ugly downturn
SAN FRANCISCO (MarketWatch) -- Over the past two weeks, a stream of layoffs has roiled many technology companies, particularly in the semiconductor and hardware industries.
Silicon Valley is getting hit hard. Last week alone, Sun Microsystems Inc. said it plans to cut up to 6,000 workers worldwide, Applied Materials Inc. announced plans to lay off 1,800 and National Semiconductor Corp. said it will lose 330 jobs.
As workers in tech try to keep their heads down and focus on surviving the downturn, fears of more job losses hang over the Valley. And unfortunately, the cuts are probably not over. John Challenger of the Chicago outplacement firm of Challenger, Gray & Christmas Inc. believes there are more layoffs to come, and he is probably right.
"Business spending on tech is swooning," Challenger said. He predicts that before the end of the year, the tech business could also see cuts at Cisco Systems Inc. , Qualcomm Inc. and Nokia Corp., all of which recently reported falling sales, he noted.
So far this year, according to Challenger, the electronics, computers and telecommunications industries combined have announced 140,422 job cuts through Oct. 31. That is a jump of 31% from the full year of 2007, when the tech sector lost 107,295 jobs. He predicts, based on the additional announcements last week, by year-end, tech will say goodbye to 180,000 jobs.
Still, these numbers pale in comparison with the downturn of 2001, when the industry lost nearly 700,000 jobs. That economic trough was fueled mostly by the collapse of the stratospheric prices of the stocks of very young companies during the dot-com bubble. The implosion of many dot-com companies, which were spending money like there was no tomorrow, involved a hefty amount of slashing of jobs. Pink slip parties then became part of the dot-com culture, as laid-off workers networked at events in bars to look for jobs.
This time around, Web companies are seeing layoffs again, but not quite at the same level. Many learned their lesson and have kept their staffing thinner than the more free-wheeling, high-spending companies of the first bubble. But jobs are being lost. Social networking firm LinkedIn of Mountain View, Calif. and blogging software firm Six Apart in San Francisco were among the many smaller private companies to recently cut jobs.
But the bigger cuts will come at the tech giants, including the ones which seem to be doing well for now. They may soon have to batten down the hatches to survive the coming storm. As an example of how bad things could get on the Internet, Gawker Media founder Nick Denton predicted that Internet advertising could drop as much as 40%.
"From conglomerates to Internet ventures, executives should be planning now on a decline of up to 40% in advertising spending during this cycle," Denton wrote in a doomsday blog posting last week. He said media companies can boost revenues and cut costs in part by consolidating titles and he is practicing what he preaches. Gawker's popular tech gossip site, Valleywag will remain a standalone site but its content also is being folded into the company's flagship Gawker.com, with a national audience four times the size of Valleywag.
Even the most successful tech companies will not be immune during this recession. Hewlett-Packard Co., which has been riding high on its rejuvenated business, said it is extending its typical holiday shutdown by a few days to cut costs. H-P had previously announced a massive layoff of 24,500 in conjunction with its purchase of EDS. See full story.
Google Inc., which has been on a nonstop hiring binge for the past few years, could be ripe for some changes if Internet advertising falls as much as Denton's doomsday scenario predicts. Valleywag has already reported that the company is starting to cut back on some of the fluff, including some tightening at the free campus cafeterias.
Internet pioneers Yahoo Inc. and eBay Inc. are also trimming thousands of jobs as they grapple with their own internal issues on top of the slowing economy.
"It will get worse going forward," said Stephen Levy, director with the Center for Continuing Study of the California Economy in Palo Alto. Levy noted that in other recent downturns, many global companies still had strong growth in emerging markets such as China and India. "Now everyone is recognizing that this is a worldwide recession ... selling your stuff overseas is no longer an escape."
Silicon Valley may not be the cause of this economic meltdown, as it was during the bust of late 2000-2001. But it may suffer even more this time around, as its customers, both consumers and businesses, are caught in the middle of the global economic crisis and credit still hard for many to come by.
The consumer-led spending frenzy is finally coming to an end and technology products, especially upgrades of existing products and some gadgets, may be viewed as a luxury that many cannot afford right now.
Therese Poletti is a senior columnist for MarketWatch in San Francisco.
