Tech Industry as a Whole Still Booming, Analysts Say
It seems as if each day brings discouraging news from another outpost of the technology industry: layoffs at Compaq Computer and Rockwell International, disappointing earnings forecasts from Intel and Western Digital.
At first glance, this might look like the early stages of a broad slowdown. But while individual companies in certain high-tech sectors are experiencing some bumps, the industry as a whole is still on course to continue its stratospheric growth, insiders and analysts said Monday.
In fact, the growth in the booming sectors is more than making up for the jobs that have been lost. Although tech companies have announced roughly 15,000 layoffs since January, the year started with a backlog of about 40,000 open positions throughout the state, said Ted Gibson, chief economist for the California Department of Finance in Sacramento.
For now, the pain is concentrated among two groups--companies that make personal computers and companies that rely on exports to Asia.
The PC industry is in the midst of a cyclical slump, with sales growth slowing and profit margins shrinking in recent months. Houston-based Compaq, which leads the PC industry with a 17% share, said Monday that it will lay off about 5,000 workers as it consolidates operations following its acquisition of Digital Equipment. But analysts said they expect PC sales to start growing again by the end of the year, if not by the end of the summer.
Computer chip and chip equipment producers have been hit particularly hard by the Asian financial crisis, analysts said. Sales of computer chips in Asia hit bottom in February, and equipment sales are expected to follow suit later this summer, said Mike Murphy, editor of the California Technology Stock Letter in Half Moon Bay. But Murphy said he expects both sectors to be growing again by the end of the year.
As in other industries, manufacturing jobs are vulnerable in the technology sector. But a good chunk of high-tech manufacturing jobs have already moved out of California to such places as Arizona and New Mexico, Gibson said.
California has held on to many of the more advanced plants, including an NEC facility in the Sacramento suburb of Roseville that produces 256-megabyte memory chips.
“You need more exacting equipment and people to run the equipment, and they’re very happy with the work force there,” Gibson said.
Most of the volatility in California--job losses as well as gains--are concentrated in and around Silicon Valley. But the Southland had its share of bad news Monday, when Rockwell said it will spin off its semiconductor business and eliminate 3,800 jobs. Most of those cuts will be outside the state, but the company said it may leave its Costa Mesa headquarters.
Such events can seem more severe these days because companies now trumpet their layoffs in an effort to impress Wall Street and boost their stock. Both Compaq and Rockwell shares rose Monday on the New York Stock Exchange--Compaq was up 38 cents at $29.31 and Rockwell’s gained 56 cents to $49.
Besides, analysts said, running a business is hardly an exact science, and companies sometimes overestimate how many people or how much office space they will need. If they turn out to be wrong, they often procrastinate when it comes to making cuts.
“Companies can’t really lay off people until things are bad,” said John Rossi, a managing director of technology-focused investment bank BancAmerica Robertson Stephens. “They try to keep up with the Joneses and they go into a period of denial.” But once a handful of companies announces layoffs, it opens the door for others to follow suit, he said.
Still, Rossi emphasized that the recent job losses will be offset by hiring in sectors such as Internet and enterprise software, telecommunications equipment and digital television. Some sector-leading companies heartily endorsed that view.
At Sun Microsystems, where there are about 2,300 unfilled jobs, business conditions “are pretty much as ripe as they’ve been all along,” said Mark Paisley, director of investor relations for the Mountain View-based maker of computer servers and workstations. “I don’t see what I consider to be a market slowdown whatsoever.”
That view is shared at Excite, a leading Internet firm based in Redwood City.
“Excite’s very optimistic about the future, and we’re hiring across the board,” said Joe Kraus, the company’s senior vice president and co-founder. “In fact, we really think the problem is that there’s an insurmountable opportunity.”
* STOCKS RISE: Tech issues extended their powerful two-week rally. D5