Big Tech Teeters, May Sack Most People since 2009

There is one thing for sure that big American tech companies, many of them severely revenue-challenged, excel at: buying other companies. They’re all doing it. And the price they pay? The higher, the better. They’re paying for these overvalued acquisitions with their overvalued stock, of which they can print an unlimited amount; and they’re paying for them with money they can borrow at nearly no cost after inflation.

When the cost of capital is near zero, thanks to the Fed’s machinations, it doesn’t really matter on what this nearly free capital gets blown. So long as it doesn’t get spent on people.

Acquisitions bestow a lot of benefits on the acquirer, including obtaining instant revenues, in-the-can technologies, and possibly top-notch people. But no benefit is more important than the liberal use of “acquisition accounting” which allows the company to lump all kinds of real expenses, paid for with real dollars or real stock, into a massive “non-cash acquisition-related” write-off that analysts are well trained to ignore. And it makes the resulting “adjusted earnings” smell like a rose.

This year, there’s something else Big Tech has excelled at: mass layoffs. These layoffs in tech contrast with the relatively low number of layoffs in most other industries (most, except transportation and entertainment, but that’s another story).

All industries combined announced 40,010 job cuts in August, down 15% from July, and down 21% from a year ago, according to Challenger, Gray & Christmas. It was the fourth month in a row when total job cut announcements were lower than the year before. Year to date, they’re down 4% from the same period in 2013. So if this picture looks rosy, what the heck is happening in the tech sector?

The paragon of American business and the shining hope for the future booked more job cuts in August than any other sector. Among them, computer companies axed 567 jobs, telecommunications companies 866 jobs, and electronics firms 7,350 jobs. This includes our hero Cisco which announced plans to unceremoniously chop 6,000 people from its payroll, in the wake of crummy revenue numbers. In total, the tech sector announced to the markets in August that it would get rid of 8,783 people.

It was all perfectly timed, and expressed with maximum fanfare in immaculate corporate speak and sprinkled with hype. There would be future savings, efficiencies, and what not – in addition to the big “non-cash” charge that would have to be ignored. The purpose of these announcements is to goose the stock price. And it works.

But they add up, year-to-date: Microsoft (18,000), perennial acquisition and layoff queen HP (16,000), Cisco (6,000), Intel (5,350), serial job cutter TI (1,100), Dell (1,000), EMC (1,000) – and pretty soon you’re talking real numbers.

So far this year, the tech sector has announced 80,088 job cuts. A 41% jump from last year. Of them, computer makers are responsible for the lion’s share, 48,928 job cuts, up 87% from last year. And electronics firms, including Cisco, have decided to boot 16,406 people so far this year, up 170%.

At this rate, the tech sector could experience its worst layoffs since the panic-year of 2009, when tech companies announced 174,629 job cuts. But it would still pale against the collapse-year of 2001, when the evaporating dotcom bubble caused tech companies across the board to announce nearly 700,000 job cuts. So at the current rate, there’s still some room to grow.

The hoopla and hype over American tech can be deafening. And there are many companies that are doing very well, that are not having to brag about decimating their workforce and throwing out engineers and brains and experience in order to boost their stock price.

“The cuts appear to be motivated by fundamental changes in the industry,” explained John Challenger, CEO of Challenger, Gray & Christmas. “The cuts we are seeing are coming from companies that did not keep up with the rapidly changing trends….”

It’s hard to keep up with new trends if you’re tangled up in chasing down, and overpaying for, other companies while at the same time shedding a big part of the experienced workforce. Actual engineers are relegated to an expense category that needs to be trimmed down, while financial engineers are tasked to push the company into a glorious future.

So Challenger tried to put a positive spin on the Big Tech debacle: the companies were “laying off workers in some areas, hiring in others, and simply cutting layers of management in order to become more nimble and better prepared to meet the next trend shift.”

In this manner, acquisition and layoff queen HP has been becoming “more nimble” for years. And look what happened! Now, after 11 straight quarters of declining sales, they ticked up a smidgen but for the wrong reason, while net profit plunged nearly 30%. But no problem. “I’m very pleased with the progress we’ve made,” bragged CEO Meg Whitman [read… Hewlett-Packard Reports a Miracle ].

It takes months and sometimes over a year to complete the announced layoffs. So the waves of announcements this year are just now turning haltingly into actual pink slips. Other corners of the tech industry are hiring – and if these folks who are getting booted out are lucky, they’ll find a new home soon. But if they’re not lucky….

Here is the CEO of a startup who explains what will happen to them. She describes in her clear, from-the-trenches voice what pushes employers like her, and big companies too, to keep the unemployed from being even considered for a job. And she outlines the convenient and low-cost systems universally available that she and other companies use and eagerly pay for to accomplish just that. Read…  Startup CEO (Unwittingly) Explains Biggest Problem in America’s Unemployment Crisis

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  8 comments for “Big Tech Teeters, May Sack Most People since 2009

  1. Michael Gorback says:

    This article discusses thousands of people being let go at tech companies, while the article linked at the end is about how hard it is to find qualified people.

    There’s a disconnect here. Nobody laid off from Microsoft is qualified to work for Posse? Did Microsoft fire 18,000 janitors and mail room clerks?

    • Wolf Richter says:

      You’re right, Mike, there’s a disconnect.

      Hopefully, these soon-to-be-laid-off MS workers find a job before they’re actually unemployed. Right now, as current MS employees, they’re desirable. But once they join the ranks of the unemployed, they no longer qualify for companies like Posse that hire only the currently employed.

      • Michael Gorback says:

        I think not getting a job at a company like Posse might not be a bad thing. According to the CEO’s she can’t find good employees, can’t find good VC, etc. She can’t get no satisfaction. I’m glad I’m not one of her drinking buddies. I don’t know if I could stand the litany of disappointments.

        You’re right there by Silicon Valley so you have a ring side seat. Maybe this is really how it works now but from my POV there’s something strange about not being employable the minute you lose your job. I’ve had job applicants with a 1 or 2 year hiatus, but a few weeks or months? What’s up with that?

  2. Alex says:

    The US has become a tax haven for companies like MS, IBM, GE, etc.

    They mine all they can in subsidies, tax cuts, and government handouts (hey thanks taxpayers) and don’t put anything back into the system, which is why they constantly push for H-1B-visa immigrants in the US and offshore jobs, and get checks from the government instead of paying taxes.

  3. Petunia says:

    Obama keeps threatening to increase the number of H1B visas and these companies are just preparing to rehire younger, cheaper, but not better replacements. They and we will pay for this down the road with less innovation coming from the US.

  4. Wolf sez:

    “When the cost of capital is near zero, thanks to the Fed’s machinations, it doesn’t really matter on what this nearly free capital gets blown. So long as it doesn’t get spent on people.”

    … when the cost of CREDIT is near zero, thanks to the Fed’s machinations, it doesn’t really matter on what this nearly free CREDIT gets blown.

    CAPITAL is non-renewable resources … which are rapidly and permanently depleted … capital is the basis of all production (which itself is really extraction and non-remunerative waste). All MONEY is debt. (Here, debt = credit … )

    When we run out of CAPITAL to waste, the CREDIT upon which it is derived is worthless … ‘claims against nothing’. Remember, capital depletion is PERMANENT.

  5. Crazy Horse says:

    In an economy where 40% of the total “economic” activity is in the financial sector, why would you expect there to be jobs for people who actually design things, create systems to build them, or engage in actual production? Should by some freak accident an actual product be manufactured in the USA, the company that produces it will find itself subject to takeover attacks from financial entities who feed at the trough of zero interest money, and whose goal will be to move production overseas where labor costs total less than management’s combined golf membership fees.

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