Tech may not shed so many jobs this time

Ed: In 2000, outsourcing shifted jobs to Asia. Will this be a significant driver in 2008?

With Wall Street teetering and venture capital investment in high tech at its lowest point in more than a decade, few in the technology industry doubt there are scary days ahead.

The bad news is starting to pile up: eBay recently decided to lay off 1,000 workers, a long list of smaller Internet outfits have begun cutting jobs, and most industry watchers expect Yahoo to announce another round of layoffswhen it discusses third-quarter earnings after the close of trading Tuesday.

Now here’s the good news: whatever job cuts occur in the technology sector in the coming months, they’re unlikely to be as deep or as lasting as the cuts that occurred during the dot-com bust, according to statistics from the U.S. Department of Labor and industry employment experts.

Call it learning from past mistakes: tech companies haven’t experienced the hiring binge that occurred in the late 1990s, when a combination of Internet investment, repair work on older computer systems to deal with Y2K transition issues, and massive investment in telecommunications infrastructure teamed to create double-digit tech employment growth through much of the second half of that decade.

By comparison, the Web 2.0 boom during the past few years–led by companies such as Facebook–has been more like a “boomlet.” While there are an estimated 5,000 Web 2.0 companies, many of them are tiny garage shops. There are no hard figures on how many people are employed in these little companies, but it’s doubtful the total is equal to even a tenth of the 386,000-employee workforce at tech giant IBM.

Despite enthusiasm for social-networking sites and other new technologies, neither Silicon Valley nor other big tech hubs have seen a massive increase in hiring in the past few years. Even well-known Web 2.0 companies like Digg and Slide are relatively sleek little outfits that didn’t need a lot of money or a lot of people to get off the ground.

“We never saw the big run-up in tech hiring in 2004 through 2008, so I don’t anticipate a significant change,” said Tom Silver, chief marketing officer for Dice Holdings, which operates a tech-specific online job placement site.

Certainly, there are exceptions to the rule. Google has gone from start-up to one of the most powerful companies in tech since the dot-com bust, and its workforce has grown with its influence. Google now has more than 20,000 employees, though most analysts expect Google to withstand all but the worst of economic conditions.

Most big tech companies have hewed to a slow-growth mantra, even as sales have climbed. Apple, for example, increased its workforce 100 percent between October 2003 and October 2007. That may sound like a lot, but in that time frame Apple opened about 100 retail stores, saw revenue increase 286 percent, and profit increase an astonishing 600 percent. (Apple is scheduled to announce its fourth-quarter earnings after the close of trading Tuesday.)…

Watch the Grocery Prices – Economic Recovery in Place?

I shop groceries for my three teenagers. Recently, I’ve noticed that specials are lowering prices for common items. 

This is good news.

Oil is Down, Food Prices Have Not Dropped, Who’s Hoarding the Margins?

As oil price rose, food costs more than doubled at grocery stores.

Oil prices have dropped from a high of $145 in June to $71 – over 50% drop. In September, the global food index dropped to 188 from a high of 219, a 17% drop. No relieve has appeared at grocery stores or restaurants.

Latency from Macro Data

As a macro-economist, long latencies in data reporting create inefficiencies.

• Government beauracrats are still working on the first draft of stats for Quarter 3. No doubt, they will be reporting more bad news. 
• Data corrections, one year later, can reverse trends reported earlier.
• Wall Street has already panicked and pulled the trigger. 
• Venture capitalists in Silicon Valley followed.

Is our economy that bad? 

Governments, Wall Street, and investors respond to the macro-economic data. Normally these numbers change by fractional percentages. When these numbers change dramatically from month-to-month, few enterprises are prepared to respond. Economic analysis depends on historic trends repeating. When prices increase or decrease faster than normal, (i.e. non-linear acceleration effects) economics and past investor experiences are unable to foresee the future.

My analysis depends on macroeconomic data such as oil prices and the global food index. I also have good memory for grocery prices — last year, last month. The latter lacks robustness since it’s a single data point from one area. Nevertheless, I expect prices for gasoline and food products to drop, perhaps reversing a substantial portion of the 100% growth during the current fiscal year. 

This would be very good news.

Fiscal Stimulus

Consider the fiscal stimulus.

• A friend complained about the $800 billion bailout. That’s $4,000 per household. But, it’s an investment where our government is likely to profit. Thus, the real cost to tax payers may be negligible. The bailout pumps cash into the economy to keep credits flowing from banks to merchants. 
• European countries have committed $3.3 trillion. 
• A proposed tax cut of $1,000 would be a small, one-time stimulus.
• Households easily spend $500 a month on gasoline. Cutting that 50% saves $3,000 per year.
• I guess household expenditures of $1,000 a month for food. 25% drop saves another $3,000 per year.
• The multiplier effect of gasoline prices will drop prices for other goods and services.

Reluctant Price Drops

As the price of oil drops, gasoline, fuel, and other costs will follow. Reluctance of providers to lower prices quickly is understandable. Thus, the price decline benefits have been slow arriving into our wallets.

Consumers can pressure providers to drop prices more quickly. Prices increased quickly and can drop as quickly. That stimulus is greater than any bailout, tax cut, or other government policy.

Toward Recovery

Have Wall Street and VCs over-reacted?

• Some blog claimed that Warren Buffet made the statement, “Cash is trash.” Regardless, Mr. Buffet is buying.
• Wall Street has jumped up and down by 400 points per day, sometimes swinging that much in a single day. Wall Street may be blind to the data that is changing daily.
• Surveys show that many sectors of the economy are still healthy.

Forget the elections. 

Watch the grocery and gasoline prices. 

Those prices may be the best indicator of our economic health.

Remember to conserve energy to put more downward pressure on oil prices.

Warren Buffett: Buy Stocks! Cash Is Trash!

Posted Oct 17, 2008 10:42am EDT by Aaron Task 

“I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: ‘Put your mouth where your money was.’ Today my money and my mouth both say equities.”

Or so declared Warren Buffett Friday in an extraordinary op-ed piece in The New York Times. Buffett’s call to stocks amid an ongoing financial crisis could help restore investor confidence, a crucial ingredient so far missing from the government’s turnaround effort.

Buffett’s message is akin to then-Merrill chairman William Schreyer buying TV time right after the 1987 crash to declare Merrill as being “bullish on America,” recalls Dan Colarusso, managing editor of Portfolio.com.

The op-ed also recalls Buffett’s own famous “buy stocks and get rich”comment to Forbes in 1974.

Buffett’s optimism is based primarily on the following:

• “Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”
• Cash is trash. “Today people who hold cash equivalents feel comfortable,” he writes. “They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”

A few caveats to Buffett’s dramatic call:

• By his own admission, Buffett is making a long-term call. “I can’t predict the short-term movements of the stock market,” he writes. “I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now.
• In the short- to intermediate-term, there’s still the issue of reviving the banking sector, and key bank CEOs like JPMorgan’s Jamie Dimon have expressed little optimism for the Treasury’s program of capital injection.
• Nobody, not even Warren Buffett, is always right.

Google’s Net (and Stock) Rise Sharply

By MIGUEL HELFT

Published: October 16, 2008

SAN FRANCISCO — For months, Google has promised investors that the company’s online advertising system would do relatively well in an economic downturn. On Thursday, it showed evidence that it may be able to deliver on that promise.

Related

Times Topics: Google Inc.

Chester Higgins Jr./The New York Times

In a sign of Google’s push into display ads, David Rosenblatt, the former chief executive of DoubleClick, was named president of global display advertising, a new position.

Google said that its growth rate continued to slow in the third quarter. But the company fared better than Wall Street expected as it reported a solid 26 percent jump in net income to $1.35 billion, or $4.24 a share, from $1.07 billion in the third quarter of 2007. The company’s results were bolstered by strong gains in online advertising and efforts by Google to slow hiring and rein in costs.

Google’s shares, which rose to $353.02, or 4 percent, in regular trading on Thursday, jumped another 10 percent after the company reported its financial results. However, they remain down sharply from their high of just over $740 last November.

Google’s chief executive, Eric E. Schmidt, said the results reflected marketers’ acceptance of a system that is better and more measurable than other forms of advertising. He said that while the economic environment was unpredictable, Google was poised to continue doing relatively well.

“We are very realistic about the macroeconomic climate, but we are optimistic about Google’s future,” Mr. Schmidt said during a conference call with analysts.

While Google is the largest seller of online ads, its relatively strong results are not indicative of the overall health of the Internet advertising business. Google relies primarily on search ads, the fastest-growing segment of the market. Since marketers use such ads to lure people to their Web sites, analysts say they believe they are among the last thing advertisers would cut during a recession…

Despite Record-Low IT Spending Plans, iPhone Gains Business Traction

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Corporate IT spending for Q3 and the next 90 days is experiencing a drastic, record downturn that foreshadows even tougher times ahead for the US economy, according to a survey fromChangeWave.

At the same time, the Apple iPhone is beginning to gain traction in the corporate marketplace even as Research-in-Motion (RIM) maintains a large lead in the smartphone market.

The periodic survey, which asked respondents involved with IT purchasing whether their Q3 spending was on track, found as follows:

• 30% of respondents said they’ve spent less than planned, three points worse than May results.

• 12% said they have spent more than planned.
• 29% said their company’s IT spending will decrease – or there will be no spending at all – in Q4, five points worse than the previous survey.

• 13% said spending will increase, a two-point decline from May.
• 39% said they did not think corporate IT spending would pick up until at least Q2 2009, or later.

The last survey that projected such a large IT spending pullback was in August 2001, ChangeWave said.

The two major causes for spending decreases include high energy costs and the US presidential election. More than a third (35%) of corporate respondents reported high energy costs are affecting their company’s IT spending plans for the second half of 2008, while another 25% said the US presidential election is having an impact on their company’s IT spending decisions.

Corporate Smartphone Buying

In the same survey, ChangeWave examined corporate smartphone purchasing and found that RIM, at 79%, continues to overshadow its two main competitors – Palm and Apple – in terms of planned fourth-quarter purchases, but this number is down three points from May’s record high.

Apple, however, continues to show considerable momentum in terms of corporate planned purchases, up four points to 17%.

Some 19% of respondents also reported that the release of the iPhone 3G has made their company more likely to purchase Apple products in the future. Only 1% said their companies were less likely. These responses suggest that the iPhone is creating a “halo effect” in terms of improved overall corporate purchasing intentions for Apple products

About the survey: The survey of 1,947 respondents involved with IT spending in their organization was conducted August 11-21, 2008

Gartner’s worst case for 2009 IT budgets isn’t so bad

Gartner has revised its 2009 IT budget prognostications, a move that isn’t surprising, but the firm’s projections could be a lot worse.

Peter Sondergaard, senior vice president of research at Gartner, outlined the research group’s new projections in his opening keynote at the Gartner Symposium ITxpo in Orlando (all posts and the firm’s Twitter feed). Gartner’s opening keynote is an analyst relay that is part sales pitch and part pep talk to urge technology managers to innovate, manage through tough times and be aligned with the business better.

The meat of the talk, however, was the downturn. The upshot:

• Gartner had expected budgets to grow 3.3 percent in 2009.
• Now the most likely case is IT budget growth of 2.3 percent to 0 percent;
• The worst case is that IT budgets will be down 2.5 percent.

While Sondergaard noted all of the gloom and doom, he said information technology execs are most suited for this upheaval. Why? IT folks have already been through this–has anyone really forgotten 2001 to 2003?

His overall message is that IT has options. Sure, it would be silly to think that budgets written two weeks ago are going to stick. As for overall technology spending, financial services customers, the public sector, retail and manufacturing are all likely to curb spending.

However, Sondergaard said budgets aren’t likely to totally collapse. “IT is embedded in your business now. You can’t invoice somebody without IT,” he said. Sondergaard also noted that Western Europe has the worst IT spending outlook, but Asia Pacific will still grow at a healthy clip. North America looks flattish.

Overall, Sondergaard said technology execs need to do two things. Focus on disruptive technologies that can cut costs and think like your CFO. Here are Gartner’s top 10 disruptive technologies:

1. Multicore and hybrid systems
2. Virtualization and fabric computing
3. Social networking
4. Cloud computing
5. Web mashups
6. User interface
7. Ubiquitous computing
8. Semantics
9. Augmented reality
10. Contextual computing