Life sucks for computer geeks????SourceTech industry slips into a surprising slump By Chris O'Brien August 18, 2013, 8:51 p.m. SAN FRANCISCO — In a surprising turn, the tech industry is in a slump even as the U.S. economy picks up steam. The announcement Thursday that Silicon Valley giant Cisco Systems, which sells networking and telecommunications equipment, plans to cut 4,000 jobs is the latest sign of a slowdown that has sucker-punched high-tech firms. After a remarkable six-year boom set off by the introduction of the first iPhone in 2007, tech companies of all shapes and sizes are finding growth slowing, and even contracting in some cases. Though there are still bright spots among companies that help manage data or provide cybersecurity, many of the industry's biggest companies — Microsoft, Google, IBM and Dell — are struggling to figure out the changes in the way businesses and consumers are buying and using technology. There even have been signs that tech's dysfunction was having a wider effect. When Wal-Mart reported disappointing earnings Thursday, the company's executives pointed the finger at consumer electronics for a lack of exciting new products. "Our performance was pressured by soft results in both electronics and media and gaming," said William Simon, a Wal-Mart president and executive vice president, on the company's earnings call with analysts. It's not a bust — not yet at least. And it isn't as serious as the 2000 dot-com crash, when tech's fortunes quickly deteriorated. Indeed, on the ground in Silicon Valley, there is a bit of a disconnect because competition for hiring remains intense. But in recent months, tech earnings have plummeted as tech companies have reported slower growth or declines. Venture capital has fallen almost 7% this year. Tech mergers and acquisitions have tumbled. And tech stocks have lagged the broader stock market this year. As of early August, the S&P 500 was up 19.68%, but tech stocks in the index were up only 11.1%, one of the lowest-performing categories. While observers fumble for explanations and many remain optimistic about tech's long-term outlook, the industry is wondering whether this slump is simply a pause or the new normal. "What I've seen is that a lot of the tech heavyweights are having challenges," said Patrick Moorhead, principal analyst at Moor Insights and Strategy. "There's a fundamental shift in the marketplace that many people are grappling with. What we're seeing is a transitional period." And tech finds itself in the unusual position of being a laggard in the economy's recovery. "Technology remains a big drag on earnings growth," Zacks Investment Research analyst Sheraz Mian wrote in a recent report. "The sector's earnings picture is very poor." Being labeled a "drag" is the ultimate insult for an industry that likes its growth fast and furious. But why has tech lost its mojo? There doesn't seem to be a single villain. Mian chalks it up to the lackluster global economy. Tech firms are increasingly dependent on sales and profits abroad, where corporate spending remains weak. In the U.S., others have pointed to the faster-than-expected collapse of PC sales. "That's having a ripple effect through a lot of sectors of technology," said Greg Harrison, a corporate earnings research analyst at Thomson Reuters. Companies continue to shift from buying their own hardware and software to renting computing power through cloud-based services in which files are kept at massive data centers in far-flung locations. These save money for buyers but generate less revenue for sellers. Consumers, meanwhile, appear to be showing signs of fatigue after embracing so many new gadgets in recent years. PC sales have been devastated by tablets. But now tablets are losing steam, with even Apple reporting a decline in iPad sales in the most recent quarter. Worldwide tablet shipments fell nearly 10% in the second quarter compared with the first quarter, according to an August study from IDC. Whatever the reasons for the slowdown, the recent cycle of earnings reports this summer shows how widely the infection is spreading. Some big tech companies, of course, have had years of trouble, such as BlackBerry, Nokia, Yahoo and Hewlett-Packard. And then there is the buyout saga of Dell, which seems stuck in the PC slow lane in a world speeding by with mobile devices. But many others who faltered were surprising. In recent weeks, Oracle, Intel, Nvidia and IBM reported poor earnings, with the latter reportedly cutting up to 8,000 jobs. This summer, earnings disappointed on the same day for Google and Microsoft, which took an ugly write-down of $900 million because of poor sales of its Surface tablet. Apple's growth slowed, though its earnings sent its stock soaring in part because they were not as bad as many had feared. These earnings blues are not isolated. According to Zacks, profits in the tech sector in the first and second quarters declined from a year earlier 4.5% and 10.6% respectively. It's a sobering moment for an industry that has just experienced six remarkable years. The launch of the first iPhone in 2007 accelerated the tech boom and had the kind of effect on consumers and businesses that the dot-com bubble once promised but failed to deliver. Cloud. Mobile. Social. These three trends combined to make for heady times in Silicon Valley and beyond. The tech industry's earnings grew from $99.6 billion in 2008 to $182.2 billion last year, according to Zacks. And as the calendar turned, 2013 promised more of the same. Estimates compiled by Thomson Reuters in January projected that tech earnings would grow 7.5% in the second quarter. Instead, it appears they fell 3.6%, according to Thomson's latest data. The pinch isn't confined to tech giants. The start-up world is also being squeezed. In the first half of 2013, venture capitalists invested $12.7 billion, down from $13.6 billion for the same period last year, according to the National Venture Capital Assn. and Thomson Reuters. Meanwhile, tech companies going public remain rare, and even mergers and acquisitions are struggling. Though there were a handful of large deals in July, the number of tech deals overall fell sharply from the same month a year earlier, from 341 to 240. After quietly losing momentum for several months, tech's troubles came into wider view last week. Most alarming was Cisco's announcement that its outlook was much weaker than expected and that it was turning to layoffs. "This recovery is more mixed and inconsistent than the others I have seen," Cisco Chief Executive John Chambers said in a conference call with analysts. "The environment in terms of our business is improving slightly but nowhere near the pace that we want." Amid the gathering gloom, tech companies also face a paradox. While tech's finances suffer, many firms believe that they can't afford to scrimp on research, product development and hiring. Oracle, for instance, is navigating the shift driven by customers from its traditional business of selling hardware, database software and business applications to renting these services through cloud-based services, a sector in which competition is tougher. "We've been adding a lot of salespeople in the cloud," Oracle CEO Larry Ellison said on a June conference call during which the company reported that revenue for the last year had been essentially flat. Indeed, competition among rivals such as Google, Apple, Facebook and Samsung is too intense to throttle back on investing in innovation. "You're not seeing any cutbacks in sales teams or research and development," said Grady Burkett, an analyst at Morningstar. "The competition is too fierce. They have to invest in product development and engineering." As this technology shift becomes more evolution than revolution, everyone is looking for a catalyst. Something amazing that will ignite the industry's next boom. Wearable gadgets? Internet TV? Robot cars? Google Glass smart eyewear? In the meantime, some folks in the tech industry wonder how long these companies will maintain their pace of hiring and investment if revenue and profits continue to stumble. chris.obrien@latimes.com Twitter: @obrien
In Silicon Valley, age can be a curse Andrew S. Ross Updated 10:58 pm, Sunday, August 18, 2013 In 2012, three high-tech companies in Silicon Valley announced they were laying off a combined 48,000 employees. Layoffs continue this year, including last week's announcement that profitable Cisco Systems was letting 4,000 people go. At the same time, the total number of jobs in the valley and in San Francisco's tech hub is on the rise. In fact, tech executives claim to have tens of thousands of jobs going begging, so much so that they need to bring in educated workers from overseas to fill them. But if demand is outstripping supply, how come so many skilled IT professionals in the Bay Area are out of work? In a nutshell, job experience in the tech industry matters far less than it once did. In fact, it can work against you. "It's been quite a shock, coming out of my last job, which I had for 11 years," said Robert Honma, 49, of Sunnyvale, his resume filled with senior tech positions in multinational companies and small startups. He's been out of work for 10 months. "The Facebooks, the Googles are driven by the young." Mark Zuckerberg agrees. "I want to stress the importance of being young and technical," Facebook's CEO (now 28) told a Y Combinator Startup event at Stanford University in 2007. "Young people are just smarter. [Bullsh*t!!!! The most important fact is young people are cheaper!!!!! ] Why are most chess masters under 30? I don't know. Young people just have simpler lives. We may not own a car. We may not have family. Simplicity in life allows you to focus on what's important." Like working around the clock, seven days a week on app development, coding and Web design, jobs in the strongest demand in the changing tech world. Younger and cheaper "There's definitely a sense that companies are looking for younger and cheaper," said Robert Withers, a career counselor at Nova Workforce Development, a federally funded career counseling organization in Silicon Valley. "We see experienced people looking for jobs, being interviewed and not getting hired. And they're older." That trend has accelerated as the industry has moved away from the traditional bulwarks - hardware, PCs, corporate IT infrastructure - to the cloud, apps, mobile and social media, which require new skills. "The tech industry requires workers with only the most current skills," one in which the "churn of 'creative destruction' regularly displaces workers even in a healthy economy," Nova said in a paper. According to statistics from California's Employment Development Department, the great majority of IT-related occupations are the province of the 25-44 age group. Software application developers and Web developers skew closer to the 25-34 group - and younger. Computer and systems managers are more represented in the 44-plus group. But even here, the competition for jobs is stiff. Managers less relevant "There's been a big paradigm shift, especially with the cloud. It's made a lot of managers irrelevant who don't have the technical experience," said Honma. [How I pretty much agree with that. Managers tend to be overhead that often isn't needed] Dan Ruth, 40, a corporate IT manager, has been out of work for seven months, which makes him, like Honma, an official member of the long-term unemployed. "There are certainly openings in my field that I'm qualified for, but it's a buyer's market. I've got a family, and while I haven't given up hope, I'm thinking of expanding my job search to another market, like Boston." Paul Brunemeir, 56, a physicist who has worked his entire career developing electronic hardware in Silicon Valley, is sure he was laid off from his last job - engineering director for a small startup - because of his age, plus his six-figure salary and costly medical insurance plan. "Age correlates with experience, and experience correlates with salary. I was at the top of the layoff list because of the cost of keeping me on the roster. I would have taken a 33 percent pay cut to keep my job, but they never offered." "There's definitely age discrimination, but it's awfully hard to prove," said Cliff Palefsky, an employment law attorney in San Francisco, who gets regular calls from older tech workers shut out of the new world. "In your 40s or 50, you're in your prime, but not in Silicon Valley, where everything has been moved up 10 years. It makes for a particular awkwardness between an older applicant and a younger interviewer." 'Acting old' is a no-no Withers knows about the awkwardness. "Acting old" is a prime no-no in job interviews - things like wearing out-of-date clothes, talking at length about your not-especially-relevant experience, and saying to the interviewer, "My, you're young enough to be my son!" "It does happen," said Withers. "This is what we see and hear from recruiters, company managers and people going through the mill." Then there's the change in America's corporate culture, noted by UC Berkeley economist Clair Brown and Greg Linden, a research associate at Berkeley's Haas School of Business in their book on the semiconductor industry, "Chips and Change." Besides the problem of "older engineers who face rapid skill obsolescence and deteriorating job opportunities," they wrote, there's a switch in how U.S. companies regard their employees - from a "high commitment system," which puts a premium on long-term employment and on-the-job training, to a "high innovation system." "Engineers are typically hired because their skills and knowledge are required for a specific technology or product being developed," they wrote. "This system is seen as cost effective, since the company can hire required skills and does not have to retrain experienced workers, who usually command higher wages than new graduates. Of course, this puts engineers, who are no longer retrained by their companies, at a disadvantage as they age." One result their fieldwork and data found: "a troubling drop in real earnings and a decline in hours." To bring things up to date, add unemployment to the list. "I've invested six months working out how to market myself," said Honma. "Because the competition is so much tougher, you have to do a lot of self-promotion and branding to distinguish yourself. I've become much more focused in interviews. I think I'm gaining traction." Andrew S. Ross is a San Francisco Chronicle columnist. E-mail: bottomline@sfchronicle.com Blog: www.sfgate.com/blogs/bottomline Facebook: sfg.ly/doACKM Twitter: @andrewsross |