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Big Tech Teeters, May Sack Most People since 2009
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
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 lay-off 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 lay-off 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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Like it or not, and most seem to not like it, Toffler's 'The Third Wave' is coming to fruition. I never garnered from the book whether the transition to a global economy had to involve a 'one world order', but it was clear that he felt nation states would become a relic of history as corporations took over the role of a borderless provider and protector. He was also clear that the tumult of the transition would be much more violent and devastating than was the transition from agrarian to industrial. How long this transition will take is the big question in my mind. There are still huge economies, like China, which are still deep in the throes of the industrial wave.
I've got a cousin who's a very wealthy immigration attorney. She does H1B visas. She's putting highly skilled Amerikans out of work, but she doesn't care. Bitch!
Most of the tech sector never really recovered from the 2000-2002 debacle. Bringing in a million foreigners on H-1B visas has just accelerated the downfall.
Maybe today's White House neo non-immigration flip-flop is consistent with defending Ukraine from Russian invaion. It is either visas or across the boarder streams looking to survive. All mixed up, but might be approaching consistency.
Seems like the developed countries are being invaded by the emerging markets, and it is a massive moshpit in the middle.
Got job ?
BTW I saw "teeters" and "sack" and had some funny female/male images before reading the great article and very good comments. Its all about the finance. Best paragraph in years....
"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."
from Diction-airy.com
Born Loser [bawrn loo-zer]
noun
1. A guy who flips off Zuckerberg after not getting a promotion and leaves Facebook to join a Startup which subsequently gets bought out by Facebook in three months.
Winner [wi-nar]
Noun
1. Like a born loser, but, you get stock options when you join the Startup.
Financial engineers replace real ones. About ten years ago got a call from the CEO in NY. Must lay off five software enginners, I could select whoever I wanted. All were productively engaged so I asked why. 'To keep Wall St. happy' was my reply. All divisions had to lay off the same proportion. From a business and strategic perspective this was a disaster, but the financial engineers liked it. They destroyed HP and lots more tech companies as well.
I'm studying Urdu and Hindi so I can communicate with the fellows at work.
I'm studying Spanish so I can order a burger at a FF place.
I'm studying Chinese so I can meet a hot Asian chick.
I keep my English up so I can talk to Merikans who hold the door open at Walmart and sweep the floors at the mall.
I'll be the first to admit I never saw this coming.
Read the seditious output of the Frankfurt School, or The Long March Through The Institutions and you'll understand what's been going on for close to half a century and which has now resulted in, inter alia, your linguistic plans.
This examines the Frankfurt School and related
Excerpt:
In order to open European-derived societies to the immigration that would transform them, it was necessary to discredit racial solidarity and commitment to tradition. Prof. MacDonald argues that this was the basic purpose of a group of intellectuals known as the Frankfurt School. What is properly known as the Institute of Social Research was founded in Frankfurt, Germany, during the Weimar period by a Jewish millionaire but was closed down by the Nazis shortly after they took power. Most of its staff emigrated to the United States and the institute reconstituted itself at UC Berkeley. The organization was headed by Max Horkheimer, and its most influential members were T.W. Adorno, Erich Fromm, and Herbert Marcuse, all of whom had strong Jewish identities. Horkheimer made no secret of the partisan nature of the institute's activities: "Research would be able here to transform itself directly into propaganda," he wrote.
The Authoritarian Personality, which was written by Adorno and appeared in 1950. It was part of a series called Studies in Prejudice, produced by the Frankfurt school, which included titles like Anti-Semitism and Emotional Disorder. The Authoritarian Personality was particularly influential because...the American Jewish Committee heavily funded its promotion and because Jewish academics took up its message so enthusiastically.
The book's purpose is to make every group affiliation sound as if it were a sign of mental disorder. Everything from patriotism to religion to family -- and race -- loyalty are signs of a dangerous and defective "authoritarian personality." Because drawing distinctions between different groups is illegitimate, all group loyalties -- even close family ties! -- are "prejudice." As Christopher Lasch has written, the book leads to the conclusion that prejudice "could be eradicated only by subjecting the American people to what amounted to collective psychotherapy -- by treating them as inmates of an insane asylum."
technology = cutting folks
consultants = cutting folks
executive bonus = cutting folks
illegals + little dark skinned + yellow fellow = cutting folks
dumbass muthfukers with no education or skills or human values = cutting folks
war = cutting folks
the business model of tech growth, like the business model of 10, 15 or 30 year mortgages, has been broken by the globalist business model. Its an 'oops' thing by the power brokers.
HP+Whitman = Catastrophe.
I have contact with a mid level mgr of this company. The horror stories are awesome.
Internal controls, customer controls, employment practices, inter-divisional fueds, no-balls managers.
It's a wonder they have survived so long.
I came with no preconceived notions but women in charge of tech companies, maybe all companies, are a disaster. Same goes for other AA appointments. My God, the damage political correctness has inflicted on the West is worse than a hundred nuclear missiles. I offer as examples the trajectories of HP and Detroit over the last 30 years. There are hundreds of others of course.
Precisely what 10 years of the American Empire sending out women(Condi Rice and Hillary Clinton -to be precise) as our representatives to Muslim nations has done to the USA.
Most successful empires learned somewhere about a 1000 years ago that the payoff was better when you send out your most powerful MEN -especially to chauvinistic Sharia Law nations with one foot still in the 15th century
"I came with no preconceived notions but women in charge of tech companies, maybe all companies, are a disaster."
As apposed to all Male Bankers? In the case of HP, They've had about 20 years of bad CEOs, Sex of the CEO didn't impact its fate. By the Mid 1990's HP had become a Borg (StarTrek NG reference) company Like Computer Associates. It assimilated companies making decent products and stopped all improvement the day the company was purchased. The Only think HP does is change the logos and product names.
they have to pay unbeleivable sums for other tech companies, because to pay the peanuts they are actually worth would reveal by implication how overvalued they are themselves
i think i just did the linguistic equivalent of that yoga position where a guy sticks his entire head up his own bum
Meh . Just build out more of that "free energy shit." Scare the crap out of half the planet while you do!
My God! How dare you correct my goo!
When Dragon-Kings come calling...
http://andreswhy.blogspot.com/2013/11/dragon-kings.html
"homeboy fucked a martian once"
Tech has been cannibalizing itself for a long time. First through H1B visas and off-shoring, then with sales of patents to China and Korea, then by moving factories and development overseas, then by buying up more innovative companies with hot money, then by cutting quality in products and services.
Just as the article says, US Tech is hollowed out. All the value stocked up over 100 years of technology innovation has been squeezed out by the smiling MBAs who came to the forefront of business planning starting in the mid-80s.
The only hope now is in start-ups. Not the Facebook kind the builds distraction and never makes a profit, but real technology start-ups solving hard problems in networking, storage and security. I'm in one now, we're doing well $-wise, but I'm just waiting for the day a couple grinning smarmy MBA parasites walk into the office on a Monday and tell the staff and engineers that the investors sold the company and assets and we all now work for their company WankCo. I've had that happen to me once, it was scary as hell, but these days it is going to become the norm.
Waiting for it. Not looking forward to it at all. Just waiting.
I'll move on to the next opportunity, and pick up where I left off. We are all ronin. Who pays me is my master, but they are destroying America one acquisition at at time.
If you are the creative type, take matters into your own hands. Start your own company and do things the way your angels tell you to do them;)
+ 100
Speaking of that ronin mentality...5 jobs in the last 6 years after getting laid off at the start of the depression.
As for technology, the electronics industry has stagnated, to the point where the only innovation is faster clock speeds. But it still pays the mortgage.
"As for technology, the electronics industry has stagnated, to the point where the only innovation is faster clock speeds"
Virtualization and Mulitcores was a big game changer in the past 10 years. Also Lower Power CPUs for smartphones was also another big change. The next step is probably in the direction of progammable hardware, building upone FPGA. Processes is hardware can run circles around software. In the Power Electronics, SiCarbide and GaN transistors are going to be an improvment. The another rising material is molybdenum disulfide.
"5 jobs in the last 6 years after getting laid off at the start of the depression.". The depression started in 2002 for me after a fiber optic instrumentation company decided to hang it up and sold their product lines to Anritsu and the company left the US. Been a permanent temporary worker (ie: contractor) in the transportation industry after the 18 months of nomadic wandering the nation looking for work in my profession.
There are so many like you. The people responsible for this situation are traitors as treasonous as Benedict Arnold.
At least Arnold had valid reasons. He did not like the French and he felt they would just take over once England was out. He was also jilted repeatedly by Congress for legitimate personal expenses incurred in prosecution the war on their behalf. Before that he was the best general in the war. He might have been the best fighting general in the history of the US.
These are all things that do not apply to the modern day traitors. They have provided nothing of themselves for our cause. When they give an inch or two from one leg or the other and their personal fortunes we can talk about them being like Arnold. Until then, they rot in his shadow.
I recently played a gig with my bluegrass band at a Linked In event. It was mostly east Indians and Chinese folks with a few round eye thrown in the mix. The whole company is a bunch of H1N1 visas. Needless to say they were not overly impressed with Bluegrass music. The article has a link to some VC chasing woman who claims everyone that has been laid off can't spell their name anymore which is a bunch of BS. Companies are looking for H1N1 visas that they can pay like a burger flipper and beat to death over a schedule for some product that is most likely already obsolete.
BE CAREFUL PTB, YOU'RE GOING TO BE THE ONLY ONES PAYING TAXES AND FOR WW3.
Confirms my own experience : Cies are being systematically destroyed by young "managers-with-MBA" whose only "added value" lies in their ability to cut jobs, ( very temporarily ) boost ROCE, cash in their bonus and then get the heck out of the place before it all collapses so that they can the restart their game somewhere else based on a "good track record". And yes, technical jobs are a "cost" and need to de eliminated asap, but "management" - THAT's what is needed ..... meet the future, only CEO's sitting on an economic graveyard. HP is a textbook example.
IT turnovers - tastes like Apl.
Very punny.
About that CEO talked about in that last paragraph.
I don't know if I would really want to work for a startup like hers.
This Rebekah Campbell started a Yelp clone in Syndey and then promptly outsourced every Australian not in management.
The current Posse team...
http://posse.com/team
and the process she used to create it...
http://www.rebekahcampbell.com/2014/06/24/the-uncomfortable-moral-challenges-that-come-with-building-a-team-in-a-poorer-country/
http://www.rebekahcampbell.com/2013/09/24/what-ive-learnt-about-outsourcing-so-far/
According to the NYTimes she also moved part of the company to NY?
But, but, but sillycon valley......
Smart response to this trend is to not be an employee - create your own source of income independent of employment. I did it, others can too.
Didn't the big guys come after you?
- Either to take your business or customers from you
- OR to drive you out of business
I met a Russian woman that just wanted to get enough cash together to work in her own Kiosk... This makes sense to me now. If you have a unique product or service and look like you will starting pulling in big bucks, then the big boys may want the Income Stream (Mafia).
USA is like this now. Probably you can be Freelance or work as a sub contractor... this would be a Kiosk kind of service. But I can't speak to the subject properly.
Arrest Bill Gates.
This article was disappointing. Where's the big teeters?
The whole problem is there aren't enough teeters in IT. They need to be duped back into the wage slave racket, same as it was before electricity.
Teeters and sack.
I remember the early 80"s when Reagan was running around the country with the slogan of 'sunrise industries will replace sunset industries.' Not sure how that's working out. I think it's dark for everyone.
Was it not pretty decent until Glass Steagal was broke, EXIM went full bore, and the printing presses and manipulations took hold?
Innovation and hard work, nothing wrong with that, as far as it goes.
Expect dismal job creation to continue, today many forces are coming together that tend to make this the new normal. Over the years as we have become able to produce more with less labor we have seen the fruits of our work improve the lives of many people.
Today we enjoy being able to have far more goods and luxury's then at any time in history, but soon we will find ourselves competing with robots for jobs and see many of our options for earning a living swept away.
Today many people forget that small business is the backbone of America, this is the real job creator and the place where "with skin in the game" skills are learned and honed. It does not help that the President and most of Washington lack solid backgrounds in both business and the economy. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/12/the-reason-dismal-job-creation-wi...
Put some golf shoes on "lady" liberty.
At first I thought it was a flyswatter for the drones, but then it dawned on me it's star and stripes branded flipper for burgers!
One of your best yet.
I agree.
Good article.
So tek is replacing internally generated growth with buying the stocks of others.
Exception from these machinations being Apple
I agree it's a good article. Apple generates growth in China; pay attention.