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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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sounds like moar consolidation of intellectual property as diminishing marginal returns take hold in the 'creativity/ingenuity/growth' tech biz.
same as it ever was, bright minds deliver patented product innovavations and then... the only trade left is the patents.
the crushing cyclical reality of declining revenue accelerates the process.
IDEA: Demand National Industry Baseline to cushion USA against Economic Shocks, National Stockpiles be Reviewed for Appropriate Levels, Public Utilities be Reviewed for Public Interest in Low Costs, Full Public Responsibility of Local Governments, and to at least develop alternative plans for Future Credit Emergencies, Currency Emergencies, and Credit Collapse... But also:
Begin national Discussion about Current Levels of Apprenticeships across broad spectrum of Industries and how protectionist policies would work in Collapse of US Dollar
- Apprenticeships are not a new idea
- Home Land Security Includes Domestic Production of Products and Manufacturing and Maintenance of National Infrastructure
- Commodities, Utilities, Currency, Credit, Imported Goods all face "Shocks" in many economic conditions, disease, weather, earthquakes, Volcanoes, Hurricanes...
- Public Banks should be considered for all states as the total number of Private Banks is Collapsing TODAY, we need plans for local credit in each state, and possibly Credit from the US Treasury in dire straights
- Privatization does nothing in Emergency Conditions except provide high costs, narrow solutions, just as in the Iraqi War
- High Cost Education in the US Extracts Wealth from the Low & Middle Class
- COST SHIFTING away from Apprenticeships & "On the Job Training"... only makes certain Investors & Private Executives Wealthy through Extraction from people who's wages already have fallen as many sectors witness Inflation and Corruption of Federal Government Officials
- The Corporate System is not responsible for anything but creating profit for investors or wages for it's Executives, the whole system is Myopic, Short Sighted, and Dangerous to the future of the USA
It's going to get really fuzzy when robots are buying Apl stocks, just trying to get ahead.
Where the phuck is my solar powered I-phone? Let's start with that then I'll believe in less of of all this whining.
or alcohol powered mirco-fuel cell phone ? If that works out then could get some quality gin or vodka and keep talkin' before a refill.
The BRICS hierarchy (esp China) is dominated by STEM degree holders. The Western hierarchy is dominated by holders of lesser degrees (most of dubious distinction). Now, where should you be placing your chips? Hmmm...
We have tones of Doctorate Level US Workers in Science, Technology, Engineering, and Manufacturing... well maybe not so much in Manufacturing as this is a different animal anyway.
STEM: science, technology , engineering, and mathematics.
Do web search for STEM Glut Economics... there are always highly educated people available for real good jobs in the USA... the Meme has been to get the most education, so that is what we do. And when there is a projected shortage in college skills within 5 years there is a US Glut in skills.
TPTB want more immigration to depress wages... Supply & Demand. Plus there are future Demographics problems for Social Security, MEDICARE, and Individual Tax Payers to pay for Out of Control Congressional Spending. Immigration & H1B Visas are all part of a plan. Cut labor expenses while looting Corporations through Executives Compensation and funnel profits to only a few investors.
If we have software programmer shortage, then do On The Jobs Training or create offices in other cities than silicon valley in decentralization of production, 150 Million people in US Labor Force, recruit them in other cities.
Author link is worth reading:
http://wolfstreet.com/2014/09/04/unemployment-crisis-irony-you-must-have...
Yup, they're letting the H1-B workers from India stream across the border so they can fire an American who spent money on a STEM education and who needs a decent salary.
Amurika!
Darwinism or Fascism?
Is there a huge difference from the Humanist point of view?
Elementary School Culture:
"A FIGHT, Let them Fight!"
Only we don't have playground supervisors any more. No real independent auditing, no real Ratings Agencies, no real government...
Moar h1b visas, fuckers?!
That's how my wife lost her job 2 years ago. 10 years of excellent reviews. BOOM. Layed off and replaced by an in country Indian at 25% of the salary.
"...replaced by an in country Indian at 25% of the salary."
and probably not even 10% as effective.
Qualcomm is about 50% contract workers. I took a contract position with them, and in my group of 10, I was the token white. The 9 Indians were working at less than half of what I was being paid. 3 of the nine were quite sharp, and should have been hired on full time. But that's not the Qualcomm way. It's work them for 4 back to back 6 month contracts, then let them go. If they thought you were good they would rehire them after 3 months, then another cycle of 4 back to back 6 month contracts. Not one of them ever thought to renegotiate their contract for a higher wage.
One huge downside [among many others] of hiring too many Indians or Pakis is they tend to only hire other Indians/Pakis. Not good for the company or society when they discriminate like that, yet nothing is done about that kind of reverse discrimination.
I've worked with some of the old fashioned hard worker Indians/Pakis who have been here years and they are great. The new generation of h1b workers are terrible for the most part.
...and thats why there is a minimum wage in America: to produce exactly this kind of labor value arbitrage, to the disadvantage of 99% of Americans.
...and thats why there is a minimum wage in America
No...that is why there WAS a border and immigration laws.....but those have been usurped by the CronyCorps that just want the cheapest body they can import. You don't think that if there was a limited supply of workers that they would eventually have to start hiring and training the kids that now work minimum wage jobs now. To top it off, they also fight to avoid paying taxes to deal with the consequences of rampant un/underemployment that they are helping to create...
The border has moved to my front door and the immigration law is right behind it.
Even when there was functional government the incentive for illegal immigration is the minimum wage. Because of the minimum wage and numerous bullshit wealth redistribution taxes, illegal workers - domestic too - occupy a growing niche, to be exploited by raysiss DNC and RNC pimps alike. The incentive for illegal migration is that due of the minimum wage the cost of living here is distorted so much higher than most of the turd world, so unskilled beans can live 30 to a room in an Alinsky Inn and send home enough to be the village Scarface for the weeks when they get deported & are making arrangements to return. Indefinitely.
Only violence will change this, and only temporarilly. Basic welfare can only come directly and volutarilly, not by community extortion. Additional violence is guaranteed. The welfare state is only beneficial to the corrupt and hideous. Have you seen these creatures? Ugh. Even if they aren't ugly just start talking about Americans and watch their hateful expressions. We didn't do that, they came here that way.
And when we have a huge Economic Shock... we'll look around and see no Private Executives doing anything or taking responsibility to fix America.
- There is no Public Executive Responsibility or Private Executives Responsibility today.
- Money Rules & we all want our wages to pay on our debts & mortgages & Kids Tuition
- Money Corrupts, Privatization is part of this, the Corporate System is part of this and needs to be "Re-Thunk"
- US is not prepared for Economic Shocks, which is really just military thinking & planning, and we are a foremost military nation... it should be "natural" (although we do have some national stock piles
Question: were there any Big Banks saving USA in the Great Depression or after the 2008 Financial Crisis???
Answer: No. Corporate Strategy is to extract more profits not to be a good corporate citizen.
when all is said and done-all "value" and "wealth" remaining in the USA and Europe will have been harnessed to the banks defense of their derivative positions.
All those skirmishes now going on overseas are people trying toavoid that
Yep, and then some.
The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy.
QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. In postponing this collapse the Fed has created a whole slew of new problems. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/03/derivatives-house-of-cards.html
doctor10;
It is like Enslavement, being in the military, or being communist. I suppose we are being "Normalized" toward communist China with an Elite Class and mostly a low class who have to network, compete, and fight it out within a military dictatorship.
think of the "elite" class as "enforcers' for the big banks -rounding up all assets in a geographic region and "homeland security" starts to make sense
Yes... we have tons of millionaires now. I don't have a number.
Figure if you are making $150K a year plus some government bonuses or even big private bonuses... you are going to be loyal to get your share, pay on your debts, pay your mortgage, and considering paying for kids tuition someday.
So, yeah, our economic winners are supporting the banks business culture & structure. Millionaires even more so as they probably have some secrets and information to hold back from "Main Street".
Advancing Time, thanks for the link explaing some more about derivatives.
China and India will pick up the slack.