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Something Wrong? Layoffs Explode In America’s Big Old Tech
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
The employment situation in the US has been outright rosy. Initial unemployment claims have been bumping along near record lows. Whether or not companies are hiring, at least they’re not axing people in massive numbers. The unemployment rate of 5.8% is practically comfort inducing. OK, we can smell the odor of the details underneath, but hey. And for September, the Challenger Job Cut Report raved about 2014 being “on pace to be the lowest job-cut year since 1997.”
Got it. Things are good.
Then came October, and announced job cuts jumped 68% from September, and 12% from a year ago, to 51,183. Year to date, job-cut announcements of 414,591 were still down 4.3% from the same period last year. And just as we’re exhaling, we read in the report that this “may mark the kick-off to a fourth-quarter surge in job cuts.” More pain? “It is not unusual to see the pace of downsizing accelerate in the final months of the year, as employers take measures to meet year-end earnings and profit goals.”
So companies are getting their announcements out of the way, including the charges that come with the layoffs – these pesky “one-time items” that keep recurring – so that analysts can focus on metrics they’re supposed to focus on, rather than actual earnings.
Biggest sinner? Retail, with 6,874 planned layoffs for the month, a big jump from September. For the year, announced job cuts were up 5%, to 38,948, following an ongoing epidemic of store closings, restructurings, and bankruptcies [read... What NCR just Said about the American Retail Quagmire].
But the trouble in retail pales compared to what’s going on at the paragon of corporate America, the brilliant hope for the future, the core of innovation: the tech industry. The report divides tech into three segments.
There’s the computer industry which includes permanent layoff queen HP; it layered another 5,000 job cuts on top of the 16,000 it had announced earlier in the year, and on top of the tens of thousands it had announced in prior years. The segment also includes Microsoft which is now implementing its own mega job cuts. In October, the segment announced 6,509 job cuts for a total so far this year of 55,511. That’s up 92% from a year ago!
The electronics industry – Cisco among them – announced 1,648 job cuts for the month, bringing them to 18,153 year-to-date. Up a stunning 136%!
The telecommunications industry – which includes money-losing Sprint, now 80% owned by SoftBank of Japan – announced 5,217 job cuts for the month, which brought the year-to-date total to 20,038. Up 81% from the same period last year.
All three tech segments combined clocked in with 13,374 job cuts in October and 93,702 for the year so far. Up 97% from the same period last year!
That’s more than just the routine tweaking of the work force, where some people get laid off in one area of the company and other people get hired elsewhere. This time it’s serious. And they’re all doing it: Microsoft (18,000), layoff-meister HP (21,000), Cisco (6,000), Intel (5,350), Sprint (2000 on top of the 5,000 by which it already reduced its workforce so far this year), TI (1,100), Dell (1,000), EMC (1,000)…. You keep going like this, and pretty soon you’re talking real numbers.
Tech’s layoff announcements are likely to blow past 100,000 for the year, on track to be the worst year since 2009, when it announced 174,629 job cuts.
So is this the end of the tech bubble? Nope. In 2001, the last time a tech bubble blew up, Challenger reported nearly 700,000 job-cut announcements. Countless startups that were going to change the world ran out of money and were shuttered – without even making layoff announcements. Others slashed their workforce and survived or were absorbed. Large tech companies went through wholesale workforce reductions.
This isn’t what’s happening now. The culprit is Big Old Tech. These are the mastodons that have been around for decades, the tarnished American stars. Many of them are revenue challenged. So they’re on an acquisition spree, trying to grow that way, instead of developing their own products and markets. With a cost of capital near zero after inflation and taxes, thanks to the Fed’s machinations, it doesn’t really matter on what this free money gets blown, so long as it doesn’t get invested in people. Each acquisition has led to layoffs, and still, revenues are mired down. And some of these tarnished stars rack up big losses.
In addition to perfecting their financial engineering, these companies are playing the layoff game. Announcements are impeccably timed, issued with maximum fanfare, and expressed in immaculate corporate speak liberally sprinkled with hype. There would be future savings and efficiencies, it would make the company more nimble, etc. etc. The purpose of these announcements is to goose the stock price. And it works.
The job cutting debacle in Big Old Tech contrasts with the hiring battles in other areas. Facebook and Google don’t have to brag about decimating their workforce and throwing out brains and experience in order to boost their stock price. They are hiring, and their expenses are soaring, but what the heck, in this climate, nothing matters. Then there is a myriad of startups that have neither revenue nor business model, and certainly no profits, but as long as they’re awash in other people’s money, they’re hiring too. But when the money dries up, 2001 will play out all over again, even if to a slightly different tune. Meanwhile, it’s Old Big Tech that’s singing the blues.
And just when you thought we’ve reached the peak of craziness in startup-land, it gets even crazier. Read… Pump and Dump: How to Rig the Entire IPO Market Without Raising ANY Money
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‘2 hour work week and high pay’
Alternatively, we need to clean-up the other side of the ledger.
For example, if we whacked the OASDI crowd (Euthanize them), our liabilities would go down. As a country of workers, we’d either pocket more or could work less with the same result.
Exploiting the impoverished and corrupt for the benefit of the few at the cost of many begat automation. There I fixed it for you.
Become self-sufficient and you leave prison. Think about it in detail like you would a project at work and you will see it can be done.
The cost of capital is not "near zero" for any of these companies, unlike the Amazons, Google's, Twitter's, and Facebooks of the world who are enjoying a near zero cost of capital as their stocks trade at insane P/E multiples and there's no end to the ability to issue stock. And these firms don't have much that the banks actually accept as collateral either.
As an investor, I'm kind of torn between picking up value in some of the beaten down, old-tech companies. And letting the whole social media bubble collapse, and then picking them up probably cheaper as the algos just sit there and sell, sell, sell everything related to tech (ie: the QQQ's), even if it wasn't particularly over-valued in the first place. Probably best to do the latter, ie: wait.
I'm amazed that HP still exists. I took a huge buyout during their Compaq merger disaster, went freelance and my second contract six months later with HP working on same same shit I was doing before for a 25% pay premium. Now big tech either hires low pay code monkeys on the H-1B program or straight out-source their core business to the third world, meanwhile I'm still chugging along charging a premium to fix their fuckups.
Yeah but some exec got a promotion and huge bonus for his brilliant idea to outsource your old job and pay some incompetent H1B half the pay you previously received.
It's the Peter Principle at work or parasites in lower intestine which ever. Senoir leadership is shit in any organization in my experience the TALENT is either off the chart CEO (Musk,Jobs) or folks that left for profits and went to non profits,small time entreprenuers or some type of LEO/Military....the Corps are loaded full of drones and tools...lol
It is well known that Cisco is in the habit of funding projects internally until they show some promise, then releasing the teams to form outside companies, then re-aquiring those companies (at inflated prices) using money that could otherwise be used to pay dividends or with borrowed money.
Of course Cisco upper management gets a big slice of stock when the company is spun out and so a big slice of stolen money when the company is re-aquired. Rinse - wash - repeat.
The snakes are running the machine.
Buy gold and Bitcoin, don't give these a-holes any money.
They just need to collateralize their employees, then they can put them on the books as assets.
Some of the Wall Street firms put life insurance on their employees, with the firms as the owners and beneficiaries of the policies. The policies continue even if the employees are fired or quit. The firms even track life expectancies and death rates among these employees and report on the returns from policies.
Nobody wants their En Ess Aye Spyware shit hardware, software or cloud services. European companies secrets end up in Utah and Tel Aviv to be resold to the highest bidder.
Sorry we don't trust you and your products are shit. IBM is a joke now. They have way overpiced consultants who are clueless.
All the shitty Amerikon hard and software have backdoors and ain't no companies want a backdoor man. Poor Jim Morrison. Killed because he pa the admiral spoke up about the USS Liberty.
Freddie - Snowden, if he's fake, his handlers knowingly took down US tech business? I think he's real and this is an unwanted consequence to the PTB, but who knows? Strange times.
'Hey, now. Don’t lose your files, sexy man. Back them up to our cloud for free. '
The other day an old IBM aquaintance called me and said he was on the recent cull list. He said it was a relief because now the career death march has ended for him. Sr Mgmt level, a handful of gringo direct reports state side, the vast majority of the team in India.
He talked of the time in 2005 when I told him the NWO'ers who run IBM were going to destroy IBM US in order to help kill the US middle class. Just like the rest of the global corps. He said you guys who kept telling me that were so far out there it didn't seem possible. Today those ideas are, um, "gaining credibility."
Then rehypothecate the fuck out of 'em.
You can save $6.50 per hour per worker by offshoring your unskilled labour but you can save $28 - $148 phpw by offshoring your tradies and $98 - $298 phpw by offshoring your professionals.
Imagine how much they can save by offshoring their Boards of Directors and CEOs!
Death in service insurance already does that.
A lead slip.
Obozocare, the gift that keeps on sucking.
wait till 2016, obamacare will bite your dick off.
obama loves to eat dick, he plans to eat 250 million american dicks. the rest work for the government and hope they get to lick them first.
Is that when it actually starts? So many parts of it have been delayed, I have lost track. Sites that follow it show a timeline that has nearly everything enacted and running as of today.
What parts are to start up in 2016?
Fuckin' A
the writer doesn't even mention how the big tech layoffs (cisco in particular) have a lot to do with the government (foreign companies won't buy cisco because cisco installs backdoors for the NSA, american "sanctions" against russia and others, etc)
Roger that.