A Bad Day for Tech: 31,000 Jobs Slashed

By KAREN KAPLAN

July 27, 2001 12 AM PT

TIMES STAFF WRITER

A host of beleaguered technology companies announced a staggering 31,000 worldwide job cuts Thursday, marking one of the worst days for layoffs since the tech bubble burst a year ago.

Thursday’s moves from a variety of tech titans, which already are slogging through the worst year in the industry’s history, caused analysts to wonder whether the carnage would get even worse and when it would come to an end.

“I don’t think anybody has the faintest idea,” said Richard Shaffer, principal with Technologic Partners in New York. “My guess is the CEOs who are doing it are clueless. When sales start to tank, they don’t know what else to do.”

More than 300,000 tech jobs, nearly 40% of the U.S. total, have been eliminated in the first half of this year, according to Challenger, Gray & Christmas, a Chicago outplacement firm. Along the way, the tech industry has fallen from its position as the U.S. economy’s hero to being its Achilles’ heel. New orders for equipment such as personal computers and other gadgets have shrunk at their fastest pace ever--49.2% on an annualized basis--in the last year, according Moody’s Investors Service Inc.

“When times get tough, people don’t buy the new car, they don’t buy the new PC, and they don’t buy the new Palm,” Shaffer said.

Business spending is off just as sharply. Telecommunications companies, which are drowning in a surplus of equipment amid plummeting demand, reported the deepest cuts Thursday.

French telecom equipment maker Alcatel said it will shed more than 10,000 jobs in addition to the 5,800 cuts announced earlier this year. San Jose-based JDS Uniphase, which makes fiber-optic components, added 7,000 workers to its previous tally of 9,000 layoff victims. And Silicon Valley bellwether Hewlett-Packard Co. announced 6,000 layoffs as it warned that its revenue will be well below Wall Street’s expectations because of plunging consumer sales.

A few smaller companies, including German chip maker Infineon Technologies, New Jersey communications software maker Avaya Inc., El Segundo-based International Rectifier and data storage device maker Quantum Corp. of Milpitas, Calif., announced additional cuts totaling 8,000 jobs.

The tally from tech companies on Thursday alone exceeds by nearly one-third the 24,356 U.S. layoffs announced by companies during all of last week, according to International Strategy & Investment Group, or ISI, in New York.

Even mighty Microsoft said Thursday that it will add fewer than 4,000 jobs between now and June--half as many as it added in the previous year.

Weekly U.S. layoff announcements peaked in late April at 60,954 and have trended sharply lower since then, averaging a relatively meager 23,762 cuts in the last four weeks, according to ISI. But now some industry experts are predicting that trend will reverse.

The news from Hewlett-Packard, in particular, spooked Fred Hickey, editor of the High Tech Strategist newsletter in Nashua, N.H. If HP is ready to cut 6.5% of its work force, he said, other companies may soon follow suit.

“They all believed there would be a second-half rebound, so they were slow to lay people off,” Hickey said. Now that it’s clear that the business climate isn’t likely to improve until next year, they could follow with more job cuts.”

There are about 130 million jobs left in the U.S. economy. Nationwide, the jobless rate stands at 4.5%, still low by historical standards.

“I don’t believe 4.5% unemployment is going to be the low for the cycle,” said Hickey, who expects the bad news to keep dragging out over the next several quarters at least.

But layoffs tend to be a lagging indicator. By the time they are announced, companies typically have experienced the worst in the previous three months or so.

Michael Reynnells, associate managing director at ISI, said he expects the layoffs to keep coming, though not necessarily at the levels seen in the spring.

“The company news is pretty bleak, and that doesn’t really foreshadow any great improvement in layoff announcements,” Reynnells said. “As long as companies are under this kind of pressure, there’s always going to be that looming layoff announcement. Maybe the worst is over, but it doesn’t preclude more of these things.”

The layoffs are hitting especially hard at telecommunications equipment firms, which saw record sales volumes abruptly disappear as the Internet economy soured, pushing smaller phone companies and other customers into bankruptcy.

Until the dot-com boom went bust, nearly every start-up with funding was buying communications hardware to handle corporate data, Internet traffic and e-commerce transactions. Phone companies joined the buying spree, adding more hardware and high-capacity lines to handle the rocketing data traffic.

When the high-tech fortunes collapsed, equipment makers were unprepared for the sudden reversal. The ripple effect has extended beyond the equipment companies to their parts suppliers, hitting hard at chip makers and fiber suppliers alike.

The financial crunch was made worse at equipment maker Lucent Technologies Inc. and others because they had provided billions of dollars in equipment loans to firms that ultimately failed. Lucent has responded in breathtaking fashion.

After announcing 19,000 layoffs earlier this year, the company said Tuesday that it would slash its work force by an additional 15,000 to 20,000 workers. Lucent also eliminated 17,000 positions by spinning off its semiconductor and optical components division into a separate company. When the cuts are done, Lucent will be left with 57,000 employees, less than half the 123,000 workers who began the year with the company.

Just like the corner coffee shop, tech giants that can’t sell their products can’t afford to pay their workers. With consumers holding onto their old PCs, Gateway, Compaq Computer and Dell Computer have announced the elimination of 11,500 jobs since January.

Times staff writers Elizabeth Douglass and Walter Hamilton and researcher Nona Yates contributed to this report.

MORE INSIDE

Stocks rise: Gains are strongest in tech issues, even with more job cuts and revenue warnings. C4

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High-Tech Woes

From January to June, 777,362 layoff announcements hit the U.S. economy, 40% of those in technology industries, according to Challenger, Gray & Christmas, a Chicago outplacement firm. Here’s a look at some of the biggest tech company layoffs announced in recent months:

Cuts announced:

Company: Lucent Technologies Communications equipment

Cuts announced: 39,000

Company: Motorola Cellular phones

Cuts announced: 30,000

Company: Nortel Networks Communications equipment

Cuts announced: 30,000

Company: JDS Uniphase Fiber-optic components

Cuts announced: 16,000

Company: Alcatel Telecom equipment

Cuts announced: 16,000

Company: Cisco Systems Networking equipment