Excesses of boom years still hobbling tech recovery
By David A. Sylvester / San Jose Mercury News Nov 1, 2002
Eliminate the Internet bubble, and where is Silicon Valley's economy? By numbers alone, the valley's economy appears to be right where it was in 1999. After the hysteria of the Internet boom, the number of jobs in the valley is back to 1999 levels; sales by Silicon Valley's biggest companies are back where they were three years ago.
But other numbers tell a more complicated story. While the valley's economy is back to pre-boom levels, it is likely to take longer to fully recover because of the dramatic overexpansion during the glory days.
``A boom-bust is highly destructive,'' said Lakshman Achuthan, managing director at the Economic Cycle Research Institute, a research firm specializing in business cycles. ``In the boom, you make mistakes putting resources into things you don't need and in the bust you pay for it in an inefficient way.''
And Silicon Valley is still paying for its late-1990s boom:
• Seven of 10 public companies are still losing money. During the past three weeks, two-thirds of the local public companies have announced their third-quarter results. The results: 151 companies reported losses, while only 70 companies made money.
Some of those losses are one-time events to pay for past excesses. But in the long run, companies that don't make a profit don't last.
Silicon Valley companies are facing their own version of the game ``Survivor,'' says Donald Luskin, chief investment officer at independent research firm Trend Macrolytics in Menlo Park. His analysis shows that 70 percent of nearly 1,600 tech companies are losing money from operations, and many of these won't survive one more year.
``It's now a game of life and death in tech land,'' he concluded.
Tech earnings also could be in trouble if companies are required to expense stock options. Investment adviser John Mauldin thinks tech companies could face ``a glass ceiling'' if accounting standards are changed because any improvement in profits would be erased by the impact of expensing options.
• Office space remains overbuilt. About 42.3 million square feet of office space was up for lease in the Bay Area in the third quarter -- more than four times the amount in 2000, according to BT Commercial.
Mark McGranahan, senior director for Cushman & Wakefield, believes it will take five to six years to absorb the extra space. ``The market is terrible, and tech companies are still shedding space,'' he says.
• Too many tech companies are still chasing the same customers. Steven Milunovich, Merrill Lynch's technology strategist, estimates the number of tech companies needs to shrink by nearly 30 percent. It could be one to two years before the consolidation is over, he says.
• Hiring hasn't started yet. Regional research firm Economy.com projects that Santa Clara County is hitting bottom in terms of lost jobs. This winter, the layoffs should stop. Hiring should pick up next year.
But that will come too late for some of the 92,000 who have lost jobs since the labor market peaked two years ago.
Lance Drake, a 55-year-old computer programmer, was laid off 13 months ago after working at four start-ups, all of which left him with worthless stock options. He has used up his savings looking for work and is now planning to move to Santa Fe, N.M. ``I've never not been able to get a job at some level,'' said Drake, who moved to Los Gatos in 1978 from South Carolina.
He estimates he has sent out more than 400 résumés and never had a chance to find out if his age was subtly working against him because he rarely heard back from interviewers. And he isn't alone. Among his friends, one lost his house, and another couple were laid off at the same time.
``I don't see how people with a $600,000 house and a $5,000 monthly payment can survive,'' he says.
Any signs of improvement could hasten the repairs needed to the foundations of the tech economy.
On Thursday, the government's report on gross domestic product -- the total measure of U.S. goods and services -- showed growth was less than expected during the third quarter. Today, a poll is expected to show chief information officers aren't increasing their tech spending as much as expected. National jobless statistics also are expected today.
Next week, the Federal Reserve Board is expected to meet and possibly cut interest rates.
``The economy is rapidly losing steam,'' said Sung Won Sohn, chief economist at Wells Fargo.
On the positive side, some people see improvement.
Among the largest 150 Silicon Valley companies, half were profitable during the first six months of this year, an improvement from the 36 percent that were profitable in 2001.
And the latest GDP figures on tech spending are seen as signs that the tech economy has begun to turn a corner, although slowly.
``The information suggests it is a turn that is sustainable in the near term,'' said Achuthan. ``We're bouncing off the bottom.''
Morale sinking among survivors of slump
By Margaret Steen / San Jose Mercury Oct 31, 2002
The relentless layoffs at Silicon Valley companies are taking their toll even on those who haven't lost their jobs.
Employees' friends and colleagues are gone, but often their work is not. Although the layoff survivors are grateful to be employed, even if they are working harder, many report dwindling enthusiasm for their jobs. Morale at many Silicon Valley tech companies varies -- depending on the company, the department and even the individual -- from mild tension to full-blown dread.
``I would say that morale of employees -- not just at Agilent but in the valley -- is at a new low, because frankly the market seems to be bumping along at the bottom,'' said Jean Halloran, senior vice president of human resources at Agilent Technologies in Palo Alto. Agilent is cutting 20 percent of its employees by the end of this year.
At companies where a lot of workers have been let go, empty cubicles remind those remaining of better times.
``You can almost hear an echo in the place,'' said one worker at a local high-tech company, who asked that he not be named.
Although workers at some companies have the sense that this downturn's cutbacks are largely over, layoffs still loom at other local companies including Sun Microsystems and Adobe Systems. And even when layoffs haven't been announced, some workers wonder if more cuts may come if their employer's business doesn't improve.
`Creeping paralysis'
The result is what executive coach Michele Kremen Bolton calls ``kind of a creeping paralysis or numbness'' in many Silicon Valley workplaces.
Compounding the stress is the extra work that many employees are shouldering. Not every layoff results in more work for those left behind. In some cases, an entire project or product is canceled, and the work disappears with it. But often, the laid-off employees' work is simply given to those who remain.
One customer service manager at a local tech company had to lay off a quarter of the department's staff recently, even though the workload hasn't decreased. And the problem doesn't stop with answering the phone.
``If I call accounting because some customer calls and says billing didn't come through properly, and there's only one person in accounting, they're not going to get back to me today or tomorrow,'' said the manager, who also asked to remain anonymous. ``I tell my team, `Just do the best that you can for the time that you're here, and try not to take this stuff home.' It's very, very stressful.''
The downturn's toll on morale extends beyond layoffs and the extra work they generate. The bursting of the tech bubble has diminished the opportunities to do work that many found genuinely engaging.
``People are really depressed because they're sort of bored. It's not just the depression of the economy,'' said Marianne Adoradio, a career consultant and owner of Design Your Direction in San Jose.
Offices less personal
Budgets for everything from new projects to training have been slashed. Raises and promotions are rare, and those who decide to look elsewhere for jobs find slim pickings.
Angela Miller, who went through several rounds of layoffs at a local tech company before being let go recently, said she noticed her colleagues bringing fewer personal items to the office as the downturn progressed.
``Two years ago, offices were decorated and people were sort of making themselves at home, and you don't see that anymore,'' Miller said.
Now, many workers say the excitement and commitment are gone.
``It's kind of like a different feeling,'' said the tech worker. ``We're having to manage our finances vs. trying to do something really meaningful and growing.''
Feeling guilty
On top of that, the workers feel guilty about complaining because they know many unemployed workers would gladly trade places with them.
``They feel relieved that they're getting to stay, they're feeling scared that they're getting to stay because there will be more work for them, and they're feeling this remorse,'' Miller said.
The current job market is bad -- unemployment in Santa Clara County is near an almost 20-year high -- but it seems even worse when contrasted with the easy job offers, raises and promotions of just a few years ago. Some say workers' disappointment stems at least partly from the loss of stock options and other perks of the boom.
Regardless of the cause, low morale has real consequences for companies. When the job market picks up again, many predict that a lot of workers will seek new jobs. And for now, workers who are unhappy are less likely to be engaged in their jobs. Although it might seem that workers who are afraid of losing their jobs would work even harder, experts say often the opposite can happen.
``I'm seeing more of my clients trying to contain their work and have a life,'' said Maynard Brusman, a psychologist and executive career coach in San Francisco. ``What people are doing is they're putting their energies into lots of other things.''
Employers are aware of how stressful the current climate is for workers. Some managers report spending their own money on small morale-boosters, like food and prizes, that used to be paid for by the companies.
More communication
Company executives are trying to communicate with employees as much as possible. At Intel and Agilent, for example, executives have been meeting with employees frequently to answer questions.
``The most important starting place is always to start with reality. Never paint a picture that's rosier than reality,'' Halloran said. ``What we've done at Agilent has been to significantly increase the amount of time that our executives spend in front of employees.''
But in the end, a stronger economy may help the mood in the workplace more than any official corporate efforts.
``There is nothing that is going to make as much of a difference in raising everyone's morale as improvements in our markets,'' Halloran said. |
