The Tech Sector Stops Adding Jobs--Cuts Soon?

Published: October 20, 2008

by Timothy Prickett Morgan

Even before Wall Street and the other stock markets of the world started melting down with such intensity in late September and early October, the Bureau of Labor Statistics, the unit in the U.S. Department of Labor, was showing that computer hardware and software tech companies have stopped hiring in the States and telecommunications companies have started making cuts.

The U.S. economy has been losing jobs all year, and in the September statistics, which you can read in detail here, the bureau calculates that 159,000 people lost their jobs. (This is the non-farm labor pool, by the way.) Jobs were cut in construction, manufacturing and retailing, but the mining and healthcare industries added employees. The seasonally adjusted unemployment rate stood at 6.1 percent, and Uncle Sam's people counters figure that 9.5 million people who want work can't find it in the country. So far this year, 760,000 Americans have lost their jobs.

In the manufacturing sector where a lot of IT suppliers are categorized, 51,000 jobs were cut, with 442,000 manufacturing jobs being lost in the past 12 months. All told, computer and electronics products manufacturers employed 1.25 million people, a level at which it has stayed throughout 2008 with a few wiggles. Computer and peripheral makers employed 186,200 people in September, again a level that has been consistent all year. Interestingly, the bureau believes that computer systems design services companies added 9,000 jobs in September.

So, thus far, the economic uncertainty has not affected employment levels in the key parts of the tech industry. The question now is will this hold up, and what effect will potential job cuts have on product sales and support if the credit markets don't thaw a little bit? In terms of the midrange, where the Power Systems i lives and dies and credit ratings are not as high as they are in the Global 2000, tightening credit can mean the difference between doing an upgrade now and doing one later. And given the conservative nature of most midrange shops and the uncertainty in the economy, a lot of companies will be waiting to see what happens as 2008 ends and 2009 begins before making upgrade plans. That means IBM, Hewlett-Packard, Dell, and Sun Microsystems are going to have to do a lot more wheeling and dealing to deals done. That means margin pressure--something all IT vendors hate to deal with--or lost revenues. And all of this will, if it comes to pass, put pressure on payrolls.

Heaven only knows what all of this uncertainty and duress is doing to the reseller channel. People I am talking to in the Power Systems i market are telling me that as many as a third of their deals have been frozen in the past couple of weeks. IBM clearly has to do more to help resellers close deals if this is the case--particularly if HP, Dell, and Sun are sniffing around.

                     Post this story to del.icio.us
               Post this story to Digg
    Post this story to Slashdot