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Tech Industry

Layoffs, warnings, market slump bruise tech sector

Although the crisis is most acute in the bleeding e-commerce niche, bruises are spreading to the broader technology industry--and even the U.S. economy as a whole.

    Layoffs, bankruptcies, closures, collapsing stock prices, slumping morale and canceled IPOs: The only scourge that hasn't ravaged the tech sector, it seems, is a swarm of demon locusts.

    But economists, Wall Street experts and others say that a figurative Eighth Plague of Exodus may not be far off, warning that dot-coms will likely hemorrhage more workers and cash before they hit bottom. And although the crisis is most acute in the bleeding e-commerce niche, bruises are spreading to the broader technology industry--and even the U.S. economy as a whole.

    "I don't see any reason to assume we're at the trough," said Ronald Masulis, a professor at the Owen Grad School of Management at Vanderbilt University in Nashville. "There's still a sense that there's a general slowdown in the economy, which is dampening growth all over...The venture capital industry has basically shut almost every e-commerce company off. The IPO market has shut down. And even the ability to do the next-best alternative exit--an acquisition--looks pretty poor. I don't see a lot of optimism."

    Stock portfolios and worker morale suffered a major blow in April when a sell-off in tech stocks sent the Nasdaq sliding 10 percent. Although many dismissed the plunge as a one-time hit, since then the tech-heavy index has sagged another 17 percent, despite Monday's record surge of 10.5 percent.

    As a result of the steady decline, the market for initial public offerings has almost entirely evaporated, particularly for e-commerce and content companies. As these young companies have burned through their venture capital funding they have been forced to lay off employees, shutter their sites or file for bankruptcy protection (in some cases all three).

    Tech trouble
    From layoffs to site closures, the technology industry has been rocked by a series of negative events in the past several months.  
    Financial warnings
    Apple Computer


    LSI Logic


    VA Linux Systems


    Lucent Technologies

    Texas Instruments



    Postponed IPOs




    Verizon Wireless



    Site closures

    Layoffs (number or percent of jobs cut)
    iXL Enterprises (850)

    ReplayTV (130)

    Scient (460)

    NorthPoint Communications (19%)

    Covad Communications (13%) (25%) (15%) (240) (100) (10%) (40%) (50%) (1,100)

    Bankruptcy filings
    Value America

    American Metrocomm

    APB Online

    Lernout & Hauspie

    Zyan Communications


    Dot-coms announced a record 8,789 job cuts in November, a 55 percent increase over October's record total of 5,677 layoffs. It was the sixth consecutive month of increases, according to international outplacement specialists at Challenger, Gray & Christmas.

    Since the Chicago-based firm began tracking dot-com layoffs in December 1999, 383 dot-coms have announced 31,056 job cuts. Even grimmer: 20 percent of the companies in the original survey have gone out of business.

    The pace of belt-tightening seems to have accelerated dramatically this week. Some human resource experts say that many companies are firing workers now to avoid Christmas Eve pink slips; others are bracing for a fresh round of layoffs after workers return from the holidays.

    On Thursday, Internet consulting company Viant axed nearly 20 percent of its work force and closed its Dallas office to reduce costs--the fourth round of job cuts to hit an Internet consulting company this week alone. Competing e-consulting company Scient fired about 460 employees on Wednesday, eliminating a quarter of its staff.

    Also on Wednesday, Networks laid off 85 employees, or about 25 percent of its work force. A day before that announcement, Oxygen Media said it would lay off 65 employees and close its Seattle office to reorganize.

    The pain spreads
    Net companies are bearing the brunt of the downturn, but they are not the only ones taking knocks. A combination of factors, including a general economic slowdown, market saturation, and a shift in consumer buying habits, spell a slowdown for the consumer PC marketplace.

    Market researcher NPD Intelect reported last month that retail PC sales in October plunged 18 percent year over year. Retail PC sales from Nov. 12 through Nov. 18 were down 24.6 percent from the same period last year by units and down 21.9 percent in dollars, according to research firm PC Data.

    The layoffs come amid signs of a recession on the economic horizon. On Oct. 1, Wall Street predicted companies in the Standard & Poor's 500 index would increase fourth-quarter earnings by 15.6 percent from a year ago, according to First Call/Thomson Financial. But by late November, they had lowered their estimates to 10.3 percent growth.

    Gross domestic product, a measurement of production at U.S. corporations, grew at an annual rate of only 2.4 percent in the third quarter, according to the Commerce Department. That's the slowest pace in nearly four years.

    Automobile production, a key indicator of Old Economy health, is also slipping. General Motors announced Thursday afternoon that the No. 1 automaker will cut fourth-quarter production to 1.373 million vehicles from the previous estimate of 1.378 million vehicles.

    "The market is readjusting valuations to reflect a slowing economy," said Peter Coolidge, senior equity trader at Brean Murray. "It's a painful period, especially for the highflyers, but there'll be opportunity through the ashes."

    Although many experts have been predicting a shakeout that will result in only a few big survivors, even the e-commerce kingpins and Old Economy stalwarts are facing rough times. online car seller laid off about 25 percent of its staff Dec. 4. Earlier that day,, the online version of newspaper publishing giant Knight Ridder, said goodbye to 68 employees, or 16 percent of its work force, in hopes of turning a profit by 2002.

    In most cases, companies are firing no more than a few hundred workers. As a result, the dot-com layoffs are unlikely to budge the record unemployment statistics compiled by the Bureau of Labor Statistics. The situation isn't nearly as dire as the tens of thousands of layoffs at IBM, AT&T or the U.S. automakers in the 1970s and 1980s.

    Harnessing disappointment
    But the relatively small number of e-commerce cuts belie a broader significance for the U.S. work force. Challenger, Gray & Christmas founder John

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    Dot-coms to unionize?
    Bill Wyland, union organizer, ETown
    Challenger said the widely published layoffs in tech meccas such as Silicon Valley, Seattle and Boston have sapped morale throughout the Internet industry--the catalyst of an unprecedented creation of wealth for its stock option-endowed work force throughout the late 1990s.

    "There's no question from a psychological standpoint many people who work at dot-coms are bitter about pouring out their hearts and souls and working long hours, living and breathing these companies and really fusing their identities to their work," Challenger said. "They've gone from the highest highs to the lowest lows...Now reality is setting in, and it's getting to be much more of a survival mentality."

    Challenger and other experts said the most extreme result of the layoffs could be the flowering of a long-simmering but largely squelched movement to unionize technology workers.

    In late November, employees submitted a petition with the National Labor Relations Board to hold an election on union representation. The workers said they wanted more job security and a stronger voice in the company's management. On Dec. 1, only days after workers filed the petition, Etown canned 22 percent of its staff.

    Even if unionization doesn't become widespread in the technology sector, experts say the rash of layoffs and reorganizations is likely to push turnover rates to extreme levels. The average technology company in Silicon Valley loses roughly one-quarter of its staff each year, primarily to competitors with savvy headhunters and recruitment policies.

    Challenger said that weakened morale among the non-fired workers is likely to become a bigger concern for corporations and workers than the layoffs themselves.

    "There's a survivor syndrome," Challenger said of the workers who don't get the ax. "You feel guilty that others were picked instead of you. You wonder what you're doing there, looking at options and worrying about the next round of layoffs. People start to question why they're there, reassessing the visions of leaders, looking at capital positions."

    The morale slump is already evident in the Internet economy--from executives to cubicle dwellers. executive Maryann Keller, a high-profile Wall Street icon who led the name-your-price automotive services business, resigned when the company announced disappointing third-quarter earnings. Priceline CFO Heidi Miller also resigned after several months on the job.

    In early November, the company posted a pro forma net loss of $2 million, or 1 cent per share, on revenues of $341 million. It also announced it would lay off 87 employees, or 16 percent of its staff.

    According to published reports, Keller decided to quit after her bosses demanded she fire half of her 23-person staff as part of a restructuring plan. She also said consumers are just not ready to purchase cars over the Internet.

    A new outlook
    Ultimately, experts said, the layoffs could result in a new way of looking at the economy for a generation of workers unaccustomed to anything except raging bull runs.

    "Most people's attitude toward life is that tomorrow will be like yesterday. That prediction holds true for a period of time, then it proves drastically wrong," said Russell Roberts, economist at Center for the Study of American Business at Washington University in St. Louis. "What we're going through is very typical of the industrial experience of the United States, but it's not typical in any one person's lifetime. Economic markets in these periods of innovation always have more players that can be sustained at the end of the day."

    Some analysts have a somewhat more optimistic outlook, speculating that the dot-com downturn may be at or near its nadir. Economists have interpreted comments earlier this week from Federal Reserve Chairman Alan Greenspan to mean that the Fed is likely to maintain or lower interest rates, stemming fears of a rate hike that would put the brakes on economic growth.

    "I think we're getting close, if we're not already at the bottom right now," said Brian Rauscher, a Morgan Stanley Dean Witter investment strategist. "We have continued to see analysts significantly cut earnings projections and ratings. This usually happens when the market is at a bottom."'s Sam Ames and Dawn Kawamoto contributed to this report.