Tech Industry

2HRS2GO: Verizon investors should be happy

Monday ramblings:

Techies often criticize unions as creatures of sloth that hinder corporate growth, encourage low standards and cost their members money in the form of dues, yet fail to adequately represent those members in many cases. I won't get into the overall debate about the value of unions in the technology and communications industry, but it's worth examining the announcements from Verizon (NYSE: VZ) regarding deals reached with the representatives of several striking unions. Are these contracts good deals for everyone involved?

Verizon can't complain about the new deal's impact on growth businesses. The company agreed to give more DSL work to union members, but Verizon has the right to choose which ones go; in essence, the company can pick its best people, which is what really matters to customers. Verizon's much maligned (at least anecdotally) DSL service might even improve. And the new contracts shouldn't hurt Verizon's bottom line.

And for workers? Guaranteed wage increases of 4 percent, 3 percent and 5 percent in 2000, 2001 and 2002 are on par with large contracts signed by unions with other communications companies, but the boost isn't that good. After all, Verizon sees revenue growing 8 to 10 percent a year, and earnings per share rising at least 9.5 percent in 2001 and more than 12 percent in 2002. Were I a Verizon employee, I'd be wondering why my pay won't rise as fast as the company's bottom line.

Union members do get stock options, but not much -- only 100 options per employee. And it's unlikely that Verizon's stock price will rise on par with, say, a hot optical networking firm.

Job security provisions were maintained, but Verizon got the unions to agree on greater movement of jobs from one region to another. That can't make anyone too happy, but in today's employment world, it was probably an unavoidable concession; companies need a certain amount of flexibility in shifting people around.

More than anything, the new contracts underscore the growing power of companies over unions. Even under the threat of a strike, Verizon got almost everything it wanted in major areas, essentially in return for the promise of no layoffs and industry-standard wages and benefits. Given that Verizon already operated with those situations, they weren't much of a concession.

Some details are still being worked -- overtime is a continuing issue, according to news reports -- but VZ shareholders ought to be pleased with the overall agreement. And in fact, investors seem to be happy -- Verizon's stock price is up more than 1.7 percent in mid-afternoon trading, compared to an increase of 0.25 percent for the S&P 500.

Speaking of labor issues, today's news from Seagate Technology (NYSE: SEG) contains bad news for the workers affected, but good news for able employees. The Wall Street Journal reports that Seagate is cutting jobs -- no surprise, given the continued harsh climate in the hard disk drive industry -- but CFO John Pope noted that the days of moving overseas purely for cheap labor have ended.

"In order to maintain the quality of the product within tight technology constraints, it bodes well for areas which have access to highly skilled employees and processes," Pope told the Journal.

That doesn't necessarily mean the United States, since other regions also have knowledgeable workers. But the fact that one of the leaders in the disk drive industry, a field not known for cutting-edge operations, is updating its manufacturing processes is good news for the entire technology sector.

Morgan Stanley Dean Witter grabbed the biggest slice of Internet mergers from Goldman Sachs (NYSE: GS), according to the latest data from Bloomberg. Goldman tumbled to number eight among investment banks, while Morgan ascended on its work with the acquisition of Network Solutions (Nasdaq: NSOL) by VeriSign (Nasdaq: VRSN), the Terra Networks (Nasdaq: TRRA) merger with Lycos (Nasdaq: LCOS) and the deal between Phone.com (Nasdaq: PHCM) and Software.com (Nasdaq: SWCM).

We're talking about a limited market, though. Many Internet leaders are now consolidated, and valuations for the remaining companies have shrunk, so that sector will provide an increasingly smaller amount of business for M&A departments. As for the rest of the technology and communications industry, Goldman Sachs remains a gorilla. It's not about to take a steep dive anytime soon. 22GO>