With Wall Street teetering and venture-capital investment in hi-tech at its lowest point in more than a decade, few in the technology industry doubt there are scary days ahead.
The bad news is starting to pile up: eBay recently decided to lay off 1,000 workers, a long list of smaller internet operations have begun cutting jobs, and Yahoo announced another round of layoffs when it discussed third-quarter earnings on Tuesday.
However, any upcoming job cuts in the technology sector in the coming months are unlikely to be as deep or as lasting as the cuts that occurred during the dot-com bust, according to statistics from the US Department of Labor and industry employment experts.
No hiring binge
Technology companies haven't experienced the hiring binge that occurred in the late 1990s, when a combination of internet investment, repair work on older computer systems to deal with Y2K transition issues, and massive investment in telecommunications infrastructure teamed to create double-digit technology employment growth through much of the second half of that decade.
By comparison, the Web 2.0 boom during the past few years — led by companies such as Facebook — has been more like a 'boomlet'. While there are an estimated 5,000 Web 2.0 companies, many of them are tiny operations. There are no hard figures on how many people are employed in these little companies, but it's doubtful that the total is equal to even a tenth of the 386,000-employee workforce at technology giant IBM.
Despite enthusiasm for social-networking sites and other new technologies, neither Silicon Valley nor other big technology hubs have seen a massive increase in hiring in the past few years. Even well-known Web 2.0 companies like Digg and Slide are relatively sleek outfits that did not require a lot of money or people to get off the ground.
"We never saw the big run-up in tech hiring in 2004 through 2008, so I don't anticipate a significant change," said Tom Silver, chief marketing officer for Dice Holdings, which operates a technology-specific online job-placement site.
Certainly, there are exceptions to the rule. Google has gone from start-up to one of the most powerful companies in technology since the dot-com bust, and its workforce has grown with its influence. Google now has more than 20,000 employees, though most analysts expect Google to withstand all but the worst of economic conditions.
Most big technology companies have adhered to a slow-growth mantra, even as sales have climbed. Apple, for example, increased its workforce by 100 percent between October 2003 and October 2007. That may sound like a lot, but in that period Apple opened about 100 retail stores, saw revenue increase 286 percent, and profit increase an astonishing 600 percent.
By comparison, in the late 1990s, technology executives were spending far more. "We had the perfect storm. The combination of interest in the internet, telecom and Y2K all led to a significant overheating in the technology labour market leading up to 2000," Silver said.
After the bust, it was one of the few times technology unemployment was higher than the national average. Technology unemployment for computer and mathematical occupations soared to 6.5 percent in March 2003, compared with the national average of 5.9 percent in that period, noted Silver.
Typically, technology-related unemployment runs at about half the US national average. Unemployment among those with computer and mathematical occupations ran at 2.6 percent last month, while the national unemployment average stood at 6.1 percent, according to the Labor Department's Bureau of Labor Statistics. There is no reason to expect that ratio to change in this downturn.
Times could get tougher for tech workers but few economists agree on how bad the economy will get in the coming months. There could be a recession that lasts a few quarters, or there could be the worst economic crisis since the Great Depression.
Signs of trouble
There are numerous troubling signs in the technology sector. An index that measures orders for companies that make equipment for semiconductor manufacturers such as Intel saw a significant drop last week. That could mean chip orders are down, which translates into an industry-wide slowdown in sales of everything from servers and PCs to mobile phones.
At the other end of the technology spectrum, German software maker SAP, which sells multi-million-dollar packages to run everything from financial management to manufacturing at big companies, has already run into trouble, thanks largely to the meltdown on Wall Street. Big companies like SAP are usually the last to feel the impact of a bad economy because buyers look to their automation software as a way to cut costs. This time, such companies are among the first.
The technology sector's bad news clearly reflects bad news in the overall economy, where consumer confidence is waning and Wall Street suffering. However, take away the dot-com bubble, and history indicates that technology workers will fare better than their counterparts in other industries.
