The brutal economic downturn that’s being called “The Great Recession” is, at least in a technical sense, over. Online advertising and IT spending are inching back up, and many tech companies have seen their stock prices more than double from the lows reached in March. Even if it’s not the most robust of recoveries, it’ll do. So why are tech companies suddenly slashing jobs again?
The past couple of months have brought a renewed surge in job cuts at technology companies, including many that were undergoing second or third rounds of layoffs. Take AOL: It laid off 700 workers in early 2009. Earlier this month it cut another 100, followed by news this week that additional 1,000 would go. Those layoffs may cut operating costs, but they’re not exactly a cheap undertaking. AOL said that, all told, it will incur $283 million in restructuring charges.
With AOL’s latest round, I count 17,400 jobs that tech companies — since late October alone — have said they’ll eliminate or have done so already. There are undoubtedly many more that haven’t been officially announced. The pace is significantly slower than in January and February, when 30,000 or more job cuts were announced in a single week. But it also represents a marked increase over the spring and summer, when the bloodflow slowed to a relative trickle.
What’s driving the recent increase in job cuts? A few things. Companies are drawing up budgets for 2010, and it’s common for them to eliminate some positions in November and December (however heartless this seems from a human standpoint). But the cuts often extend into the new year, which suggests the bloodletting could continue for a couple of more months.
Different companies have different reasons for the restructurings. M&A activity has also been on the rise in the tech industry, and integrating two separate operations into one often means some workers must go. Adobe reduced its head count by 9 percent in conjunction with its $1.8 billion acquisition of web analytics firm Omniture, for example.
Other companies are cutting because, despite a sense of relief that the worst economic pain is behind us, much uncertainty lies ahead. Applied Materials said it would cut between 1,300 and 1,500 positions, even though it reported an increase in sales and orders. When facing uncertainty, cutting costs has a strategic appeal: It shields you from sluggish demand, and keeps profits — and the stock price — high in the meantime.
Still others are being buffeted by rapid changes in their core markets and are paying the price for failing to keep up, such as Microsoft, which announced 5,000 job cuts in January and recently eliminated another 800. Microsoft is not only seeing netbook sales put downward pressure profit margins of its PC operating software, but Windows Mobile is facing daunting competition from Android and others.
Some of the biggest rounds of layoffs have come from other companies having trouble coping with evolving markets: Nokia, struggling for a foothold in the thriving smartphone market, is shedding as many as 5,700 jobs. Sprint, facing disappointing sales of the Palm Pre will cut up to 2,500. And AOL has been floundering in its search for a role on the web for years.
Not all tech companies will be cutting positions. A recent survey by Robert Half Technology, an employment consulting firm, found that 43 percent of CIOs interviewed see retaining workers as their top staffing priority. And companies that follow one round of layoffs with another may regret it in the end. Too many layoffs send a bad message to customers and partners, while chasing away the top talent. That can cause even more problems, and more layoffs, instead of a real recovery.