Merger Mania Could End High-Tech Layoff Respite

The number of high-tech job cuts fell sharply during the first six months of 2003, plunging 60 percent below 2002 levels, according to outplacement firm Challenger, Gray & Christmas.

Most major technology industries stabilized, the firm said, led by telecommunications, which has laid off 78 percent fewer workers, or about 36,000, this year compared with early 2002.

In fact, in a bloodbath led by WorldCom, telecom companies laid off almost as many workers in February 2002 alone as they did in the first six months of this year.

Stability or Hiatus?

The layoff slowdown is a positive sign that companies of all sizes are stabilizing after struggling to survive the worst of the fallout from the tech bubble burst, said John A. Challenger, the firm’s CEO.

“The survivors may be in a position to ride out the rest of the downturn,” Challenger told the E-Commerce Times. “But there are reasons to believe we could be in for more layoffs. This may be something of the calm before the storm.”

Challenger said the recent burst of M&A activity may lead to a delayed spate of layoffs once firms like PeopleSoft and EMC start integrating their new acquisitions.

In fact, he added, if the merger trend continues, “we could be in for a resurgence of heavy job-cutting activity.”

Strengths and Weaknesses

However, another sign bodes well for the technology sector: Its share of total job cuts has shrunk. Whereas tech layoffs made up one-third of all cuts last year, they have accounted for just 16 percent of the total so far this year. Challenger has tracked some 650,532 announced layoffs since the start of 2003.

One specific sector that stabilized compared with last year is computer makers, which saw job cuts sliced in half from 55,398 to 27,255. In addition, these cuts were not necessarily widespread. A large portion of the layoffs resulted from cost-cutting measures put in place by Gateway and final cuts stemming from the HP-Compaq merger.

E-commerce job cuts remained about the same, while electronics makers actually laid off more people this year than in 2002, with the number of cuts growing 61 percent to 32,629.

Challenger suggested that while smaller firms were quickly able to implement job cuts to adjust to the tech spending slump that began in 2000, larger firms took up to two years to enact the kind of cost-saving programs needed to restore them to profitability.

Sluggish Spending?

The long-range outlook is complicated both by the merger trend and by various reports suggesting that many companies still are not ready to ramp up technology spending. Challenger cited a report from the U.S. Department of Commerce showing that capital expenditures fell 5 percent annually in the first quarter.

“Companies are still getting benefit from all the technology they bought during the boom,” he added. “They’re not quite ready to rush out and buy more just yet.”