High-Tech on the Mend or Calm Before the Storm?

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High-tech job cuts are waning just as IT spending is starting to pick up, leaving analysts to spar over whether these are signs of better times ahead or just the calm before the storm.

High-tech companies are backing off job cuts, announcing just 97,999 layoffs in the first half of this year, according to Challenger, Gray & Christmas, Inc., an international outplacement firm that tracks industry job trends. Those job cuts are down 60 percent from the same six-month period last year.

The biggest decline came from the telecommunications market, where 36,025 jobs have been cut so far this year — 78 percent lower than the 165,840 layoffs recorded in that sector in the same period last year. The Challenger, Gray & Christmas report shows that telecommunications’ recent six-month total was only slightly higher than the number of layoffs announced in the industry in February of 2002 alone.

The computer sector saw its own improvements, with job cuts falling 51 percent from the same time frame last year. The market suffered 27,255 layoffs between January and June this year, compared to 55,398 last year.

Last year, high-tech job cuts accounted for one-third of all job cuts in the United States. So far this year, layoffs in the high-tech sector, which includes telecommunications, computer, e-commerce and electronics, accounted for only 16 percent of all job cuts.

And while the job market is leveling off slightly, Goldman Sachs is reporting that IT spending is showing its first signs of life since the fall of 2001.

Fewer IT managers are expecting incremental, near-term budget tightening, according to the Goldman Sachs report. Today, 59 percent of IT managers are expecting a tightening, while that number was between 72 percent and 75 percent in the past two surveys. The report also shows that 24 percent of those IT managers surveyed expect an upturn in spending in the second half of this year — as opposed to 4 percent in the April survey.

“The dramatic slowdown in job cuts may be an indication that the high-tech sector is stabilizing,” says John Challenger, CEO of Challenger, Gray & Christmas. ”After heavy job cutting and many business closures over the last two years, the survivors are in a position to ride out the rest of the downturn.”

Tim Bajarin, president of Creative Strategies, based in Campbell, Calif., says he is seeing signs of increased stability all across the tech sector.

”Refresh cycles are increasing,” he notes. ”The tech sector, telecom particularly, is also getting more aggressive in the push toward mobile wireless networks.”

But Challenger warns that not all signs point to renewed stability.

”Unfortunately, the new figures may merely be the calm before the storm,” says Challenger. ”Several industry executives, including Oracle’s Larry Ellison, are predicting a major wave of consolidation as stronger firms devour weaker ones to improve their competitive position. If such consolidations occur, we are likely to see a resurgence of heavy job-cutting activity as combined entities eliminate redundancies and pare costs in order to kick-start profits.”