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Tech Is Still Shaky

February 5, 2014

I keep hearing about the acceleration of the economic recovery, but I’m not necessarily seeing it from the inside of my particular forest.  After Dell went private, it offered a pretty broad voluntary separation package (VSP) that didn’t net what the management were hoping.  Initially rumored to be 5000 people, it’s looking more like 15000 these days.  Intel announced a 5% reduction for 2014 in the last earnings report.  Now IBM is pushing for a slimfast employee diet.

IBM is set to spend another $1bn on job cuts this year to eliminate an estimated 15,000 jobs worldwide, according to trade union Alliance@IBM.

The company has already spent the same amount of money last year on ‘workforce rebalancing’, its euphemism for redundancies.

Big Blue’s chief financial officer for finance and enterprise transformation, Martin Schroeter, has admitted there would be more cuts in 2014, during the announcement of IBM’s fourth quarter earnings last month.

The 15k for IBM isn’t anywhere near as big a deal as 15k for Dell, it’s closer to the Intel number.  But with that said, it’s pretty clear that the biggest technology companies are not seeing significant growth.  To keep profitability and earnings moving, they’re choosing to cut rather than spend their way out of the downturn.  I think that’s a decent strategy, since there’s still a pretty strong lull in companies buying technology, which says that the general economy still appears to be flat to down from a real perspective.

I’m not expecting that this will make the list of all the reasons why the economic recovery isn’t actually here… tech seems to be viewed as an insular entity… likely because of the big bubble a little more than a decade ago.  But tech is a leading indicator to me, not a lagging one.  When there’s strong technology growth, it shows a move forward in the global economy.  Likewise a tech pull-back usually means caution everywhere else.

I’m interested to see whether this flows to smaller business.  If small tech companies stay cautious, then that means the money isn’t flowing, and it’s likely that we’ll stay in the doldrums for a bit.  The counter is to see what companies are hiring even as they’re cutting.  Lynn talks a lot about deciding what the three most important things are when you’re refocusing.  Watching the job openings will make it pretty clear which way is forward for these companies.

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