Black Monday Hits Tech Stocks, May Affect Workforce
Wall Street's 777-point sell-off on Monday signaled that the nation's tech sector is unlikely to emerge unscathed by the economic downturn in the U.S. -- with companies being hit in unexpected ways. Just look what happened to Apple Inc., which has been performing strongly in recent quarters.
Apple led the tumble among tech stocks as its share price dropped by nearly 23% to $105.26. Other tech stocks fell as well, although some large enterprises fared better than others. Hewlett-Packard shares were off by 3.62% to $44.55, while IBM's stock lost almost 5% to close at $114.46.
But stock prices aren't the only place IT companies are likely to feel the coming pinch. Analysts warned that technology spending by businesses will be hit, too, although it may take a quarter or two for budgets and priorities to get a makeover. For companies already focusing on cost containment, Monday's stock tumble -- it was the biggest one-day point drop in history -- "is going to triple that," said Rob Enderle, an independent analyst in San Jose, Calif.
IT employment will also see turmoil, particularly in the financial services industry. In announcing Monday that it plans to buy Wachovia Corp. for $2.16 billion, Citigroup Inc. said it expects to save $3 billion of "annualized expense synergies" through consolidations. Look for data centers to be part of any consolidation, said analysts.
Wachovia isn't alone. Last week's demise of Washington Mutual Bank, which was seized by the U.S. government and then acquired by JPMorgan Chase & Co. for $1.9 billion, will mean changes for its IT workers: Washington Mutual will be moving to Chase's technology platform, with integration expected to be complete by 2010, said Chase.
The economic fallout from these separate but related upheavals will affect all levels of IT, even solo workers like Mark Blackburn, a Sacramento, Calif.-based IT consultant specializing in Microsoft SQL Server. Blackburn, who also has an MBA, spent part of Sunday writing elected officials in Washington, D.C. urging them "not to bail out the banks."
The bailout only shifts money from the poor to the rich, leaving taxpayers with the bill, said Blackburn. The "government's solution now is to create future tax obligations."
Blackburn has been working in IT since the 1980s, and said he hasn't changed his $60-per-hour rate since 1998; he can't, he said, because of competition from foreign workers using H-1B visas and from outsourcing by companies looking for cheaper labor.
Even tech areas that have remained seemingly strong, such as server sales, may yet be affected. Despite recent warning signs about the overall economy -- accentuated by Monday's viscerally shocking market drop -- server sales were up 6.4% at the end of the second quarter compared to Q2 in 2007, according to IDC.
"It's hard to tell exactly what will play out," said Jean Bozman, an analyst at IDC. Spending commitments are already in place at most firms. "People have already made their plans without knowing what we know now," she said.
Charles King, principal analyst at Pund-IT Inc. in Hayward, Calif., sees a tech market already in the early stages of softening sales. That could make it difficult for vendors to push new products like Microsoft Windows Server 2008 as companies look for ways to cut back on spending and shift money around.
"Unless a business can prove that it's absolutely critical to have those products to improve earnings or save a significant amount of money I would expect companies to put off purchases as far as they possibly can," said King.
Jeff Miller, managing director of Edgelink, a recruiting firm in Portland, Ore., said businesses is still solid -- for now. His firm focuses on placing senior software engineers with eight to 10 years' experience -- particularly those with .Net and Linux skills.
Though the market remains good for people with experience, Miller said a lot of engineers are hunkering down, unwilling to change jobs in this increasingly uncertain climate unless they're convinced of a prospective employer's financial strength.
Economic woes could yield legislative action aimed at firming up the job market. Analysts and consultants said it's possible that Congress could approve tax incentives designed to encourage U.S. companies to keep jobs in the U.S. That could be especially true of hard-hit financial services which may be under pressure to move jobs offshore to save money. IT career choices may be affected as well.
Kim Berry, president of the Programmers Guild, said IT workers employed in various industries are as vulnerable as other workers to layoffs. "This is going to put a damper on the general job market," he said, adding that he hopes that with the downturn, Congress will eschew any efforts to increase the nation's H-1B visa cap.