Peter Principle

Tech Companies, Long Insulated, Now Feel Slump

In the span of just a few weeks, orders for both business and consumer tech products have collapsed, and technology companies have begun laying off workers. The plunge is so severe that some executives are comparing it with the dot-com bust in 2000, when hundreds of companies disappeared and Silicon Valley lost nearly a fifth of its jobs.

This time around, the tech sector finds itself at the mercy of a double-barreled slump in both corporate and consumer spending caused by the housing decline and the economic crisis on Wall Street. Technology companies are also feeling the effect of frozen credit markets as business and government customers struggle to finance computer and software purchases that can run to millions of dollars.

The turnaround has been as sudden as it is severe. Until late September, a number of large technology companies maintained an optimistic stance, despite the obvious distress in the global economy.

For all the gloom, the tech industry is still far healthier than Wall Street. Unlike the banks, many technology companies are flush with cash. Cisco has close to $27 billion; Google, $14 billion; and Apple, $24 billion. It is likely that some of these funds will go toward acquiring struggling competitors. “The guys that aren’t as strong will be good pickings,” Mr. Coleman said.

Powered by technology, Silicon Valley has stood out as a bright spot for jobs in the United States, with employment growing at about 2 percent a year while national employment slowed. Through 2007, the region continued to add 20,000 jobs, although that positive trend has started to change.

On Friday morning, test engineer Jing Hua Wu was fired from his job at SiPort, a Santa Clara startup. At 4pm on Friday afternoon, he returned to SiPort and requested a meeting with company executives. Wu then pulled out a handgun and shot CEO Sid Agrawal, VP Brian Pugh, and HR director Marilyn Lewis. All three died on the scene.

Police locked down the office park on Scott Blvd in Santa Clara and started a manhunt for the shooter. Wu was arrested on Saturday morning in a Mountain View shopping center.

Agrawal leaves behind a wife and two sons in college. Pugh had a wife and 2 young children. Wu is married, with three young sons.

Suspected gunman arrested in 3 deaths at Santa Clara chip startup

Families mourn loss of victims in shootings at Santa Clara startup

Layoff prompts killings at Silicon Valley tech firm

According to a new report from Challenger, Gray & Christmas, the tech sector has announced 140,000 layoffs as of Oct. 31 of this year. They predict the industry might cut 180,000 jobs by year’s end. John Challenger suggests that Cisco, Nokia, and Qualcomm might all announce layoffs this year.

That would make 2008 the worst year since 2003, when the industry cut 228,300 jobs. Yet it’s much better than at the depths of the dot-com implosion. In 2001, the tech industry lost almost 700,000 jobs. Compare that to 107,000 layoff announcements in 2007, or 175,000 in 2005.

Sun Microsystems to lay off up to 6,000 workers

In one of the largest tech layoffs announced this year, Sun Microsystems said today that it will lay off between 5,000 and 6,000 workers, more than 15 percent of its global workforce, over the next year.

An amazing experiment to map the spam economy - by hijacking 75,000 computers in Storm Worm’s botnet! Surprisingly, researchers estimate that spam campaigns still earn a profit, even at a response rate less than 1 in 10⁷!

Researchers Hijack Storm Worm to Track Profits

A single response from 12 million e-mails is all it takes for spammers to turn annual profits of millions of dollars promoting knockoff pharmaceuticals, according to an unprecedented new study on the economics of spam.

The research team estimates that about three-quarters of all e-mail sent by the Storm worm was snagged by junk e-mail filters, ISP blacklists, and other e-mail security applications.

“Under the assumption that our measurements are representative over time, we can extrapolate that… Storm-generated pharmaceutical spam would produce roughly $3.5 million dollars of revenue a year,” the team concluded.

“By the same logic, we estimate that Storm self-propagation campaigns can produce between 3,500 and 8,500 new bots per day.”

Chip companies, amid slackening demand, lower forecasts and cut jobs

Intel of Santa Clara, [...] significantly scaled back its estimate for fourth-quarter revenue. Instead of the $10.1 billion to $10.9 billion it predicted it would take in, the company said it now predicts its revenue will be closer to $9 billion, plus or minus $300 million, a drop of at least 8 percent.

Applied Materials of Santa Clara, [...] said its profit in the most recent quarter was 45 percent lower than for the same period last year and announced it will trim 1,800 positions, or about 12 percent of its workforce.

Citing weak demand for cell phones and other gadgets that use chips, Santa Clara-based National Semiconductor lowered its sales forecast by at least 9 percent for the next quarter and said it will reduce its roughly 7,000 positions by about 330.

A month ago, when it reported third-quarter revenue of $10.2 billion, Intel predicted its business would stay flat through the fourth quarter. But Paul Otellini [...] promised to provide analysts with an updated fourth-quarter forecast on Dec. 4. Intel chose to provide that revised forecast Wednesday because mounting evidence had made it clear the company’s previous estimate was far too optimistic.

“We saw in just the last few weeks a really rapid deceleration in demand and that’s what prompted the update now,” said spokesman Chuck Mulloy. “We just decided, ‘Why wait until Dec. 4. We know what the answer is now.’ “

Chip Maker A.M.D. Cuts 500 Workers

Advanced Micro Devices said Thursday that it would cut close to 3 percent of its staff [...] The layoffs will affect close to 500 workers, leaving A.M.D. with about 14,960 employees. [...] It plans to have the majority of workers stay on at A.M.D. to handle processor designs, while roughly 3,000 employees will head to a new manufacturing operation jointly owned by A.M.D. and investors backed by the Abu Dhabi government.

The NY Times reports that some big investors have not been able to meet capital calls from venture firms: Cash panic sweeping VC industry - The capital calls problem. That’s likely to squeeze the Silicon Valley startup economy even more.

VC firms typically make “capital calls” to these investors whenever they need more money to pump into their startups. However now rumors are circulating that Columbia University’s endowment fund is illiquid — that is, it can’t raise the cash it needs to fund current commitments. Harvard, meanwhile, is reportedly trying to sell a third of its private equity portfolio at a steep discount in a “secondary offering.”

VentureBeat recently held a roundtable discussion on the economic downturn, and its effect on Silicon Valley.

“There’s something going on here other than subprime mortgages,” said venture capitalist John Doerr,  [...] “We’ve not only got a debt crisis but a crisis of confidence . . . With the current level of uncertainty, it’s really hard to forecast what’s going to happen going forward,”

Angel investor Ron Conway thinks it could be at least two years before “the storm” ends, in which case any company with fewer than 6 months worth of cash, needs to either sell out, get a bridge loan, or “prepare for an orderly shutdown.”

Although I’m now officially an old man, I’m still trying to prove otherwise. On Sunday I biked from San Jose to the top of Mt. Hamilton, site of the Lick Observatory. (On a clear day, you can see the domes from Silicon Valley). It’s about a 20 mile, 4200 foot climb to the summit, and 20 back again. It wiped me out. But the Tour of California did Mt Hamilton and Sierra Road on a 120 mile stage into San Jose. Those guys cannot be human.

The ride was worth it though. I finally got to tour the grounds and see the old telescopes: the 36 inch Great Lick Refractor and the 120 inch Shane Reflector. Elegant instruments, from a more civilized age…

The only time I’d been up there was 19 years ago, at night, when the place was closed to visitors.  It was the first week that I was in California as a summer intern at Intel. I arrived with two other Canadian graduate students from MIT. We “Three Amigos” had just gone out for dinner with our manager when I caught sight of the domes reflecting the setting sun. I had the bright idea of driving up to the observatory, even though I had no idea how far away it was.

So the three of us piled into the rental car and I drove up the steep switchback road to the summit. It seemed to take hours,  and when we finally arrived at the summit, there was nothing to see but “No trespassing” signs. On the way back down, I had to stop while poor John got sick on the side of the road. That was our first ill-advised adventure of the summer, and set the tone for the next few months…

Lick Observatory - Wikipedia