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An end to tech's job woes?
Job cuts in the tech and telecom sector picked up in September. But the worst may be over.
October 6, 2004: 2:35 PM EDT
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - As Wall Street eagerly awaits the report this Friday on job growth for the overall economy, things aren't looking good for the tech and telecom sectors.

According to a report on Tuesday by recruitment firm Challenger, Gray & Christmas, there were 107,863 job cuts announced in September, with more than a third coming from high-tech industries, computers, telecommunications, electronics and e-commerce.

Last month, several large tech companies, including EDS, Motorola, Agere Systems and Computer Associates, announced sizable job cut plans. That comes on the heels of layoffs in August from Nortel, Conexant Systems and Gateway.

After a stellar 2003, this news is adding to growing doubts about how strong the tech recovery really is.

Fortunately, some analysts think tech's labor pains may be nearing an end.

Barry Ritholtz, chief market strategist with Maxim Group, said he thinks that many of the recent job cuts are being announced to help companies meet their latest quarterly earnings targets. With business softening during the summer, layoffs are often a necessary evil to shore up profits.

But Ritholtz argues that many tech companies have already done a good job of eliminating the excess head count that they built up during the boom times of the late 1990s and early 2000. So it's going to be increasingly difficult for many companies to cut more jobs because they risk sacrificing long-term revenues and profits by doing so.

"Four years after the bubble popped, I can't believe that companies still legitimately have enough fat that they can cut heads and that it would not affect them going forward," said Ritholtz.

Along those lines, Mark Zandi, chief economist of, said he thought the current round of layoffs is the result of overproduction in the first half of the year. As demand for computers waned during the summer, companies have had to cut back production, which goes hand in hand with layoffs.

But he also thinks that the adjustments are temporary. "I suspect this is a pause and we still see a resumption of top line growth and, ultimately, better hiring in tech," Zandi said.

Some big techs are hiring

What's more, even though there have been many headlines about tech job cuts, especially with companies that are struggling or in turnaround situations, this may be overshadowing a pickup in hiring by more stable tech firms, said Michael Cohen, director of research for Pacific American Securities.

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Labor pains for tech

Cohen said he noticed on a recent trip to San Jose that two big tech firms located there -- eBay and BEA Systems -- had signs outside their corporate headquarters touting job opportunities.

"Those types of announcements don't make the news but layoffs of any sort do," Cohen said. "I think we're at a stage where healthy companies are hiring but that there is still a shakeout with some of the weaker companies."

IBM announced in August that it expected to hire more than 18,000 workers in 2004. And Cisco Systems said in May it was planning to hire more than 1,000 employees this year.

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And as long as demand for tech doesn't drop off significantly in the next few months, Zandi thinks that hiring announcements may become more the norm, rather than exceptions to the rule.

"Part of the problem that all of tech is having with respect to jobs is they significantly over-hired during the boom times and to some degree the past few years has been payback for overaggressive hiring," said Zandi. "But I think that process is largely over and we should see slightly better job growth in tech by this time next year."

But it would be foolish for tech workers or investors to expect that things will ever be like they were a few years ago.

"What we saw in 1999, we won't see that again in our lifetime," said Cohen. "It is now a state of normalcy."  Top of page

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