TOPICS > Economy

Tech Industry Faces Struggles Amid Economic Slump

January 22, 2009 at 6:35 PM EDT
Loading the player...
Microsoft announced a drop in earnings and unprecedented job cuts, and the Intel Corporation revealed plans to shutter five plants and lay off thousands of workers Thursday. Lee Hochberg examines how the technology industry is weathering the economic crisis.
LISTEN SEE PODCASTS

TRANSCRIPT

JIM LEHRER: As the president met again today with his top economic advisers, there was more down news on jobs, this time from the once high-flying high-tech industry and its best-known companies.

Microsoft announced its first major layoffs ever today, up to 5,000 jobs. Google’s quarterly earnings fell for the first time in its history, and chipmaker Intel said yesterday it planned to restructure. Smaller tech companies are having to cope, as well.

Special correspondent Lee Hochberg has a report from Portland, Oregon.

LEE HOCHBERG, NewsHour Correspondent: Howard Bubb is a large, imposing man, but he seemed deflated as he walked through his empty and soon-to- be-liquidated office.

HOWARD BUBB, CEO, Ambric Inc.: It’s a very difficult time when you can’t take a business forward. You know, it’s just over. This financial crunch isn’t just about Wall Street and housing; the reach is much, much, much broader.

LEE HOCHBERG: Bubb started Ambric Incorporated in suburban Portland in 2003, with the dream of creating the world’s fastest computer processor. He assembled a team of 69 employees.

AMBRIC EMPLOYEE: Preferred stocks. This is the real thing here. This is what it takes to start a company.

LEE HOCHBERG: And his team succeeded. It built a processor that can do more than a trillion operations in a second.

AMBRIC EMPLOYEE: Great job.

AMBRIC EMPLOYEE: Three cheers.

Company couldn't secure financing

LEE HOCHBERG: Ambric made the first of a million dollars' worth of shipments to customers, but then the economic crisis intervened. Despite its successes, Ambric was unable to secure the $10 million financing it needed to continue operations.

HOWARD BUBB: It's like walking in to get your home mortgage, and you have the job, you have all the papers, you would've gotten a mortgage two years ago, and now you walk in and you can't finance the mortgage on your home, not because your personal financial situation is any different than it was, but because the banks just don't have the money to lend.

LEE HOCHBERG: In November, the company called it quits and began selling its assets.

All employees have been laid off, except those closing up the business. Marketing manager Joe Herbst was cleaning out his office.

AMBRIC EMPLOYEE: I erased all the phone numbers and e-mails of business contacts, but it's hard, because, you know, my daughter comes in and she left a little "I Love Dad" note here, and it's hard to, you know, not come in and not see that every day.

HOWARD BUBB: In any other time, this company would've been funded. It really is a sign of the times when a business that has innovative technology, strong customers, when that kind of company can't get financed.

Tech companies cut jobs

LEE HOCHBERG: With the announcement this week of new job cuts by Microsoft and Intel, the tech industry has shed more than 190,000 U.S. jobs over the past year. AT&T is planning to cut 12,000, 4 percent of its workforce. Xerox, eBay, Sony, Sun Microsystems, Dell Computers all have announced layoffs, too.

Portland's high-tech analyst Rick Turoczy says it's in anticipation of bad times ahead.

RICK TUROCZY, High-Tech Industry Analyst: They've been told to cut deep and cut quickly, and so -- I mean, it's happening. It's not promises of layoffs. It's, these layoffs are happening right now, so -- and they're happening across the board at large companies and small companies alike.

LEE HOCHBERG: One Oregon high-tech company that's dodging the economic doldrums is doing so by staying out of the capital market. Elemental Technologies developed a software program that dramatically speeds up video processing, say, if you want to transfer video from a DVD to another device, like an iPhone.

Young CEO Sam Blackman says his company created an inexpensive solution with software, rather than borrowing millions to build fast, new hardware.

SAM BLACKMAN, CEO, Elemental Technology: As we went and got into it, we started to realize semiconductor economics have gotten pretty difficult. You have to raise $20 million to $30 million just to get your first chip out the door, just to see if it works, $20 million to $30 million.

And as we started thinking about that, we started to say, "These economics don't make sense. They might have made sense 10 years ago, but they don't today. Is there a model where we can build this faster way of converting video without having to build the hardware ourselves?"

Some companies found niches

LEE HOCHBERG: Elemental shipped its product, called Badaboom, for the first time in October. Revenue was double expectations this year, and Blackman expects to be profitable. He says he never forgot his mom and dad's business sense.

SAM BLACKMAN: You know, some of my friends had cars in high school, and they usually had to borrow money from their parents to get that car, and that was something that I certainly wasn't allowed to do, but something that my parents always said, you know, don't borrow money.

LEE HOCHBERG: He's interviewing to hire some of Ambric's now out-of-work top engineers. That may be good for the workers, but analyst Turoczy doesn't think it's a long-term success strategy for the industry.

RICK TUROCZY: If the economy continues to tank, I don't know that we can continue this kind of recycling effort that's been going on. I mean, I think you can only continue that cycle for so long.

LEE HOCHBERG: Another Portland high-tech has found a different way to thrive. It's focused on a narrow niche to help avoid the troubled market.

TriQuint Semiconductor manufactures chips that help the new smart cellphones transmit data. The company integrates the filters and amplifiers and switches that the phones need into one tiny module. The company has hired 200 new employees in the last 18 months.

CEO Ralph Quinsey says, with surging worldwide demand for data phones, his modules can withstand the recession.

RALPH QUINSEY, CEO, TriQuint Semiconductors: As we go through this transition from old-style communication to new-style communications and the desire for more data, and so that gives us a little bit of tailwind to buck the headwinds of the economy. But that isn't to say that we won't be impacted. I just think it takes us from significant growth down to moderate growth.

LEE HOCHBERG: Cell phone retailers are finding smart phones are a feel-good item at a feel-bad time.

SALESMAN: You know, the economy really doesn't seem to have stopped the growth of smart phones and PDA phones.

RICK TUROCZY: People in the U.S. like to reward themselves even in down times. I don't see that as slowing down nearly as much as maybe some other purchases, as, say, like a new car purchase or something along those lines.

Innovation suffers in downturn

LEE HOCHBERG: But Howard Bubb thinks that, while companies with narrow niches might survive, something bigger is being lost.

HOWARD BUBB: It's definitely a low point for being able to carry forward with the kind of innovation and new business that I think is essential for long-term growth. And unless that is fixed as a whole, the innovation of the people who brought us, you know, Google, and Intel, and Apple, and all these American icons of worldwide high-tech innovation is ultimately threatened.

LEE HOCHBERG: In the meantime, out of work, he says he's going to try to carry Ambric's innovations about advanced computing somewhere with hopes that they carry on.

JIM LEHRER: For the record, news for the big technology companies wasn't all bad this week. IBM and Apple reported earnings that were above what the market had expected.