Tech firms on upswing even while downsizing

Take, for example, Varian Semiconductor Equipment Associates Inc., which builds costly machines used by makers of the microchips that are found in virtually every modern device, from cellphones to jumbo jets. Like a lot of tech companies in Massachusetts, Varian does not sell directly to consumers but to the companies that make computers and other retail products.

But demand for chips collapsed after last year’s financial meltdown, and so did Varian’s sales. The company, based in Gloucester, laid off 300 workers last fall and another 80 in the first six months of 2009.

Yet even as the pink slips flew, Varian’s prospects were improving. “Our business started to pick up noticeably in the month of May,’’ said Bob Halliday, the company’s chief financial officer, “and it’s been picking up ever since.’’

From established chipmakers to ambitious start-ups, there’s a consensus among Massachusetts tech companies that an industry revival is underway. Not that a boom will occur; instead, executives speak of slow, steady growth at best. “We still see a lot of businesses that are going to continue to manage costs very closely,’’ said Emily Nagle Green, president of Yankee Group, a Boston technology research firm. “I don’t think we’re going to get back to ‘go, go, go’ in the tech sector for some time.’’

In fact, despite higher output, the state’s digital technology companies are expected to keep right on downsizing. The research firm Moody’s Economy.com of West Chester, Pa., predicts the Massachusetts technology sector will boost production by 2.2 percent in 2010 but eliminate another 2,600 jobs.

The increase in activity is reaching tech companies nationwide. Apple Inc. recently announced a 25 percent jump in third-quarter revenues, driven by sales of iPhones and Macintosh computers. Quarterly revenue at top chipmaker Intel Corp., which has a factory in Hudson, was down from 2008, but the decline was much less than expected and the company predicted a 23 percent increase during the current quarter. The reason: a sudden surge in chip demand. And IBM Corp. suffered a revenue decline but posted a better-than-expected improvement in net income, and predicted that full-year 2009 profits would outstrip earlier estimates.

Massachusetts tech companies are posting similar results. EMC Corp. of Hopkinton, which sells data storage equipment, recently reported better-than-expected revenues and profits for the third quarter, and boosted its revenue prediction for the entire year. “We expect a slow but steady recovery,’’ said EMC chief executive Joe Tucci, speaking in a conference call with analysts.

Tucci further predicted that demand for storage and data security products - EMC’s core businesses - would grow at a faster rate than overall information technology spending. Teradyne Inc. of North Andover, the world’s leading maker of semiconductor testing equipment, began the year with a global workforce of 3,800 but laid off nearly 900 in the first half of the year and imposed a 10 percent pay cut on the survivors.

The vanished jobs are still gone, but early this month, Teradyne announced that it’s rescinding the pay cut, thanks to a 50 percent increase in revenues during the third quarter.

“What’s changed is that people are buying test equipment again,’’ said Teradyne spokesman Andy Blanchard. “There’s an improving outlook in our business,’’ he said, as chipmakers like Intel ramp up to meet growing demand.’’

Much the same story is being told at Analog Devices Inc. of Norwood, one of New England’s top chipmakers. “We, like many others, have seen a very gradual recovery over the last number of months,’’ said Vincent Roche, vice president of worldwide sales.

Analog Devices makes specialized chips found in thousands of products, including audio chips in cellphones and the motion sensors used in the Nintendo Wii video game system. Roche said that stimulus efforts by governments worldwide have helped to bolster demand for electronics gear. He especially praised the US “Cash for Clunkers’’ program, in which the federal government spent nearly $3 billion to subsidize automobile sales. “Cars have an insatiable appetite for electronics,’’ Roche said, and many automotive systems use chips made by Analog Devices.

Even a tiny start-up company like Isabella Products Inc. of Concord has been buoyed by the new optimism. Isabella designs and markets Internet-connected digital picture frames that let users instantly view photos shot by friends and relatives who might be many miles away. Company founder Matthew Growney said the recession has helped Isabella get off the ground, partly by making it easy to recruit experienced engineers; also, contract manufacturers have plenty of unused capacity that he can borrow to assemble his devices.

None of this will matter if cash-strapped consumers won’t buy Isabella’s products, which are due to go on sale in time for Christmas. Growney points to recent economic data suggesting that Americans may be in a mood to spend. “The housing market appears to be improving,’’ he said. “The Dow is up . . . there’s a little bit of unbuckling of the belt for consumers.’’

The Yankee Group’s Green isn’t nearly so optimistic about a pickup in consumer spending. “We see some fundamentals in the economy that are really concerning, like 10 percent unemployment,’’ she said.

Green agrees conditions are no longer getting worse and actually improving - but very slowly. “Most of us see a light at the end of the tunnel,’’ she said, “but that tunnel’s still fairly long.’’

Hiawatha Bray can be reached at bray@globe.com.