Downturn lashes into high tech

Industry cutting thousands of positions as businesses and consumers trim purchases

The high tech industry, which until now had avoided the full force of the economic downturn, is starting to shed thousands of jobs at an increasing rate.

This week, a torrent of dire disclosures from technology giants around the world confirmed that businesses and consumers have sharply cut back on purchases of computers, cellphones, and a host of other digital devices. "We're seeing a real hesitation across the board right now," said Emily Nagle Green, the president of Yankee Group Research Inc., a technology consulting firm in Boston.

Yesterday, Sun Microsystems Inc., a major maker of high-end server computers and storage systems, said it would cut up to 6,000 jobs, or 18 percent of its workforce. Sun declined to say how many people it presently employs in Massachusetts or how many local workers would lose their jobs, but it has a significant presence in Massachusetts; as of last year, the company's facility in Burlington employed 1,750 workers.

On Thursday, Teradyne Inc. of North Reading, the world's leading maker of microchip test equipment, notified the Securities and Exchange Commission that it will lay off about 185 workers, some 5 percent of Teradyne's 3,600 employees worldwide. The job cuts will be completed during the first quarter of 2009. In addition, managers at Teradyne are taking pay cuts, and all employees will be furloughed during the weeks of Thanksgiving, Christmas, and New Year's Day.

Tom Newman, Teradyne's vice president of investor relations, said orders from chipmakers plummeted in late September, when problems at major banks escalated into a full-blown global crisis.

"It was breathtaking," Newman said. "They pulled the plug. It was fear-driven. I've been doing this a long, long time and this may be the worst I've seen."

Also on Thursday, Intel Corp., the world's leading maker of microprocessor chips, slashed its sales forecast for the fourth quarter to $9 billion from as high as $10.9 billion. Intel, which operates a factory and research center in Hudson, blamed a sharp worldwide slowdown in orders for all kinds of chips.

Finnish cellphone maker Nokia, the world's largest, yesterday warned that worldwide sales of all cellphones will decline during 2009.

Chipmaker National Semiconductor Corp. cut its quarterly revenue projection this week and revealed 330 job cuts, while Applied Materials Inc., which manufactures equipment for making chips, reported a 45 percent drop in fourth-quarter profits and said it would lay off 1,800 workers.

There was more chilling news from technology market researchers at IDC Corp. in Framingham. Prior to the financial crisis, IDC had predicted that technology spending would increase worldwide by 5.9 percent in 2009. Last week, the research firm cut its estimate by more than half, to 2.6 percent.

"Between the last quarterly cycle and this one, everything broke loose in the economy," said John Gantz, IDC's chief research officer.

Gantz was especially disturbed by a huge falloff in demand from developing countries like China and India. "What surprised us when we went out to redo our forecasts was how much we think spending will slow down there," he said. The Asia-Pacific market, which excludes Japan, will grow by 5.8 percent, said Gantz, backing off an earlier estimate of 9.5 percent.

But that's a bonanza compared with the US market, which was supposed to grow 4.2 percent in 2009. Gantz now expects growth of just 0.9 percent, a near-standstill.

Businesses may be cutting their purchases of high-end computer gear, but consumer technology spending has fallen off a cliff. Yesterday, the Commerce Department reported a 2.8 percent decline in consumer spending in October, the biggest one-month decline ever. Sales at electronics shops fell by 2.3 percent.

The slump is proving catastrophic for digital retailers. Last Tuesday, giant electronics retail chain Circuit City filed for Chapter 11 bankruptcy; the week before, Canton-based Tweeter Inc. went into liquidation. Even Best Buy Inc., the top electronics retailer in the United States, last week predicted sharply lower earnings for the coming year.

"Things have deteriorated notably in the fourth quarter," said Shawn DuBravac, economist for the Consumer Electronics Association.

DuBravac still thinks that electronics will fare better than other consumer products during the downturn. Although he predicts that overall retail sales for the holiday season will increase a mere 0.7 percent over last year, DuBravac expects electronic products to do much better, posting a 3.5 percent increase. Still, that's far worse than last year, which saw an 12.5 percent surge in holiday electronics sales.

The Yankee Group's Green thinks only a renewed sense of confidence among business leaders and consumers will bring the slump to an end. "I think people are looking for a sense of stability, that we've reached a bottom in the economic crisis," she said.

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