Ongoing Seattle tech job cuts come despite signs of turnaround |
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Some of the Seattle region’s most prominent high-tech companies are continuing to cut jobs even as their economic fortunes improve, raising questions about whether the local technology job market faces more turmoil in the months ahead.
In recent weeks, Microsoft said it’s laying off an additional 800 workers worldwide, including some 200 locally, just weeks after the Redmond company reported better-than-expected quarterly results on strong Windows and Xbox sales. RealNetworks of Seattle eliminated 70 positions shortly after posting its first quarterly profit in more than a year. And Seattle’s Classmates.com social networking website chopped 71 workers — about 17 percent of its work force — just as parent company United Online Inc. reported quarterly earnings that beat Wall Street estimates.
With the new layoffs, the companies are not just responding to overall economic conditions but seizing the chance to realign business units and slash inefficient products and services.
For example, Microsoft, in the course of its cutbacks over the past year, has announced the discontinuation of products including its Encarta online encyclopedia, Microsoft Money financial software, Microsoft Office Accounting and several others.
“They realized, when they started looking at their cost structure, that there are many areas of inefficiencies that they can probably do without,” said Sid Parakh, an analyst who covers Microsoft for the McAdams Wright Ragen brokerage firm in Seattle. “This is simply an operational improvement plan, more than anything else.”
The recent cuts are more bad news for the region’s job market at a time when unemployment is above 9 percent in Washington state. But they qualify as mere trims compared with the full haircuts taken by some tech companies in the depths of the recession.
For example, the 800 job cuts made by Microsoft on Nov. 4 compare with thousands made by the company in two rounds of layoffs earlier in the year. That shows that the situation isn’t as severe as it was several months ago. However, on a cumulative basis, the company in 11 months has exceeded the target of 5,000 job cuts that it had previously been projecting for a full 18 months. And the company hasn’t ruled out the possibility of further trimming its work force.
Microsoft is counting on the cost savings as it grapples with the tough economy. Excluding the effects of special Windows 7 promotional offers, the company’s cost-cutting helped it boost profits by 8 percent in the quarter ended Sept. 30, to 52 cents a share — despite the fact that its revenue fell 14 percent, to $14.39 billion, on the same basis. The key to the rising profit was a reduction of nearly $625 million in quarterly operating expenses, achieved in large part through job cuts.
Although the consumer technology market has started to rebound, as evidenced by a return to growth in the PC market, business spending has been slower to come back to life — taking a toll on sales of Microsoft Office and other products.
Seattle-based digital media company RealNetworks likewise cut fewer positions than it has in the past — announcing on Nov. 5 the layoffs of 70 people, or 4 percent of its work force, compared with the 130 positions it eliminated in December 2008. RealNetworks CEO Rob Glaser told employees that the cuts would help the company become more efficient in areas that were hurt by the economic downturn.
Dick Conway, a Seattle economist and co-publisher of the Puget Sound Economic Forecaster, said the continuing layoffs mirror what’s happening at a broader level in the U.S. economy, where output is rising but unemployment remains high.
“Firms are reluctant to hire and in some cases they’re following through on plans for layoffs even with rising output and profitability because of the uncertainty of the future,” Conway said. “It seems particularly important for high-tech companies to protect capital because of the huge expenditures involved in research and development.”
To be sure, the net effect of Microsoft’s job cuts was cushioned as the company continued hiring in other areas such as internet search, where Microsoft is placing a big focus. The company reported 91,000 direct employees worldwide as of Oct. 23, down from a peak of more than 95,000 earlier this year.
RealNetworks also plans to continue hiring in areas where it sees growth potential. For example, the digital media company is hiring engineers for what a job listing describes as a “media cloud team” that is “building a product and service that will provide the casual user the ability to back up their most prized content (Photos, Music, etc) and access that content on their computer, mobile device or living room device.”
Arun Raha, chief economist for the state of Washington, said that kind of labor force realignment is typical of recessions. “You will notice layoffs on one end and hiring on another,” Raha said.
Among Seattle-area startup companies, layoffs have cooled considerably compared to late 2008 and earlier this year, when firms were attempting to reduce their cash burn rates in anticipation of a long recession.
A recent survey by the Washington Technology Industry Association found that 11 percent of local venture capitalists predict layoffs of 10 percent or more at their portfolio companies during the fourth quarter. That’s down from half of VCs who predicted layoffs of that size for the third quarter.
However, the vast majority of respondents — more than 80 percent — said the size of work forces at their companies would stay pretty much the same.
“We appear to have reached a point of stability, with job losses expected to slow yet hiring not projected to increase,” said WTIA president and CEO Ken Myer, in a statement. “Hopefully we are turning a corner but concern remains given the slow economic recovery and the impact on company sales.”
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