IT industry troubles far from over

31 Oct 2002

It’s been some time since we’ve seen a period like it. Technology giants that are household names are reporting positive results and presenting the harvest from strict business policies with the same spirit of eagerness as that of a 10-year-old with a school project.

However, a smattering of lukewarm news is not enough to convince anyone that things are beginning to turn around for the beleaguered IT sector — even firms that have reported modest improvements in their latest quarterly results are still handing out redundancy packages. This was evidenced recently when data storage giant EMC, despite turning a modest third quarter profit driven by a 4pc sales increase, took the step of axing 7pc of its global workforce, a move that meant 100 job cuts at its Cork operation.

Irish market observers should note that favourable results are now some two years late. The damage has been done and the weary tech travellers have yet to set foot on the road to any meaningful sense of recovery. With the majority of these players employing significant workforces here, the implications still will be felt for some time.

Only a week after Lucent decided to axe some 10,000 jobs from its 35,000-strong global workforce, mobile phone giant Nokia posted its biggest gain in a year, with third quarter profits tripling on sales of some €7.2bn driven by a surge in handset sales. The positive results prompted a surge in shares of Nokia, Ericsson and Alcatel.

However, the anomaly that is the stuff of the mobile market today was proven only a day later when Ericsson posted widened losses in its third quarter of some €5.6bn. Industry sales of cellular networks will drop some 20pc this year, Ericsson said.

Although it expects next year’s market to shrink less than it did in 2002, the company believes its own mobile network sales may fall even further than this year. Like its network-making cousin Nortel Networks, the communications industry is beset by abandoned orders.

Since the industry’s troubles began, the date for the forecasted recovery slipped from early 2002 to late 2002 and even now the best people can hope for is late 2003. While global IT players gradually get their houses in order and keep an eye on cutting costs, it will still mean more pain to come on the jobs front and Ireland can consider itself particularly overexposed to the trials and tribulations of the sector. The IT and communications industries have learned a very valuable lesson in humility. So too have the investors — the Neuer Markt is all but closed down and Nasdaq chugs along on a slow pulse. What really needs to be decided is what could be properly described as a ‘recovery’.

A few good results are insufficient reasons to celebrate. And so the pain continues.