Layoffs in the Computer Industry

John Keaton, IEEE Computer Society

The current slump in the computer industry has long-term implications that will affect future employment.

Many jobs lost during the downturn are likely to be gone forever.

he worldwide recession in the computer industry has result- ed in substantial layoffs among

computer professionals. Even more crit- ical than the current slump is the per- manent restructuring underway in the industry. Many jobs lost during this glo- bal downturn are likely to be gone from corporate organization charts forever.

Recession and more

The computer manufacturing indus- try is in turmoil that goes deeper than the general economic recession, and this turmoil is reflected in severe job cuts. Indeed, the US government's Bureau of Labor Statistics reports that the US electronic computer industry lost more than 55,000 jobs between 1989 and 1992 - a drop of almost 19 percent in the industry's work force (see Table 1).

The computer industry's recession is global, and companies all over the world have delivered pink slips. France's Groupe Bull laid off 8.000 workers and Italy's Olivetti cut 20 percent of its work force after experiencing losses in 1991. Siemens AG cut 2,000 jobs in 1992 and plans to eliminate another 2,000 over

the next few years. In Japan. computer manufacturers are considering broad retrenchments that would include lay- offs - a real break from the tradition of lifetime employment. IBM's planned 1993 layoffswill reach around theglobe. In fact. IBM's biggest problems are in its major foreign markets - Germany. Japan. France. Italy. and Britain - and the company is expected to make major adjustments in those markets.

The picture gets worse if you look at how many jobs computer makers are planning tocut. On December 15, 1992. IBM announced the first layoffs in its history, eliminating 25.000 jobs world- wide during 1993. Digital Equipment Corporation plans to reduce its head count by 25.000 workers over the next two years. For the first time. a signifi- cant portion of these reductions will include DEC engineers - 6.000 in all. Cray Research is eliminating some 650 jobs, while Compaq recently announced that it will reduce its work force by 10 percent. or roughly 1.000 people, de- spite record sales. (Employment ana- lysts usually estimate a nine-month lag between the time a company announces job cuts and the time people hit the streets: however, these recent layoff announcements indicate that companies

will cut jobs at a much quicker pace.) The problems stem from two causes:

a basicchange in the product demanded and a price war in the personal comput- er industry. The initial round of layoffs came when large mainframes and mini- computers were replaced by small. effi- cient PCs that could be assembled by fewer people. The success of PCs and workstations forced mainframe and minicomputer manufacturers to under- take drastic programs to downsize their operations. More recently, however. layoffs have been necessary to reduce costs amid a continuing price war that has ravaged profit margins in the PC business. Gross margins have narrowed sharply as market competition intensi- fied: profits as a percentage of sales have fallen.

The current slump has long-term im- plications. Many manufacturers across the globe are restructuring their organi- zations. redefining their products. and reassessing their markets. The comput- er industry and types of available jobs in the 1990s may differ vastly from those in the 1980s. For example, IBM plans to cut product-development research by about $1 billion, including some cuts in future microcomputer technologies. In addition. IBM will reduce its manufac-

Table 1. Changes in employment in selected segments of the computer industry, 1989-1992 (in thousands).

Percent Percent Sept. Sept. Sept. Sept. Change Change 1989 1990 1991 1992 1989-92 1991-92

~~~~ ~

Computer and office equipment 456.9 432.7 411.3 392.9 - 14.0 - 4.5 Electronic computers 292.9 274.7 255.0 237.6 - 18.9 -6.8

Computer and DP services 746.7 775.5 793.5 819.4 9.7 3.4 Computer programming services 144.6 151.7 154.6 159.3 10.2 3.0 Data processing and preparation 199.5 193.9 193.5 197.8 - 0.9 2.2 Prepackaged software 102.1 116.1 127.9 134.3 31.5 5.0 Integrated systems design nia nla 99.9 105.8 nia 5.9 Information retrieval services nia nia 45.7 47.6 nia 4.2

nia: Not available

Source: US Bureau of Labor Statistics, Employment and Earnings.

turing capacity in semiconductors, main- frame computers, and data storage de- vices, and will focus development on parallel processing, where it sees op- portunities for growth.

Siemens AG is another large manu- facturing company that has supported broad research throughout its divisions. Siemens recently reorganized its corpo- rate R&D in an effort to increase re- search’s contribution to the bottom line. Japanese manufacturers are also at the crossroads. The depressed domestic economy coupled with severe price cut- ting in the P C business have forced Jap- anese executives to reconsider their operations.

When will we hit the bottom? Offi- cially, the 1990-91 US recession ended in March 1991. However, US business leaders see little or no evidence of a significant rebound in the economy, and they don’t think results of the Presiden- tial election will change the outlook. A growing number of economists think it could be 1994 before the job count starts rising again, and a forecast released in the fourth quarter of 1992 by the Busi- ness Council - a group of nearly 300 blue-chip corporate leaders - reported that most corporate economists believed “ongoing disappointment in perfor- mance may be as much a hallmark of the coming years as it has been in the past two.’’ These economists expect about 3 percent economic growth in 1993 - hardly a buoyant recovery and probably not strong enough to bring back jobs.

Japanese executives don’t see any kind of recovery in their economy until mid-

1993, and Europe’s estimated economic growth in 1993 is one percent or less.

Changes in industry employment in the US

The jobs cut during this recession in the US changed from those cut in earli- er recessions. Previous layoffs were con- centrated almost exclusively in blue- collar manufacturing. The recent layoffs are hitting managerial, technical, pro- fessional, and clerical jobs. This change is reflected inside the computer indus- try by the disproportionate number of layoffs among nonproduction employ- ees during the past three years. Non-

production jobs are generally associat- ed with executive, administrative, and managerial occupations, but they also include some professional specialty oc- cupations - engineering among them.

The large number of nonproduction job losses in US computer and office- equipment manufacturing has led to historically high unemployment rates among electrical and electronics engi- neers, computer scientists, and systems analysts. Data from the Bureau of La- bor Statistics (BLS) pegged the average unemployment rate for electrical engi- neers for the first three quarters of 1992 (the latest available data) at 3.4 percent (see Figure 1). This compares to an average of 2.5 percent for 1991 and 1.3 percent for 1989. Similarly, the unem- ployment rate among systems analysts and computer scientists averaged 2.5 percent through the third quarter of 1992, up from 1.5 percent in 1989.

While computer manufacturing has lost jobs since 1989, Table 1 shows that computer and data-processing services has added almost 73,000 jobs in the same period. However, virtually all were production jobs. As shown in Table 2 on page 70, this segment also lost more than 7,200 nonproduction jobs in the past year. No doubt the loss of these jobs also feeds into the high unemploy- ment rates for electrical and electronics engineers and for computer scientists and systems analysts.

Most industry observers think the lay- offs currently sweeping the computer industry reflect long-term, structural changes. Further, most accept the no- tion that the lost jobs aren’t coming

5 B 2% E 5

1 Yo

1983 1984 1985 1986 1987 1988 1989 1990 1991 0% I 1992

0 Electrical and electronic engineers -Systems analysts and computer scientists

Source: Unpublished data from the Bureau of Labor Statistics.

Figure 1. Unemployment rates for electrical and electronic engineers and for systems analysts and computer scientists from 1983 to 1992.

March 1993 67

back. These changes highlight the need for changes in the skill mix of the indus- try’s work force.

For example, at the time of Apple Computer’s much publicized layoff of 600 employees in 1990, it had 700 other openings. The reason behind this ap- parent anomaly: Apple was changing i t s sk i l ls mix by laying off workers in some areas while hiring in others. Ap-

ple said it was looking for engineers with a “more fluid mix” of software and hardware ski l ls coupled with manage- ment skills.

BLS data reveal that 50 out of a total 250 detailed industries employed about 65 percent of all US scientists, engi- neers, and technicians in 1990. Further, more than two-thirds of these workers were employed in 10 industries:

*computer and office-equipment

electronic components and acces-

aircraft and parts manufacturing,

search- and navigation-equipment

computer and data-processing ser-

manufacturing,

sories manufacturing,

manufacturing,

vices,

News summary: Computer industry employment - December 1991-92

Job Cuts Shows Human Toll Of Recession Goes On. . . .The layoffs sweeping the computer industry reflect long- term, structural changes. Most of those jobs aren’t coming back. Digital Equipment Corp., which has said it will cut up to 10,000 jobs through next June 30, is a good example. Many of the jobs it is shedding are in manufacturing but re- sult from the fact that the company can now build the same number of computers with fewer people.

Source: Wall Street Journal, Dec. 21, 1991

Lockheed, MIT, and Defense Cuts. Despite new busi- ness. Lockheed Missiles has had its share of layoffs and early retirements as military work has dwindled. Its cadre of engineers and scientists has shrunk steadily since 1987, going from 11 526 to 9,636 in 1991. The company expects to lose another 430 technical experts in 1992.

On the opposite coast, the Massachusetts Institute of Technology, a bastion of arms research, is wrestling with the same kind of change. After years of explosive growth, Pentagon funds are shrinking, from $438 million in 1990 to S432 million in 1991.

Experts say the worst is yet to come for MIT, especially fo: its 2.700-person Lincoln Laboratory, created as a mili- rary brain bank in the late 1950’s by both the university and the 41r Force.

Source. New York Times, Feb. 5! 1992

American Association of Engineering Societies. “It’s p i n g lo get worse before it gets better,” said Richard A. El- lis director of manpower studies at the American Associa- tion of Engineering Societies. He said that about 100,000 engineers lost their jobs in 1991 - most perhaps because of military budget cuts - and that the number of unem- ployed engineers was likely to rise.

the pike.” ”The real serious cuts.” he noted, “are still coming down

Source: New York Times. Feb. 5. 1992

Siemens. In an effort to squeeze more out of corporate R&D - traditionally about 10% of its $5.3 billion total R&D budget - Siemens AG recently completed a reorganization of such centralized activities which identified 22 new core technologies and placed them under five departments.

Source: !Electronic News. July 20, 1992

Japan’s PC Makers. Japanese electronics manufactur- ers may be preparing to cut back or reorganize their per-

sonal computer operations on an unprecedented scale as they face a depressed market at home and severe price- slashing competition in the US. Toshiba is cited as the most likely candidate for restructuring. Hitachi Ltd. is also listed as a candidate for cutbacks in the coming months. Seiko Epson acknowledged it will leave the notebook and low-end desktop segment to the US and concentrate on the high ticket servers.

Source: Electronic News, July 20, 1992

iBM. Think your company has troubles? International Business Machines Corp. faces practically every challenge known to management. . . . Besides its bulging. lethargic bureaucracy, IBM’s difficulties include over-dependence on high-margin mainframes, when computing power has be- come a desktop commodity; commitment to proprietary hardware and software, when customers insist increasingly on open systems compatible with other manufacturers’ products; emphasis on hardware, when software and ser- vices are ever more important; and an inability to get quick- ly to market with the new machines that periodically remake the industry.. . .

By the end of the year IBM will have cut the work force by 85,000 from its 1986 peak of 407,000. It‘ll say good-bye to at least 20,000 in 1992 alone. Managers have dropped from 50,000 to 36,000. Most departures were staff and headquar- ters employees. The percentage of IBMers who contribute directly to the bottom line -those who make, sell, or ser- vice products - has risen dramatically, from 43% in early 1986 to 57% at the end of 1991.

Source: Fortune, July 27, 1992

Wang Labs. The troubled computer and defense indus- tries continue to shrink even faster than anyone expect- ed. . . . This week’s announced layoff at Wang Laboratories was the latest reminder that the adjustment process has yet to run its course. The turnaround that was predicted for midyear is now being pushed into the future. A growing number of economists think it could be 1993 before the job count starts rising again.

The success of small personal computers and worksta- tions has forced the mini-computer makers to undertake a drastic program of downsizing. Wang. which filed for bank- ruptcy Tuesday, August 11, 1992 and announced a layoff of 5,000. has been hit hard by the change. . . .

Source: Boston Globe. Aug. 20. 1992

68 COMPUTER

*public and private education, engineering and architectural ser-

federal government, *state governments, and

local governments.

vices,

BLS projections of US job growth indi- cate that a significant proportion of the

growth in scientific and technical em- ployment will come from only five of these: computer and data-processing services, education, engineering and ar- chitectural services, state government, and local government.

Some of the most marketable skills right now are in systems integration, systems and network management, tech- nical training, and interdisciplinary

knowledge. However, the recent trend for larger companies is to outsource systems integration and systems man- agement. Outsourcing typically means the work goes to small service compa- nies or off-shore companies. An article in the October 2,1992, Wall Street Jour- nal, titled “Small High-Tech Firms Hire as Giants Lay Off Staff,” reported that these small companies expect their em-

Apple. Apple Computer Inc. said yesterday it will lay off 345 workers and close its famous high-tech Fremont manu- facturing plant in an effort to cut costs and streamline opera- tions.

Source: San Francisco Chronicle, Sept. 10, 1992

Digital. Digital Equipment Corp. will step up the pace of planned work-force reductions. . . . Digital executives had earlier said the company will cut about 15,OOO employees in the current fiscal year, which ends next June 30. Its work force stood at 113,500 as of last June 28.

The company will focus its future efforts on services, soft- ware. computer networking, semiconductors and storage and pull back its efforts in other markets. Analysts expect Digital to cut its workstation line based on Mips Computer Systems Inc. chips.

Source Wall Street Journal. Oct. 2, 1992

Compaq. Compaq Computer Corp. said it will shrink its work force by about 1,000 people, or 10% of its worldwide total over several months despite record revenue and unit shipments. Despite the company’s apparent recovery from a financial trough. . . Compaq still found it necessary to re- duce costs further amid the continuing price war that has ravaged profit margins in the personal computer business. Gross margins have narrowed sharply as market competi- tion intensified; gross profit as a percentage of sales fell to 30°0 from 35% this time last year, and more than 40% dur- ing Compaq’s halcyon days in the late 1980s.

Source: Wall Street Journal, Oct. 8, 1992

Siemens. Siemens AG, in an on-going effort to return its semiconductor business to profitability, will likely cut another 2,000 jobs over the next several years. In the past year, 2,000 jobs were also eliminated.

Source: Electronic News, Oct. 19, 1992

Cray Research. Cray Research is eliminating some 650 jobs, replacing its vice presidents of sales and marketing, and closing one of its manufacturing plants in hopes to bol- ster profits in 1993. The plan also includes a company-wide wage freeze for 1993 and a loss of all 1992 executive bonus-

100,000 since 1985. No. 2 Digital cut 18,000 jobs and va- cated 165 facilities. Wang Labs files Chapter 11. France’s Groupe Bull lays off 8,000 workers and closes 8 of 13 facto- ries; Italy’s Olivetti downsizes by 20%; Siemens Nixdorf plans to lose 6,000 workers. Only in Japan, it seems, have companies avoided downsizing. But they may be next.

Source: Business Week, Nov. 23, 1992

Japan’s Semiconductor Execs See Investment Lid. Top management of Japanese semiconductor companies will continue to hold the lid on capital investments in 1993. The cutbacks should not hurt the companies for the mo- ment: most made heavy capital investments earlier and could ramp up production if the market turns around. No layoffs are reported.

Source: Electronic News, Nov. 30, 1992

Intel t o Up Spending 33OA on Plants, R&D. Intel Corp. strengthening its bid to become the world’s leading chip- maker plans to spend more in 1993 on new plants, equip- ment and research. R&D expenditures will total about $900 million, compared to about $800 million in 1992. This year, for the first time in nearly a decade, US companies began spending more than the Japanese for new plants and equipment. This contrasts with the picture a few years ago. In the mid-l980s, Intel closed half a dozen plants and cut more than 6,000 jobs by layoff and attrition.

Source: Washington Post, Dec. 13, 1992

IBM. IBM explores ways to lop another 20,000 to 30,000 employees from its payroll, bringing the total number of workers leaving the company in little over a year to almost 70,000. In the latest cutback, IBM will eliminate a number of manufacturing and research and development facilities, in- cluding some that work on future microcomputer technolo- gies. IBM’s decision to transfer many of the 900 software engineers from development labs to its new clientkerver computing unit is just one indication that IBM wants to re- duce the heavy cost associated with research.

Source: Electronic News, December 14, 1992

New World Order. The generational shift in the computer es, Total downsizing amounts to a 2y0 cut in their work force, industry is unfolding. While IBM searches for its role in a

changed computing universe, Intel Corp. and Microsoft Corp. are preparing to introduce new technologies that are

Source: Electronic News, Oct. 19, 1992

Deconstructing the Computer Industry. Worldwide leader likely to set the industry pace for years to come. IBM Corp. is shedding 40,000 workers this year. for a total of Source: Wall Street Journal, Dec. 21 1992

March 1993

-

69

Table 2. Net change in jobs for the computer industry, 1989 -1992 (in thousands).

Net Change 1989-92

All Production production All Production production Employees Workers Workers Employees Workers Workers

Net Change 1991-92

Non- Non-

Combined computer industry 8.7 66.1 - 57.4 7.5 30.2 - 22.7

Computer and office equipment

Computer and DP services

Electronic computers

Computer programming services Data processing and preparation Prepackaged software Integrated systems desig Information retrieval services

-64.0 - 13.1 -55.3 - 17.1

72.7 79.2 14.7 15.5

1.7 nla 32.2 nla nla nla nla nla

- 50.9 38.2

- 6.5 - 0.8

nla nla nla nla

- 18.4 - 17.4

25.9 4.7 4.3 6.4 5.9 1.9

- 2.9 - 15.5 - 4.4 - 13.0

33.1 - 7.2 6.2 - 1.5 nla nla nla nla 1.3 4.6 1.1 0.8

n/a: Not available Source: US Bureau of Labor Statistics, Employment and Earnings.

-

1,600 I 1

,400

,200

,000

800

600

400

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Source: Bureau of Labor Statistics.

Figure 2. Long-term occupational outlook in the computer industry.

1,100

1 ,ooo

.%+ 800 rA 0-

- c 700

ge 600

500 Z -

400

0 0

- -

Systems analysts and computer scientists - - -

- - I and electronic engineers

-

300 I 2001 I ' I ' I ' I ' I ' I ' I ' ' ' ' ' I ' ' ' ' I

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Source Bureau of Labor Stahsti Note. Includes wage and salary and self-employed workem.

~~

Figure 3. Long-term occupational outlook for civilian-sector electrical and elec- tronic engineers and for systems analysts and computer scientists.

70

ployment to rise nearly five percent during the next year.

Long-term employment outlook in the US

In its most recent projections, the BLS estimates real output for the US computer manufacturing sector to grow at an annual rate of 7.6 percent from 1990 to 2005; however, over the same period, it estimates a 14 percent decline in jobs (see Figure 2). These projections appeared in the February 1992 issue of Monthly Labor Review, aspart of BLS's biennial projections of the labor force, economic growth, industry output and employment, and occupational employ- ment. The projections are based on a model that assumes moderate growth in the gross national product, slowing growth in the labor force, and some improvements in labor productivity over the 15-year period. The model also as- sumes improvements in the balance of foreign trade and a gradual reduction in the federal budget deficit.

While the outlook for computer man- ufacturing employment is gloomy, the worldwide trend toward automating offices and factories and the rapid ad- vances in technology will place comput- e r and data-processing services among the fastest growing industries in the US. BLS projects 4.4 percent annual em- ployment increases for this industry seg- ment, adding more than 700,000 jobs over the 1990-2005 period. Employment in this industry is expected to nearly double.

COMPUTER

Employment of systems analysts and computer scientists is expected to grow rapidly to satisfy expanding needs for scientific research and applications development in office and factory auto- mation and telecommunications tech- nology. In fact, systems analyst is pro- jected among the 10 fastest growing occupations in the economy. In addi- tion, the outlook for electrical and elec- tronics engineers is fairly good; Figure 3 shows steady growth in the civilian sector over the next 15 years at a rate equal to job growth for the overall economy.

Where can engineers look for work? Recruiting and job-consulting compa- nies indicate that the largest growing segment of the engineering profession is high-tech electronics and software. The complexity of computer-on-a-chip ICs, application-specific ICs, and oper- ational software ensure the demand for state-of-the-art hardware and software designers. The demand for engineers with CASEKAE-development experi- ence is rising sharply. The demand for

engineers in defense-related jobs will be soft throughout the 1990s. Engineers with knowledge of networking, telecom- munications, and voice, data, and video communications will see their stock go up as changes sweep through the com- munications industries.

Increased international economic competition will pressure manufactur- ers to increase their productivity. As a result, the significant demand for spe- cialized manufacturing engineers will continue, and factory automation op- portunities will increase. Design exper- tise for peripheral equipment will also be needed.

Robust growth is projected for sever- al other occupations as a result of the continuing spread of computer technol- ogy. The number of positions for com- puter programmers is expected to in- crease at a quick pace as government and industry seek new applications and improvements to existing software. Employment among computer program- mers is expected to grow faster than employment in other technical occupa-

tions, although not as fast as in systems analysis and computer science. The need for people who repair data-processing equipment will also increase as the num- ber of computers in use increases.

College and university teachers of sci- ence, engineering, and related techni- cal subjects constitute an important segment of the demand for scientists and engineers, especially for those with graduate training. The 1990-91 Taulbee Survey reported that computer science and engineering departments predicted continued growth at about 3 percent annually, though the number of faculty positions leveled off in the US for the first time. Highlights from the Taulbee Survey appeared in the November 1992 issue of Computer. W

John Keaton, the IEEE Computer Society's research and planning manager, joined the staff at the Washington, D.C., Headquarters Office in July 1992. His e-mail address is j.keaton@compmail.com.

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