Business Tech

Red ink flowed throughout the broader markets Thursday following unsettling news that General Motors auditors are casting doubt on the company's ability to survive..

The Dow Jones Industrial Average closed down 281.40 points, or 4 percent, to 6,594.44, a low it hasn't seen since 1997.

The Dow's decline has been rapid. Just four trading days ago it was in the 7,000 range. And just 13 trading days before that it was in the 8,000s, where it languished for months.

The Nasdaq closed down 54.15 points, or down 4 percent, to 1,200, and the CNET Tech Index dropped 27.34 points, or 2.76 percent, to close at 962.74.

A few tech companies managed to swim against the tide.

Leap Wireless stock rose 4.47 percent to $28.27 a share. The company announced its wholly owned subsidiary, Cricket Communications, struck a deal with Samsung Telecommunications America, in which Samsung's SCH-r211 bar-style phone would be available to customers using Cricket's unlimited wireless services.

And Chinese Internet search company Baidu jumped 2.66 percent to $161.51 a share, after a Citi Investment Research analyst upgraded the company to a "buy" from a "sell," according to an Associated Press report. The analyst upgraded the stock based on weekly improvements to traffic on its site since January, according to the report.

Networking gear maker Ciena saw its stock jump 11 percent to $5.93 a share during the regular trading session Thursday, after announcing it would cut 200 positions, or 9 percent of its workforce, and close its research and development facility in Massachusetts.

That news apparently pleased investors, despite the company also reporting a 26-percent revenue drop in the first quarter over year ago figures and a net loss of $24.8 million, compared with a net profit of $28.8 million, during the same period.

Adobe Systems was another company that posted share price gains, despite issuing a first-quarter warning after the markets closed Wednesday. The software maker said it would miss its earlier revenue forecasts, but expected to remain on target with its profit projections.

Shares of Adobe advanced 3.68 percent to $16.92 a share on Thursday.

It seems like the headlines are more and more depressing each day. Layoffs, stock market drops, budget deficits, etc. Heck, even my friends in the ever-optimistic Silicon Valley are bummed out.

Yeah, it's looks pretty gloomy, but it's important to remember that the economy isn't binary-- different industries are feeling the pain in different ways. ESG Research recently compared internal data on 2009 IT budget changes by industry with external data from the U.S. Bureau of Labor Statistics Employment Situation Summary from February 2009. This comparison uncovers some interesting trends:

1. Three industry sectors will experience employment and IT budget growth in 2009: health care, federal government, and state and local government.

2. Two industry sectors will cut employment but increase IT budgets in 2009: financial services (mid-sized firms) and communications/media.

3. All other industries covered in this exercise will decrease employment and IT budgets in 2009. These include: retail, professional services, financial services (large firms), transportation and logistics, and manufacturing.

How does this data affect the technology industry? Industry leaders like Accenture, Hewlett-Packard, IBM, and Oracle that have long embraced a vertical industry sales and marketing strategy are best positioned to anticipate market opportunities and move resources around to capitalize on this. The bulk of vendors who take a horizontal approach must learn how to customize solutions and adapt sales/marketing toward vertical industries. In my mind, industry marketing is no longer a "nice to have." It is a "gotta have."

Baby New Year faces a tough time finding a job in this climate.

U.S. job cuts announced in January soared to 241,749 across all industries, marking the largest monthly cut in the past seven years, according to a report released Wednesday by Challenger, Gray & Christmas.

The computer industry ranked No. 3 among the industries facing the biggest ax in January, with 22,330 layoffs announced.

For an industry already under siege, it offers little encouragement after the tech sector exited last year with 186,955 job cuts in the telecommunications, computer, and electronics sectors. That figure was 74.2 percent higher than the previous year, according to a Challenger report from last week.

The month of January has faced the heaviest onslaught of layoff notices over the past seven years, and it comes as no surprise that the retail industry tops the list of hardest-hit industries.

Retailers announced 53,968 job cuts in January, a record for the industry, according to the report.

The industrial goods sector ranked second, with 32,083 cuts announced last month, followed by the computer industry, then the pharmaceutical industry with 22,063 cuts, and aerospace-defense with 17,800.

John Challenger, CEO of Challenger, Gray & Christmas, said in a statement:

Industries that first appeared to be immune to downturns, such as computer and pharmaceutical, are now rapidly shedding workers.

Unfortunately, there is no light at the end of the tunnel yet. Even if the stimulus package is successful, it could take months to make a noticeable impact on the employment picture.

In the meantime, jobs are being clear-cut in the tech industry. On Wednesday, Panasonic announced 15,000 job cuts. On Tuesday, Electronic Arts announced 1,100 layoffs.

Updated at 10:12 a.m. PST, with more information about AMD's financial performance.

Advanced Micro Devices announced Friday it would slash its workforce by 9 percent and institute temporary salary cuts, from its executive chairman on down to hourly workers.

AMD will cut 1,100 positions in the first quarter through attrition and layoffs, as one of its measures to cut costs during these recessionary times.

The chipmaker will also institute temporary salary cuts, with its CEO Dirk Meyer and Executive Chairman Hector Ruiz both taking a 20 percent cut. In the U.S. and Canada, executives that hold a rank of vice president or higher will receive a 15 percent pay cut and salaried workers a 10 percent cut. Hourly workers, meanwhile, will face a 5 percent wage reduction.

Voluntary pay cuts will be sought at AMD's offices outside the U.S. and Canada, as allowed by local governments there.

AMD will also halt its company 401(k) match.

AMD is the latest tech titan to announce a round of job cuts. Earlier this month Motorola announced a 6 percent cut of 4,000 workers, drafting and design software maker Autodesk a 10 percent cut affecting 750 employees, and even search giant Google announced cuts of 100 workers.

AMD's financial performance is under pressure. Last month, the chipmaker warned Wall Street its fourth-quarter revenue would come in significantly lower than previously expected.

AMD is scheduled to report its fourth-quarter results on Thursday.

Oracle has sliced approximately 500 positions from its sales and consulting staff businesses in North America, according to a report in The Wall Street Journal.

The positions, which would account for less than 2 percent of Oracle's North American workforce as of November, were cut on Friday, according to the Journal.

Oracle's reported layoffs come at a time when a number of companies across all industry sectors are slashing their workforce by double digits as the economy languishes in a recession.

And while other companies are making staff cuts amid steep declines in their revenues and earnings, Oracle's last quarterly report in November posted a 6 percent increase in second-quarter revenues and a modest 1 percent decline in net profits.

Oracle declined comment on the reported layoffs.

Editor's note: This is part of a series of stories about the recession's effect on the tech industry.

Entrepreneur Treb Ryan remembers in vivid detail the day the Dow Jones Industrial Average plummeted nearly 700 points and dropped below 9,000 for the first time in years.

He was visiting a major computer maker on that day, October 9, waiting to meet with a potential investor about funding his start-up OpSource.

"I was about a half an hour early for the appointment and was sitting in the lobby, where they have a big screen TV," recalled Ryan. "Within the 30 minutes I was there, the Dow had dropped 300 points."

Ryan, OpSource's founder and CEO, still had his meeting with the prospective investor, but the discussion was initially dominated by talk of the market malaise. And two months later, the parties are still in discussions about funding his software as a service (SaaS) company.

For Ryan, the market meltdown and recession have made the task of securing a new round of venture funding far more difficult than OpSource's previous four rounds. To date, OpSource has raised a total of $45 million from investors. And the 41-year-old entrepreneur is currently seeking to raise a $20 million fifth round of funding for his Santa Clara, Calif., company.

Nonetheless, Ryan exudes optimism. "OpSource is not going away. SaaS is not going away. I know OpSource will survive and I look forward to the day when the markets pick up...I believe we will come out of this. I'm an optimist. That's why I'm an entrepreneur."

Ryan has reason to be optimistic. He's had some lucky breaks as an entrepreneur. In 1999, Ryan founded SiteSmith, a provider of managed Internet services. A year later, he sold it for $1.4 billion to Metromedia Fiber Network. It was one of the last billion-dollar mergers of the dot-com boom.

OpSource, by comparison, is nearly seven years old. The company, which Ryan notes has had interest from prospective buyers, is a SaaS company that manages virtually all aspects of running and hosting businesses online. OpSource has 200 customers, of which 40 percent are traditional companies, such as Adobe, that are doing some SaaS with their business. The bulk, about 60 percent, are dedicated SaaS companies, such as on-demand human resources company Taleo, that are using OpSource to provide the virtual behind-the-scenes plumbing.

Ryan isn't the only entrepreneur working overtime to land more funding. In the third quarter, venture funding of U.S.-backed companies fell 20 percent to $2.73 billion over the same time last year and dropped to levels not seen since late 2006, according to Dow Jones VentureSource.

Click for complete special report

"Back in April 2007, we thought the public markets would be more open a year from now and we would be able to do an IPO," Ryan recalled. "But by this summer, with the market at 11,000, it was clear we wouldn't be able to do an IPO until the end of 2009. And now we're thinking maybe 2010."

As a result, Ryan said a decision was made to seek a late-stage funding round, with the goal of including strategic investors, as well. Meanwhile, the initial summer plans to raise a $25 million to $30 million round were scaled back in September to $20 million. Making it trickier: venture capitalists are placing much lower valuations on companies that are returning for additional funding.

"Valuations have been cut in half from where we expected in the summertime," Ryan said. "And that's pretty consistent with what we're seeing in the public markets (with where stocks are trading for public companies)."

With venture funding looking tight, OpSource has tightened its belt, as well. OpSource employs less than 200 employees, of which about 25 percent are in India. While OpSource has not had layoffs, it has reduced spending on sales and marketing.

OpSource has also gone back to its vendors and had success getting them to agree to lower their contract terms by double digits, but it came at the price of offering to extend the length of the contract.

Ryan has also applied some of this belt-tightening to his personal life. When Apple's new MacBook Pro debuted this fall, Ryan was tempted to snatch up the new laptop. But the CEO instead opted to install the latest Mac OS X version onto his old MacBook and squeeze another year of use out of the computer.

"I told everyone that if I have to do this at home, we can do this at work," Ryan joked. The married father of three added he's also sleeping easier at nights, now that OpSource began generating cash this month.

"Companies that stick to their knitting," he said, "are the companies that will stick around."

Coming up Friday: When times get tough, drop the satellite TV

Editor's note: This is part of a series of stories about the recession's effect on the tech industry.

Note: This article has been corrected to reflect that Ultimate Electronics is not going out of business, as previously stated.

When Circuit City management told employees to arrive at their respective stores one hour before opening in early November, everyone knew something was up.

Except T.K. Campo.

The 21-year-old wasn't able to go in early, and arrived at his job stocking shelves at the Scottsdale, Ariz., store to find his fellow employees just standing around, looking generally shocked and upset--and, conspicuously, not working.

That's when he got the news. "They told me we were closing down. From then, there was this giant, somber mood throughout the whole store. Everyone was going to lose their jobs, and people were really upset. At least one person was crying."

Campo's store was one of the 155 stores that Circuit City announced it would be closing to get the struggling retailer back into good financial health. Overall, 17 percent of the workforce was to be cut. Just a week later, the chain filed for Chapter 11 bankruptcy.

The recession has claimed hundreds of thousands of jobs here in the U.S., but unemployment is having a secondary effect on retailers. It has killed consumer confidence, and hawkers of expensive gadgets like Circuit City, and Tweeter, have been hit hard.

As disappointing as it was for Campo to lose a job that he liked, this 21-year-old has more responsibilities than most of his peers working retail. He's a single father who recently won joint custody of his 2-year-old son. Campo is also putting himself through school, studying math with hopes of becoming a high school calculus teacher.

But his priority right now is making his child support payments.

"I can always take little break from school, but (working is) always to provide more for my son," he said during a telephone interview. "At Circuit City, I would have been able to move up, and eventually get more money. But that opportunity's kind of gone now."

Campo has been working at the Scottsdale store since May--he'd been laid off from his previous job as a line cook after he went on disability leave with a broken arm. But he took a liking to his work stocking shelves at Circuit City, updating prices, and interacting with customers. But most of all, he enjoyed his 40-some co-workers.

"I befriended just about everyone that works there. For the most part, everyone that's left is a tight group."

Over the past month the group has found more ways to bond since the news of their store getting shut down. Knowing that there is a definite end date to their employment, the store "became this relaxed environment," Campo said. If they can't help a customer, nobody stresses out. Some phones go unanswered, and just "general messing around" ensues.

Click for complete special report

But they know they still have work to do.

The liquidators--the company that bought up the store's debt and inventory--came in a few days after the announcement, put up store closing signs, and changed all prices to the MSRP (manufacturer's suggested retail price), then marked them down a bit more.

Once the signs went up, a frenzy of bargain hunters descended on the store. But not everyone liked what they saw.

"Some (shoppers) got rude, some got really nasty," Campo recalled. "Some people would come in and tell us we deserve to lose our jobs because they're not happy with our prices, and unhappy we couldn't alter prices or return things anymore that had been purchased after liquidation. Some were unsure what to do if they had purchased (extended) warranties. I don't know...it seemed like some people enjoyed being unpleasant to us. There wasn't a lot more we could do for people."

... Read more

Updated at 7:41 a.m. PT to include reductions in temporary and contract workers.

Sony plans to lay off 8,000 workers in its electronics business worldwide as part of a broader plan to trim expenses and tighten its focus in a difficult financial climate, the company said Tuesday.

The Japanese electronics and media giant, which currently has a full-time global workforce of 160,000, joins a long list of tech companies that have cut jobs and scaled back production.

The company will also eliminate a number of contract workers and temporary employees, which would total an additional 8,000 jobs, according to Reuters.

In addition to the job reductions, Sony plans to curtail or delay some of its investment plans. The company will also downsize or withdraw from unprofitable or noncore businesses. The cuts should account for a total annual cost savings of more than 100 billion yen ($1.08 billion) by the end of the fiscal year ending March 31, 2010.

The company is outsourcing a portion of its planned increase in manufacturing of complementary metal oxide semiconductor, or CMOS, image sensors for use in mobile phones. Additionally, it is postponing plans to invest in production expansion at its liquid crystal display, or LCD, television assembly plant in Slovakia.

Sony's goals are to reduce investment in the electronics business by about 30 percent in the coming fiscal year and to reduce the total number of manufacturing sites by about 10 percent, from the current total of 57.

Editor's note: This is part of a series of stories about the recession's effect on the tech industry.

Over the last few months, there have been countless stories of cutbacks at companies large and small. Real people are losing jobs. For some, that means losing their homes or being forced to change careers. In this series, CNET News is telling the stories of many of the people on the receiving end of the hits recently sustained by the tech industry.

Click for complete special report

But there is another side to layoffs that doesn't get told very often. That's the story of the people who do the laying off, those who make the decisions about who stays and who goes. Do they deserve our sympathy or our derision?

In most cases, the answer is neither. While there will always be an evil schemer or two out there, most executives who conduct layoffs realize they're cutting into their company's most valuable asset: the employees. Sure, it's a corporate cliche, but most of them do believe it.

We talked to the chief executive of a Web 2.0 company that recently axed a bit less than 10 percent of its workforce and asked him to walk us through the process. Not surprisingly, he did so on condition of anonymity. He's running his third company now. This business is his second Web 2.0 outfit, and is generating revenues from a mix of sources, including subscription fees and advertising. It's an established business, not a brand new Web start-up.

The job cut process, as he described it, was driven by raw numbers and business instinct. No Seven Stages of Grief here, just plain old business sense. Like it or not, this is how it usually works in corporate America:

Q: Why did you do layoffs?
CEO: It's clear that 2009 is going to be a different year than we had anticipated. There's no question that we're in a recession, and we expect that next year could be severe. It's really important for companies to do everything they can to keep costs low, and be able to sustain themselves.

This layoff was based not on an actual decline in revenues, then, but a projection?
CEO: We did see some softness in Q3 and Q4, and projections are that the softness is going to continue. One of the things that makes this very difficult is the uncertainty. It's very hard to plan for next year.

It reminds me of back in the bubble days, where people were expecting the bubble to burst. But until it burst, it wasn't rational to behave as if it were going to.

How many people did you lay off, and was it a one-time thing, or should we expect more in 2009?
CEO: We let go less than 10 percent, and that is the most difficult aspect. You don't want the layoff to be too big, and you don't want it to be too small. If it's too big, then you've impacted too many people and damaged your ability to execute. If it's too small, you run the risk of having to do it again, and doing that suggests that it's not going to be a one-time thing, but that it's an ongoing thing. And that creates huge amounts of anxiety. So that is the real risk.

It's hard to say what will happen next year. You take risks either way. We say we're doing this so we never have to do it again.

Could you have foreseen this?
CEO: People were expecting a meltdown on Wall Street. It reminds me of back in the bubble days, when people were expecting the bubble to burst. But until it burst, it wasn't rational to behave as if it were going to. Alan Greenspan talked about irrational exuberance in 1996, and it wasn't until 2000 that the exuberance really burst, so it's a very hard thing. In retrospect, sure, there are things we should have done. And it is possible that in six months from now, we'll be saying that in retrospect we didn't know it was going to get this bad. You may see another wave in six months. And it's possible that we all make it through, that the economy picks up.

When did you have that "I'm going to throw up" moment and realize that you were going to have to let people go?
CEO: I don't know if it was like that. It's hard to say exactly when we made the decision. It came to a process of forecasting our business and determining what an acceptable expense ratio was for the business going forward. When we reforecast our business for the second half of the year and evaluated the risk, we realized that our cost basis was just too high.

Any CEO who needs to wait for their board to tell them what to do in terms of their expense structure is not doing the right job.

So when you realize that you have to trim your staff, who gets involved?
CEO: It starts with the heads of our business units, the people who have (profit and loss accounting) responsibility, and the people who are responsible for your revenue lines as well as the bottom line of the business. You first have to have a really strong gut check as to where you feel the business is going to go. You certainly would rather figure out ways of generating more revenue, and the first conversation wasn't about how to we cut costs. We asked, "How can we respond to the changing market conditions? Let's not just think of this as the market getting smaller, but the market is changing, and we ought to adjust our strategy to match. There may be positive ways to do that." And eventually you have to talk to the board.

You don't start with the board?
CEO: There's been a lot of discussion about this. For example, Sequoia brought in their CEOs and told them: This is the way it's got to be. But any CEO who needs to wait for their board to tell them what to do in terms of their expense structure is not doing the right job. It's the management team that ultimately has to make the call. Boards can give advice and ultimately judge the effectiveness of the CEO, but this is something the management team has to own.

I would never want to be a Sequoia portfolio company. Those guys are so heavy-handed in the way they treat their companies. They see the CEOs as interchangeable. I think a lot of people did layoffs because of the slideshow.

How long does it take to put a layoff together?
CEO: For us it was a matter of weeks. We did want to have a structured conversation with the board about what we were proposing. It's very important to have a back and forth, get their advice and their opinions. Also, we wanted to invest enough time in this to make sure we were making the right moves, that it was the right degree, and that we were structuring the company appropriately, and weren't just thinking of this in a one-dimensional way, which is "how do we cut people?"

It was, instead, "how do we structure the company to adapt to the changing conditions?" And that may include other organizational and strategic changes beyond just cutting people. And that's very important. We also wanted to look closely at other ways to cut expenses and generate revenue.

Was there anyone who, at the end of the planning process, changed status, from staying to going, or the reverse?
CEO: Yes. You're trying to figure out the best mix to make the company successful going forward, and that's an iterative process. And in some cases, we wanted to make sure that there weren't opportunities for people in other parts of the company. We took into consideration not the performance of people, but their skill sets and how they could contribute going forward.

How did you tell people?
CEO: We spent a lot of time thinking through the process. The management team went offsite several times to discuss it. We talked through the logistics on how the day would work, and we iterated on it. We really thought through how this would happen. The details of it really do matter.

We decided the best way to do it was to talk to the people individually first. We tried to figure out how we could get the message to people one-on-one, in person, explaining it to them so they knew first, rather than doing a whole announcement and then tapping people on the shoulder. We told people one by one, by their direct managers, and then we had exit interviews, and then we told the rest of the company what was going on. To the extent we had managers who would be eliminated, we told them beforehand.

Did anyone, on the way out, do any bridge burning?
CEO: No one. It was moving, actually. And I haven't seen many stories about people being nasty or bitter. I think people have been pretty mature about this.

If you've put enough thought and work and diligence into the decision, then you can be at peace with it.

What did you do afterward? Did you go out drinking with everyone who was left behind and toast the departed?
CEO: We did. We set a time for everyone to get together and say proper goodbyes. I think it's a real mistake to treat people you've let go as if they're not people or not part of the family anymore or it's too awkward to look them in the face. That's not respecting them the way they deserve.

What's it like to go home after a day like that, to go home to your family and your kids and realize that other people are going home now without jobs, and will be worrying about Christmas and paying for schools?
CEO: It's tough. But once you've made the decision, if you've put enough thought and work and diligence into the decision, then you can be at peace with it. If you did it on a whim or because a board member told you to or because it seemed fashionable, then I assume you would feel more uncomfortable. If you've really done your job, then you can be at peace.

The best thing you can say is that you have thought through what you were doing long enough to know that it was the right thing. My obligation is to the company, and I've got to think about how I can create something sustainable for everybody, and worry about the jobs we still have here as well the jobs we have to cut.

And the next day? What's it like for you?
CEO: For me, it was checking in with people. The key thing is to focus on the company that you have after the layoff. It creates the ability for you to set a new tone. If there was any complacency in the company, this is an opportunity to make sure that doesn't exist anymore. It's really about moving forward, and having people realize that this company is moving forward.

Have you been in touch with people who are no longer with you to help them out in any way? How's it going?
CEO: Yes. It's a tough market. But we do try to help everyone who's laid off. If we can help them get a job or make introductions, we have been doing that. We're tracking everybody and how they're ending up. There's only so much we can do, but we do think it's important.

Has anybody landed a new gig yet?
CEO: Yes.

What advice would you give to people who are doing this for the first time?
CEO: To be as honest as you can about the process.

But this is not a process that lends itself to being open. If I'm at a company and I know times are tough, and you're the CEO and you know a month from now you're going to do layoffs, do you let me know that a month from now I might not have a job?
CEO: That's the hardest part. Which is why, once you've come to the determination that you're going to cut costs or do layoffs, it's best to move as quickly as you can. Then you're not in the awkward space where you have to be circumspect with your team.

Do you let them know you're making those plans?
CEO: No. I think you can acknowledge the circumstances of the company. You can talk about the forecasts looking dim. But you have to balance being candid with sowing widespread anxiety around the company.

If somebody comes to you, and asks you directly: "Am I going to get laid off?", what do you tell them?
CEO: If the answer is, "We don't know," that's the answer I would give them. But I don't think it's good to suggest something will happen that won't. Usually the answer is, "We are looking seriously at how to lower costs." The truth is that very rarely does this happen.

I'm surprised. It's like people are afraid to ask because they are afraid of the answer.
CEO: That dynamic came into play the day of. People were, at some level, expecting it. And therefore when the day finally came, people looked at is an opportunity to move on.

Next in the series: A bustling green-tech industry readjusts its expectations