Business Tech

Updated throughout at 2:30 p.m. PST.

A crush of warnings are descending on Intel, AMD, and the PC industry this week.

First up, Avian Securities. The brokerage company said that PC makers "are being very conservative with their build plans for Q4."

Market researcher IDC is equally pessimistic. "The supply chain is telling us that there is strong concern for demand decline," according to Shane Rau, an analyst at IDC. He is cutting his processor forecast "probably into the low to mid single digits on a unit basis for total PC processor growth in the year 2009."

Investment bank Friedman Billings Ramsey (FBR) cut estimates for AMD and Intel on Tuesday. Like other analysts, FBR's Craig Berger cited signs of weakness for both notebook and motherboard manufacturers in Taiwan.

For Intel, FBR's fourth-quarter pro-forma earnings per share (EPS) estimate falls to 30 cents, from the previous estimate of 36 cents. The fourth-quarter revenue forecast is cut to $9.8 billion from $10.4 billion

For AMD, FBR now sees a fourth-quarter pro-forma loss of 24 cents, worse than a previous estimate of 19 cents.

Barclays Capital chimed in too. The investment bank sees 2009 processor units up only 2 percent, down from a previous estimate of 5 percent.

Other Wall Street firms such as Piper Jaffray and ThinkEquity are citing weakness. ThinkEquity has a sell rating on Intel due to significant weakness in corporate notebook demand and a steep reduction in notebook orders from Dell and Acer.

Avian Securities spoke to why demand is off. "PC OEMs...are worried about having too much inventories if end-market demand comes in materially weaker than expectations this holiday season."

With Wall Street teetering and venture capital investment in high tech at its lowest point in more than a decade, few in the technology industry doubt there are scary days ahead.

The bad news is starting to pile up: eBay recently decided to lay off 1,000 workers, a long list of smaller Internet outfits have begun cutting jobs, and most industry watchers expect Yahoo to announce another round of layoffs when it discusses third-quarter earnings after the close of trading Tuesday.

Now here's the good news: whatever job cuts occur in the technology sector in the coming months, they're unlikely to be as deep or as lasting as the cuts that occurred during the dot-com bust, according to statistics from the U.S. Department of Labor and industry employment experts.

Call it learning from past mistakes: tech companies haven't experienced the hiring binge that occurred in the late 1990s, when a combination of Internet investment, repair work on older computer systems to deal with Y2K transition issues, and massive investment in telecommunications infrastructure teamed to create double-digit tech employment growth through much of the second half of that decade.

By comparison, the Web 2.0 boom during the past few years--led by companies such as Facebook--has been more like a "boomlet." While there are an estimated 5,000 Web 2.0 companies, many of them are tiny garage shops. There are no hard figures on how many people are employed in these little companies, but it's doubtful the total is equal to even a tenth of the 386,000-employee workforce at tech giant IBM.

Despite enthusiasm for social-networking sites and other new technologies, neither Silicon Valley nor other big tech hubs have seen a massive increase in hiring in the past few years. Even well-known Web 2.0 companies like Digg and Slide are relatively sleek little outfits that didn't need a lot of money or a lot of people to get off the ground.

"We never saw the big run-up in tech hiring in 2004 through 2008, so I don't anticipate a significant change," said Tom Silver, chief marketing officer for Dice Holdings, which operates a tech-specific online job placement site.

Certainly, there are exceptions to the rule. Google has gone from start-up to one of the most powerful companies in tech since the dot-com bust, and its workforce has grown with its influence. Google now has more than 20,000 employees, though most analysts expect Google to withstand all but the worst of economic conditions.

Most big tech companies have hewed to a slow-growth mantra, even as sales have climbed. Apple, for example, increased its workforce 100 percent between October 2003 and October 2007. That may sound like a lot, but in that time frame Apple opened about 100 retail stores, saw revenue increase 286 percent, and profit increase an astonishing 600 percent. (Apple is scheduled to announce its fourth-quarter earnings after the close of trading Tuesday.)

By comparison, in the late 1990s, tech executives were spending like drunken sailors. "We had the perfect storm. The combination of interest in the Internet, telecom, and Y2K all lead to a significant overheating in the technology labor market leading up to 2000," Silver said.

After the bust, it was one of the few times tech unemployment was higher than the national average. Tech unemployment for computer and mathematical occupations soared to 6.5 percent in March 2003, compared with the national average of 5.9 percent in that period, noted Silver.

Typically, tech-related unemployment runs about half the national average. Unemployment among those with computer and mathematical occupations ran at 2.6 percent last month, while the national unemployment average stood at 6.1 percent, according to the Labor Department's Bureau of Labor Statistics. There's no reason to expect that ratio to change in this downturn.

Could things get rough for tech workers? Absolutely, though few economists agree on how bad the economy will get in the coming months. There could be a recession that lasts a few quarters--or there could be the worst economic crisis since the Great Depression.

There are numerous troubling signs in the tech sector. An index that measures orders for companies that make equipment for semiconductor manufacturers such as Intel saw a significant drop last week. That could mean chip orders are down, which translates into an industrywide slowdown in sales of everything from servers and PCs to mobile phones.

At the other end of the tech spectrum, German software maker SAP, which sells multimillion-dollar packages to run everything from financial management to manufacturing at big companies, has already run into trouble thanks largely to the meltdown on Wall Street. Big companies like SAP are usually the last to feel the impact of a bad economy because buyers look to their automation software as a way to cut costs. This time, they're among the first.

Tech's bad news obviously reflects bad news in the overall economy, where consumer confidence is waning and Wall Street appears to have taken a wrecking ball to itself. But take away the dot-com bubble, and history indicates tech workers will fare better than their counterparts in other industries.

CNET News' Caroline McCarthy, Tom Krazit, and Jim Kerstetter contributed to this report.

Troubles at two major Wall Street securities firms Monday will have ripple effects that could stifle mergers and acquisitions in the technology industry and further dampen the market for initial public offerings.

Or so say financial pundits who are examining the potential fallout of Lehman Brothers' bankruptcy and the $50 billion sale of Merrill Lynch to Bank of America in order to avoid its own financial crisis. Venture capital and finance experts compared the news to the late 1990s when the Big Eight accounting firms shrunk to the Big Four. Consolidation and financial uncertainty at the nation's largest securities firms will close some doors to tech companies aiming to go public, slow the process for M&A deals, and generally add more worry lines to tech investing.

"There's just a lot more uncertainty around getting mergers and acquisitions done that are really the life blood of tech financing," said Colin Blaydon, director of the Tuck Private Equity and Entrepreneurship Center at Dartmouth University.

The changes on Wall Street caused the worst investor sell-off in seven years. On Monday, the Dow Jones industrial average dropped by more than 500 points (a 4.4 percent drop), its biggest decline since the terrorist attacks of September 11. The Nasdaq composite index fell by more than 80 points for a 3.6 percent decline.

2008 has already been a tumultuous year in the securities market because of ongoing effects from the mortgage credit crisis. But specific to the tech industry, investors say the market is being squeezed by fewer opportunities for exits from public offerings and buyout deals. Large tech companies are also taking a more cautious approach to M&A, and that's causing valuations to fall. Now, with fewer healthy investment banks, which handle about three quarters of the country's venture-backed exits, it will be harder to ink a deal.

"An oligopoly is not the best thing for the American capital system. When you have so few investment firms out there, it makes it difficult to get a deal at the end of the day," said Mark Heesen, president of the trade group National Venture Capital Association.

Heeson said he's particularly concerned about the likelihood of fewer quality acquisitions. In the last eight years of acquisitions, he said, there have been about 350 acquisitions every year. (Right after the tech bubble, those numbers held up mostly because of fire sales.) But now, those figures are dropping. In 2007, the NVCA reported 355 venture-backed mergers and acquisitions. In the first half of this year, however, it has counted 120.

"Cisco, Intel, let's say they bought 15 companies last year. This year, they may only buy eight. That's impacted by the stock market because they have less money to invest," Heeson said. "When a VC invests in a tech the ultimate goal is for that company to go public or get acquired. What happened today in a very unsettled market is it will now be even harder to go public than it has been. That will affect small tech companies for at least the next six months."

Early stage venture deals shouldn't be altered by Monday's events, however. There are still a lot of growth-industry investors with a large amount of capital, and they will find it appealing to invest in smaller companies because valuations will be lower.

Early stage investing also doesn't typically require investment banking or M&A support. But for later-stage financing or mid-cap buyouts, when deals get more complicated, that's when tech M&A bankers show up. With deals that require multiple bankers, all parties involved will likely exercise more caution.

"M&A transactions take a period of time to get done, and if anyone at all is concerned about the financial strength of any of the parties, those transactions will be harder to get done," Blaydon said. In the last three weeks, Lehman Brothers was pushed out of several transactions it was selected to be a part of, for example.

Short term, venture experts don't expect much fallout to venture investing, which typically hits between $7 billion and $8 billion each quarter. Despite the IPO market, investment dollars have held steady. But analysts say that over time, as these companies can't go public or get acquired, early stage companies could suffer because venture firms must put extra dollars into late stage companies.

The U.S. is already in the midst of an IPO crisis, and Monday's events added to the problem. According to the NVCA, only six venture-backed companies have gone public so far this year; and for the first time in 30 years, no VC-funded company went public in the second quarter. In a good year, about 100 venture funded companies go public.

"What would have happened if Dell or Google or Amazon or eBay didn't go public? Think of all the jobs that would have been lost. From an economic standpoint, we'd like to see many more IPOs and fewer acquisitions," said Emily Mendell, vice president of strategic affairs at the NVCA.

As a result, the NVCA wants to encourage the growth of small boutique firms like Jeffries or Piper to help save the tech IPO. The trade group is meeting this fall with industry leaders to discuss options.

Geoff Yang, a partner at venture firm Redpoint Ventures, said problems at the investment banks will affect capital markets and investor confidence. He said he's already seen some buyers put buyout deals on hold because their company stock prices are down, causing some of the more capital-intensive deals to seize up.

"For a lot of these Internet businesses that don't take much capital, they're less affected," said Yang. "But for anything that is capital-hungry like the energy market, they're definitely going to feel the effect. For those companies to succeed, we need a vibrant capital market."