With speculation growing that the "new economy" is facing its first recession, major technology companies in Silicon Valley are cutting costs and in some cases laying off staff. The latest to be hit is Intel, the world's number one chipmaker, with a major overseas operation at Leixlip, Co Kildare, which announced yesterday it would cut expenses by "several hundred million dollars" this year. VA Linux Systems, the once high-flying Linux company, reported a bigger-than-expected loss for its second quarter on Tuesday and said it would lay off a quarter of its workforce. Like other Silicon Valley suppliers it has been hit by the demise of many of its dot.com customers. Intel's chief executive, Mr Craig Barrett, said the firm would try to avoid lay-offs. Instead it would limit hiring and reduce the workforce through attrition. The Santa Clara-based company will also cut discretionary spending, including travel and overtime, by 30 per cent this year. Raises due to senior managers in April will be deferred to October.
Regular employees will get half their raises in April with the remainder coming in October. Intel employs 3,200 people in Leixlip, where an additional 1,200 are on long-term contracts. It has delayed a planned $2 billion (€2.2 billion) expansion at the plant there for at least six months because it wants to refocus the factory's output on state-of-the-art 300mm silicon wafers rather than 200mm. It has promised a further 1,000 jobs as part of this development, which will bring cumulative investment in Ireland to $4.5 billion. Intel will try "to continue to save expenses while not jeopardising long-term programmes", said spokesman Mr Chuck Molloy. "We are continuing $7.5 billion in capital spending, we are not cutting that."
Computer and communications-equipment makers are cutting chip orders to reduce excess inventory, hurting earnings at chip-makers like Intel and Xilinx, which last week announced a major expansion into Ireland, creating 500 jobs.
Intel shares are among technology stocks badly hit on the Nasdaq index. They have lost 40 per cent of their value in the past 12 months. In January, Intel said first-quarter sales would fall about 15 per cent from the previous period's $8.7 billion. It also reduced sales forecasts during the third and fourth quarters of last year. Between now and June, stock analysts believe the tech companies will experience their first so-called "profit recession" in 10 years, meaning their profits will shrink for two straight quarters, according to yesterday's San Jose Mercury News. First Call, a data research firm, said that for the first quarter, profits for tech companies could fall 18 per cent. "Things are getting softer, not stronger," said Mr Jonathan Joseph, a semiconductor analyst at Solomon Smith Barney. Other technology companies to cut costs include Applied Materials, the biggest maker of chip-manufacturing tools, which last week said it would cut some executive salaries by 10 per cent, defer merit-based salary increases, eliminate some temporary workers and halt production five times this quarter. Dell Computer, the leading US personal-computer maker, last week fired 1,700 people, or 4 per cent of its workforce. Motorola has plans to cut 4,000 jobs in its semiconductor division, or 12 per cent of the unit's staff. "The earnings picture for technology is miserable right now - and it's getting worse, not better," said Mr Guy Truicko, portfolio manager at Unity Management, which oversees $1 billion. "Investors are just fleeing the sector. There's not a lot of good news out there and a lot of these tech stocks still have high multiples and have to come down." Computer networking giant Cisco Systems, the Nasdaq's most heavily traded stock, fell to its lowest level in nearly 21 months. Cisco's chief executive, Mr John T. Chambers, said on Saturday in an interview with a Swedish business daily newspaper that much of the US economy was in a recession that threatened to spread across the globe.
