• The Economist , Friday, January 16, 2009 11:30 AM

The news from technology bellwethers like Microsoft, IBM, Motorola and Intel has been awful of late. According to several blogs, Microsoft and IBM are preparing to get rid of 16,000 employees each, or 17% and 4% of their workforces each. This may or may not be true, but The Economist says the news is telling nonetheless, as the cuts would be the biggest in information technology history. Meanwhile, Motorola earlier this week said it was cutting 4,000 jobs, and Intel on Thursday reported that fourth quarter profit absolutely fell off a cliff, plummeting 90%.

These are the signs of the industry's current plight, The Economist says, adding: "Hardly a day passes without reports of collapsing revenues and workers being laid off." So, is the tech industry headed for a worse downturn than the one that followed the dotcom crash?

No. As bad as the news has been recently, tech spending in America went from 16% growth in 2000, only to be followed by a 6% decline the following year. "The IT industry simply imploded," says Matt Asay, an industry veteran and executive of Alfresco, an open-source software firm. "It felt like the sector's reason for being had disappeared." This year, Andrew Bartels of Forrester expects tech purchases, when counted in dollars, will decrease about 3%. The strong dollar is expected to weigh heavily on foreign revenues, but generally, IT departments at big firms are far less prone to wasting money. That's not to say venture capitalists haven't again wasted too much money on Internet startups (they have), but in general, the industry's big companies "are better managed and have more cash on hand" this time, and should be poised for quick turnaround once the economy recovers in 2010 or later.

Read the whole story at The Economist »