Two stories in the realm of tech have caught my eye this spring and summer. The first came when Intel announced it was planning on cutting its workforce in the coming years by 11% or roughly 12,000 jobs. This past week CISCO released that it would be cutting its workforce by 7% or 5,500 jobs. A number of reasons have been given as to why these cuts are coming. Some point to signs of weakness in tech and others point to signs of tech’s further evolution. I tend to believe what we are seeing is more of a evolution of the tech sector rather than a sign of a fundamental weakness.
The nature of technology is ever shifting. Increasing bandwidth speeds and inexpensive memory have given birth to what we now know as ‘the cloud’. The could isn’t revolutionary in the sense that it is something new that has recently been developed. The idea encompassed by the term ‘the cloud’ has been around since the dawn of networking. During the tech boom of the late 90’s and early 00’s a number of cloud based services were being offered (most for free). While their scope was much more limited than current offerings, the same concept was employed and pushed. Limited scope and the tech bubble bursting delayed their development.
What cloud computing is doing is allowing for more centralized and more economies of scale in computing. It has and will continue to change the way tech companies think about staffing. This is particularly true on the back-end of system support and maintenance. Whether it be CISCO, Intel or some other company, the standard of necessary and unnecessary tech jobs is as fluid as technology itself. This raises many questions and concerns, not just for the future of technology, but for society in general.
For investors, it must be noted that both CISCO and Intel are both trading at prices that are near their historical tops. This is to say that in the market’s eyes both stocks are doing well. The section of the S&P 500 that is composed of tech stocks is also doing well. While the segment has not reached its 2000 era highs, it has far surpassed where it peaked in 2007. Tech has shown strength in the recent rally.
The rapid growth and development of the tech sector produces a climate in which large layoffs, bubbles and dramatic shifts in company focus will continue to happen. In the instance of CISCO and Intel’s layoffs, what might be seen on its face as an ominous sign, might actually be simply part of a growing process. A snake sheds it skin to grow larger. Some companies shed workers to ensure they remain viable into the future.