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The rapid deteriorations of Intel business — what does it mean to high tech companies and your job security

January 7th, 2009 · 2 Comments

Intel business deteriorates rapidly:

  • 10/12/2008: Intel projected revenue for Q4 was between $10.1 billion and $10.9 billion
  • 11/12/2008: Intel lowered their revenue projection for Q4 to $8.7 billion and $9.3 billion
  • 01/07/2000: Intel announced  announced preliminary fourth-quarter financial information with revenue of approximately $8.2 billion, down 20 percent sequentially and down 23 percent year over year. Revenue will be lower than the company’s previous expectation, provided on Nov. 12, 2008, as a result of further weakness in end demand and inventory reductions by its customers in the global PC supply chain.

Wow! When I published December edition of "Depress 2.0 Survival Guide for High Tech Professionals (December, 2008 Edition )", I wrote

  • High tech job market will get much worse before it gets better. As both domestic and international economy continues to contract in the next 6-12 months, the demand for high tech products and services will also decrease. It’d be interesting to see what kind of Q4 earning reports will come out of large companies such as IBM, Cisco, HP, etc. Additionally, high tech companies such as Apple rely heavily on consumer discretionary spending. As consumers continue to tighten up their belts, consumer electronic companies will suffer. All of these will result in hiring freeze, and/or layoffs. 
  • As investment banks, commercial banks, insurance companies and other financial institutions take huge financial losses, they’re cutting employees and capital expenditures. Large companies in other sectors (e.g. Auto, Manufacturing, Construction, etc.) are also making significant capital expenditure cut. The capital expenditure cuts have a 6 month to a year lead time — i.e. in late Q1/early Q2 next year, high tech companies will start feeling more pains as some of their largest customers spend significantly less on network equipments, enterprise software, and professional services.

Both are coming at us fast and furiously now. 🙂 But, Intel’s announcement is particularly alarming:

  • Intel revised its earning estimates twice, and it still ended up missing their own estimates. This indicates that the business is deteriorating at such a rapid pace that Intel’s management couldn’t get a good grasp of how bad the situation was. Intel is not a badly run company; it had a solid management team in place. 
  • Intel’s explanations were "further weakness in end demand and inventory reductions by its customers in the global PC supply chain." Who are Intel’s primary customers? PC and consumer electronic manufacturers. This means
    • end consumers are buying significantly less
    • end enterprise customers are buying significantly less
    • in anticipation of the sharp drop in consumer and enterprise demand, PC and electronic manufacturers are ordering less, and keep less inventory
    • Intel gets hit hard
  • Intel’s product portfolio touches many aspects of high tech factors. This gloomy news indicates that there is a drastic decrease in consumer and enterprise spending, which means consumer technology, enterprise software, and other high sectors are also going to be hit hard in the next few months.

I don’t enjoy playing the role of "Dr. Doom", but all signs are pointing to a very severe economic downturn — in my opinion, we’re about to have a depression (or we might be already in a depression) — just wait for economist to tell us afterward. 🙂

If you work for the high tech industry, I think you should expect

  • very small or zero salary raise in 2009
  • massive layoffs that will be much worse than what we experienced in 2000-2002
  • there will be very few (and probably zero) high tech IPOs in 2009
  • a lot of start-ups will go out of business, or be acquired at very cheap price
  • for the start-ups who has a solid business model but needs funding, expect huge equity dilution in favor of investor
  • housing price will continue to drop in high tech centers such as the SF Bay Area and the Pacific Northwest
  • there is a good chance that we will see a deflation followed by a massive inflation. The increasing level of government debt is simply not sustainable.

To prepare for the "unthinkable", you should

  • make sure you and your family stay healthy
  • set up your own personal technology and business infrastructure — in case you get laid off, you should have the infrastructure to start a side consulting or entrepreneurial business to maintain some levels of income while looking for a job (I’ll have a separate post on this in a few days.)
  • conserve cash. Cash is the king at this difficult time. Make sure you’ll have enough cash to cover 6 to 12 months of your living expenses
  • continue to invest in your own education, training, professional development, and skill acquisition. No matter how difficult the economy is, if you have a differentiable skill set, you will be valued.
  • explore working internationally — although the world is flat and every economy will be affected, certain economies will fare better than the United States. 
  • take a contrarian approach, seek opportunities to profit from this down turn.
  • finally but not lastly, enjoy your time with your family — there is a silver lining about the current financial crisis — it will force us to re-examine what we’ve been doing, and re-focus us on what really matters — hopefully we can all put things into perspective.

Tags: Beat Recession

2 responses so far ↓

  • 1 Pete // Jan 7, 2009 at 9:51 pm

    I would say savings for 12 months of living expense would be the minimum. You’re right about cash being king, but not in dollars. I also agree about investing in intellectual capital. I would learn marketable foreign language.

  • 2 Casino 49658254c5 // Jan 8, 2009 at 2:58 am

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