Tech sector job cuts could signal end-user gains

Technology suppliers are slashing thousand of jobs around the globe as they go into economic survival mode. Chinese computer maker Lenovo started 2009...

Technology suppliers are slashing thousand of jobs around the globe as they go into economic survival mode.

Chinese computer maker Lenovo started 2009 by announcing plans to cut 2,500 jobs or 11% of its workforce to help it through the economic downturn.

Lenovo's job cuts come after similar moves recently by Yahoo and Dell, with more redundancies expected across the sector in coming months.

Even technology giants such asIBM and Microsoft are rumoured to be considering thousands of job cuts in the near future.

Although equally affected by the credit crunch, technology end-users are likely to benefit from increased economic pressure on suppliers.

"In this tough market, any supplier worth its salt will be focused on delivering increased value to customers," says David Roberts, chief executive, The Corporate IT Forum.

However, Roberts does not see the job cuts resulting in any significant reduction in the quantity or range of services.

IT industry analyst Richard Holway says service is a key differentiator in bad times and is also unlikely to be affected by job cuts.

"I doubt service levels will suffer, unless the company goes broke, and even then they tend to get taken over," he says.

Increased pressure on technology suppliers will also put end-users in the driving seat in contract negotiations.

Suppliers are likely to be far more flexible and end-users should take advantage of this to open conversations on how to reduce unnecessary costs, says Gartner analyst John Mahoney.

Past economic downturns have shown that suppliers are willing to make changes to existing contracts for mutual benefit in tougher times.

"Many organisations have signed up to SLAs they may not need and should now be able to discuss lower SLAs for reduced cost," he says.

The job cuts are likely to continue, say recruiters, as technology suppliers and most other companies seek to reduce operational costs.

As end-users delay and downscale IT projects, suppliers will act quickly to cut out costs as much as possible, says Michael Bennett, director of Rethink Recruitment.

IT budgets will be under close scrutiny and technology companies may come under increasing pressure to consider jobs cuts as a cost control measure, says Stephanie Elliott, managing director of recruitment firmVolt Europe.

"As a result, we are likely to see more IT professionals in the employment market particularly from larger, well-known companies," she says.

Some technology suppliers are likely to be worse hit than others, says Holway. The biggest losers will be suppliers of hardware and application software, particularly those relying on new business.

Systems software suppliers will also be badly hit. "I suspect Microsoft will be amongst the worst hit as users move to cheaper Netbooks where Microsoft makes little money," he says.

Software suppliers that will weather the economic storm better than others are those that have big support bases of existing customers.

Business process outsourcing suppliers will also fare relatively better as end-users turn to suppliers such as EDS, Capita and CSC to reduce costs.

Demand for specialist staff contract staff such as network designers and programme managers is also likely to remain high.

As end-users move to cost saving strategies with technologies such as virtualisation and cloud computing, the demand for niche skills in these areas will increase, says Elliott.

It is a bad time to be a supplier who relies on product sales in the economic conditions and there are likely to be major shifts as there were in the last recession, says Holway.

New leaders will emerge. Old leaders will wither and even die. It will be an exciting time for the survivors, he says.

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