IT Sector: 25% Job Cut Fear Looms

Techtree.com, Rahul Srinivas, Oct 31, 2008

Tough times ahead?

According to a recent PC World Business Center report, the US economy is heading towards a recession, taking with it - a normally resilient tech sector. Recent financial reports from leading companies paint a gloomy picture and that does give us an inkling of the sordid times that are yet to come. Almost all major players in the tech industry have been hit - and if this phenomenon continues unabated for the next quarter, the US will find itself officially in recession. A major reason for the tech industries' current state of affairs is attributed to the drastic slowdown in consumer spending -- which has hit them badly.

To cite an example, STMicroelectronics, Europe's largest chip maker has reported losses of US$289 million. Compare this with the figures for the previous year where it had made a cool $187 million profit. Sales of memory related products plunged by a staggering 38 percent. At the same time, semi-conductor sales grew only by a marginal 1.6 percent last month.

In this gloomy scenario, the Associated Chambers of Commerce and Industry (Assocham) has a word of caution for us mortals in India. Post Diwali festivities, Assocham thinks that companies from India Inc tech sector are all set to lay-off at-least 25% of its workforce. "Much more serious and alarming situation is emerging post-Diwali, under which corporate India is likely to announce lay-off of nearly 25 percent workforce in next 10 days in seven key industrial segments," says Assocham in a press release.

The report has listed as many as seven sectors, which are likely to be affected worse. These include ITES, steel, cement, financial services, aviation, real estate, and so on. According to Assocham president Sajjan Jindal, the layoffs had started prior to Diwali - but were held back owing to the festive season. Now that the celebrations are over, the corporate restructuring is expected to continue. Jindal says, "The assessment suggests that negative sentiments in the seven sectors could be turned into opportunity, provided the Reserve Bank of India (RBI) discontinues its tight monetary policy and decreases the interest rates by at least three percent."

Cost cutting methods employed by companies include the denial of bonus and incentives, curtailment of benefits for people holding middle and senior management posts. The final nail on the coffin happens to be the lay offs.

Tough times ahead? You bet!