New tech start-ups can rise from the economy's ashes
SAN FRANCISCO -- It's boom — and bust — for Silicon Valley companies these days. Literally.
Facing their worst economic climate since the dot-com bust in the early 2000s, high-tech companies are treating 2009 with dread — but also with a tinge of optimism if they act smartly.
Already, a few established companies with ample cash reserves are bolstering war chests that will help them snap up innovative start-ups. Cisco Systems has $29.5 billion in cash reserves and last week sold $4 billion more in bonds. Despite 5,000 layoffs, Microsoft plans to do some strategic hiring to fill new jobs supporting Internet search. And that well could involve acquisitions to pick up talented workers.
Companies are looking to improve efficiencies with cutting-edge technology. Intel says it will spend $7 billion over the next two years to build advanced manufacturing facilities in the U.S. The plants would produce faster, smaller chips that consume less energy.
"If we want to see a return of American prosperity, we have no other choice than to invest in creating the future, not merely preserving the past," says Intel CEO Paul Otellini.
Still, as the recession wears on, tech analysts say consolidation is likely to remake some tech sectors. More layoffs could be on the way as companies alter strategies. Droves of start-ups, such as data-management provider Attune Systems, have pulled the plug on operations, while others have sold at fire-sale prices.
But from the ashes, dazzling new start-ups could arise. Previous recessions have coincided with the emergence of companies such as Cisco (during the 1987 crash) and Facebook and MySpace (shortly after the dot-com crash).
"A good forest fire cleans out the prairie," says renowned venture capitalist Steve Jurvetson. Start-ups unburdened by debt or history and cash-rich big companies "thrive on disruption," he says.
Cautionary times
The wrenching changes underscore an even faster-moving business cycle in tech and reflect the uncertainty of the months ahead. Cutbacks amid corrosive revenue at bellwethers Microsoft, Intel and Hewlett-Packard portend rocky times for the industry, regardless of the billions they have in cash reserves.
Reduced business-tech spending squeezed Cisco's quarterly financial results and threatens to drive down current quarterly revenue 15% to 20%. That has forced the networking company to cut discretionary spending by $1 billion this fiscal year and invest in growing areas such as home networking and home entertainment systems.
"It's comparable to the (dot-com bust in the early 2000s), but this climate affects all industries," says Cisco CFO Frank Calderoni. Cisco plans to de-emphasize some businesses that will result in restructuring costs, including 1,500 to 2,000 job cuts.
Related Stories
ABC News Live