Republic weathering high-tech storm but forecasts are gloomy

More job cuts and company closures are likely in the domestic technology sector, but the Republic is weathering the storm better than most, according to technology analysts and IDA Ireland.

Government figures suggest almost 4,000 people have been made redundant since the beginning of the year, with about 1,200 of the job losses occurring within IDA Ireland's technology portfolio.

This is a much better record than in the US, where thousands of job losses have been announced, and in the UK, where this week alone 3,000 jobs were lost as Motorola shut a plant in Scotland.

According to Mr David Hanna, divisional manager of the IDA's information and communications technology division, the IDA is not aware of any technology company planning major redundancies.

Apart from the 750 job losses at Motorola's plant in Swords, the level of job losses has been at a relatively small scale among the multinational sector, he says.

"If there was a massive downturn in the US then we would be affected," says Mr Hanna. "But even now people [in the Republic] are getting employment pretty quickly after losing their job."

However, he admits that the present downturn is different from those that occurred in the past few decades.

"This one is different because it is happening so quickly. Analysts were still predicting strong growth in December. Eight months ago companies just could not supply demand in the industry," he says.

The IDA is not that worried about the risk of losing established technology investments in the Republic. Instead it is more concerned that future projects will be put on hold and job creation in the sector will slow.

No major technology investments are expected this year and there has been a "noticeable" slowdown in job creation, according to Mr Hanna.

Despite this, the IDA is still sticking to its job creation target of 12,000 for the year, although this will most likely be dominated by major pharmaceutical and biotechnology investments.

Microsoft, which employs almost 2,000 in Dublin, is one of the few technology firms that has avoided the worst effects of the downturn. But even though the "software gorilla" has yet to issue a profit warning, it is aiming to reduce costs.

"We are focusing on our global operational costs but we aren't cutting investment which drives growth, such as research and development," says Mr Joe Macri, country manager for Microsoft Ireland.

Instead of flying all its country managers and top executives to a fiscal planning meeting this week at its headquarters in the US, Microsoft hosted its first "virtual meeting" using technology to cut costs.

"I emphasise that we have absolutely no plans to cut our employment in Ireland and are still recruiting and investing," says Mr Macri.

"Microsoft's Irish operations serve the European market, not the US market and we remain conservatively optimistic about demand in Europe, while we remain cautious about US growth," he says.

This pattern has been repeated at several major high-tech firms that have announced massive global cost-cutting plans but have so far not reduced the headcount significantly at their Irish operations.

Despite announcing thousands of job cuts in the UK and Sweden, Ericsson's 2,500-strong workforce in the Republic has remained unscathed. Computer and server manufacturers Dell and Compaq, which employ almost 8,000 people, have also escaped massive job cuts.

"Ireland has avoided the worst of the job losses so far because the multinationals here typically support the European, Middle Eastern and African regions," according to Mr Thomas Jones, director of Davy Stockbroker's technology team.

"Growth in these regions is slowing less than in the US, and results from Dell and other corporates would show growth is double the rate of that in the United States."

However, he warns that technology spending is often led by business sentiment. "If there was a sustained downturn in the US and spending by US companies dried up there would have to be an impact here."

The most dramatic example of how the economic slowdown in the US has impacted on the Republic has been in the "home-grown" technology sector, which seeks to export its products to the US market.

A slew of closures and rationalisations have dominated the headlines since last autumn, knocking some of the shine off the Republic's reputation as a "technology hot spot".

Ebeon, Nua, Rondomondo, Viasec, Formus Broadband, Oniva and Breakaway Solutions (formerly Zartis) have closed or are ceasing operations with the loss of hundreds of jobs.

"Companies without real business plans are falling by the sidelines at the moment," says Mr Damien Callaghan, head of Intel Capital Ireland, which provides venture capital funding for high-tech firms.

The dramatic stock market correction last year and the general economic downturn has hit the funding markets and made it more difficult for technology firms to raise money, he says.

Last week, managed services firm Trinity Technology went into receivership when it failed to find an extra £800,000 (€1 million) to keep it afloat.

Primed to float late last year, Dublin-based Norkom Technologies recently announced it would cut almost one-third of its workforce, 60 people, as part of a "realignment of its business to reach profitability".

The downturn is also impacting on smaller technology start-ups, which typically employ up to 20 staff. About 120 people have been laid off at Enterprise Ireland-backed firms this year.

The tightening in the venture capital sector and the downturn in the technology markets are forcing more companies to turn to the State agency for support, an Enterprise Ireland spokesman said yesterday.

However, the prospects for small firms in the technology sector in the immediate future remain gloomy, according to Davy's Mr Jones.