PC-makers first Irish casualties of US decline

The closure and job losses at Gateway have proven the old adage true: if the US economy sneezes, the world catches cold.

The closure and job losses at Gateway have proven the old adage true: if the US economy sneezes, the world catches cold.

Given that much of the US economy is powered by the high-voltage technology industry - the sector at the heart of the downturn - one could predict it was only a matter of months before we began to feel the transatlantic pain.

And that is what is happening. In the upward-bound economy of the past few years, analysts estimated that developments in the US technology market reached Europe six to 12 months later. So it goes too, as things slide: the US seemed to experience the worst excesses of the tech-sector downturn in March or April, which means we're just beginning to get shaken.

The dotcoms in the US were early, and often easy, pickings. Given that many came into being due to the "irrational exuberance" of that market, which encouraged even the stingiest venture capitalists to shower money where none should have gone, the dotcoms were always going to fall first and fast.

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Now the walloping is hitting companies in every subtle striation of the technology industry, from the microchip giants to PC manufacturers to smart-card makers to consultancies.

PC manufacturers, the foot soldiers of the tech industry, are particularly battered. When companies sense a recession, computer upgrades top the list of unnecessary expenses. All PC makers are suffering. Gateway in particular has felt excruciating losses, exacerbated by a European market indifferent to its products. But while its closure is tragic for employees and a blow for the State, it was not unexpected.

Manufacturing jobs are the most vulnerable of all jobs here because they are the lowest skilled and most easily exported to cheaper economies.

That is why the Government has spent nearly two decades striving to lure knowledge-intensive jobs to the Republic. It has encouraged multinationals to diversify into research and development or other skills areas that anchor value here.

But in recent boom times, people perhaps forgot that computer manufacturers were always early victims of any economic downturn.

Digital pulled out when the economy was rough nearly 20 years ago. But in a move that underlines the new, more complex attractions of the State as a corporate base, it returned to flourish with high-value consultancy and research work. Now a part of Compaq, the former Digital remains one of the companies in Ireland that are reasonably well insulated against major job losses. When Compaq cut internationally, it cut jobs mainly in its PC division.

Apple, here too since the 1980s, used to be the company the media would wring its hands over at every economic glitch. Indeed, the death of Apple Cork was predicted so many times that it really is entitled to its own opera at this point.

But the reports of its death turned out to be exaggerated. As a computer manufacturer, Apple is indeed more vulnerable than, say, IBM or Oracle's Irish operations, which are broad-based and include CD manufacture, localisation, consultancy and development.

But unlike Gateway and Dell, Apple makes complex products that frequently change. Re-gearing a manufacturing line to incorporate changes is intensive and makes the skilled workforce more valuable and the operation costly to move.

By contrast, Dell and Gateway put a variety of standard parts into "boxes" - plastic computer shells - per customer order. This is easier to move elsewhere or outsource to cheap Asian labour. Thus, Dell could be a possible candidate for further job losses. Other companies could face potential cuts, too, if the economy continues its slump. Several large Web consultancies purchased by larger companies, such as Labyrinth and Web factory, may seem less attractive in the current climate. Infrastructure companies of all sorts are also on the front line as telecommunications carriers put the brakes on network build-out. For example Lucent's Bray operation makes cabling, and Tellabs in Drogheda makes switches.

One might expect further uncertainty and consolidation across once-booming sectors such as data warehousing. The State has nearly two dozen of these costly, state-of-the-art data centre facilities completed or still under construction. They do not employ enormous numbers, but as companies continue to hold back on their e-commerce plans, the centres will feel the pinch.

Then there are the many electronics companies here which make computer components: disk drives, integrated circuits, modems, graphics cards, rolled pins for computers, memory, cable harnesses.

There are dozens of these sub-suppliers, many small indigenous companies out in the regions, and many will be hit not just by Gateway's closure but by the general drop in demand for PCs.

And there are all the peripheral services supplied to Gateway: someone made their cardboard boxes, the CDs that come with each system, the printed manuals, the plastic cases. Shipment companies will lose a huge contract.

But again, it's important to place the situation in context. The State retains a strong economy with steady growth. The industry diversification encouraged by Governments for 20 years has produced a relatively firm base of knowledge-focused companies.

The Republic remains a hugely attractive place for doing business because of favourable taxes, good employees, location, Euro-membership, legislative support for business and a host of intangibles. Technology is the industry of choice, for now and the future. We're still facing into a storm, but the ship is well prepared to weather it.