Commentary: After the tech deluge--a survivor's guide

Columnist John Dickinson offers food for thought about how tech's big boys got into this mess and how--if they're smart--they can dig out.

It's a long way from where we were two years ago when the technology could do no wrong to where we are today when it can do no right.

The road has not been pretty. It's been all downhill and the twists and turns are littered with road kill made up of unemployed technology pro’s, useless stock options, dead Web sites, anorexic technology magazines, bankrupt dot-com companies, and more.

Many of us expected the dot-commers to meet their comeuppance sooner or later. After all, companies can't stay on the venture capital dole forever; sooner or later, even the most liberal backers want their investment back.

But I don't think we expected that the Intels, Ciscos, JDS Uniphases, Oracles, and other high tech giants of the industry would get so battered in the dot-com massacre. These are the companies that are the foundation of the technology industry fueling the growth in the US and world economies during the 90's. There was no obvious reason to think that the sins of the dot-com upstarts would bring the big boys down, never mind start an industry-wide recession.

If you dig just a bit deeper, however, it does begin to make sense because the dot-com boom wasn't limited to just the Internet industry. Marketing managers who guide the direction of our more basic industries--including autos, music, furniture, clothing and discount retailing--watched the swirling rush of bits traveling over an ever-widening highway of TCP/IP connections and decided the future was there--or at least, that the next generation of their competition would be there. Thus, they had better be there, too.

Charging into the abyss
So they pushed their companies into this brave new world, charging IT managers all over the business landscape to invest heavily in Internet technology. Not to be outdone, those same IT managers bought even more hardware, software, and telecommunications capacity, using that ages-old rule that if some is good, more is better. And of course the big guns of the technology industry ramped up manufacturing, research and development, and sales and marketing efforts to meet the new demand for hardware, software, and telecommunications and other services.

When the boom fell on the Internet industry, and dot-com companies began folding their tents, those same marketing and IT managers looked around them and realized their exciting future was suddenly devoid of opportunity or even challenge. Their new competition had folded--or was at least severely weakened--and the results generated with their own efforts rated, at best, as weak sisters compared to their brick-and-mortar siblings.

That made for tons of now useless servers, routers, switches, software and telecommunications contracts, and other Internet technology stacked like so much cordwood around their companies. IT managers would be able to make use of much of the equipment in good time as the growth of corporate technology marches on. But much of it started showing up on eBay and other auctions, both on-and offline, as IT managers tried to reduce their capital commitments.

And of course any outstanding orders for new equipment were summarily cancelled, leaving technology salesmen staring at their cell phones and Blackberry email pagers with bewildered looks on their faces. Manufacturing, development and marketing plans for the technology companies had to be hastily de-escalated; the impact has been felt in all corners of the industry.

What's it going to take?
Old line Silicon Valley companies have been the hardest hit. But they are also the most robust. Many have been in business since the early days of the space program. They have long track records that include bust as well as boom years, so they know how to survive. And they will survive--as will some of the stronger dot-commers which actually have real business models and real potential to generate real revenue and real profits.

But what's it going to take to make a strong recovery happen in technology? The wider economy, which is slumping but not as much as technology, is betting on sustained high levels of consumer spending to turn things around. That's not an option in the computer industry, and something that's worth a few words in this space on another day.

What is most obvious is that equipment inventories must be cleared, not just in technology providers' warehouses, but at corporate customer sites as well. No customer is about to commit to another round of technology purchases, not even to new desktop or laptop computers, until the need is clear and there is no more technology inventory to use.

Some people are saying that the worst is over, that inventory levels are about where they should be, and that purchasing may be set for a recovery next quarter. But a strong recovery may not happen for a while, maybe not for another six months or even a year. And even then, the technology industry would face the prospect of being just another business in the corporate world.

It just may be that the luster that the industry once had is now gone, and that technology will forever be subject to the same forces that drive every business in the world up--and down.

John Dickinson has worked in the computer industry for more than 30 years in positions ranging from systems analyst and software engineer to editor, writer, critic and industry analyst. His most recent engagement was at eMachines, where he managed the company's Internet and software business units.

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