Australia's ICT industry is panicking

Australia's ICT industry is panicking

Summary: The leaders of Australia's ICT industry are currently in a state of panic over the debatable prospect of an economic downturn in the sector and are going too far with cutting jobs.

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Renai LeMay

commentary Leaders of Australia's ICT industry are currently in a state of panic over the debatable prospect of an economic downturn in the sector and are going too far with cutting jobs.

At first the layoffs were coming in dribs and drabs, like the tip of an iceberg gradually breaking the surface of the chilled Atlantic Ocean. But over the last few tense weeks in the ZDNet.com.au bunker, our list of local job cuts has been growing almost daily. Yesterday it was Ericsson and Hutchison, with IBM cuts reported; the day before it was Alphawest.

The news is coming as it does in the wake of the unrelated collapse of large Australian-owned groups like Commander Communications and Optima, and the organic IT-related redundancies going on at other locals such as Telstra (as well as its Kaz IT services subsidiary), Engin and the National Australia Bank.

If these misfortunes were the extent of the damage, IT workers probably could have heaved a sigh of relief and gone back to nonchalantly sipping their lattes while sledging whatever giant dominates their particular niche (Telstra, IBM, Microsoft, Oracle — take your pick).

But with the bulk of the iceberg beneath the surface, there is clearly more to come.

The overwhelming majority of the ICT companies in the Australian marketplace that we have talked to over the past month (with a few exceptions like Uecomm and Unisys) have either confirmed that they are cutting staff or have refused to talk openly about the situation at all. And you know what that is likely to mean.

The problem is that there is little evidence to suggest that there is any real need for such an unprecedented pullback. In short, it is a massive precautionary measure designed to weather any storm; regardless of whether any bad weather conditions will even arrive.

One of the best summaries of this ludicrous situation was delivered by ASG CEO Geoff Lewis (PDF) at the IT services company's recent AGM. ASG, like many of its listed rivals on the Australian Stock Exchange, has suffered a massive blow to its share price over the past year. And Lewis was quite clear on the reason behind that.

"None of this has anything to do with the business performance of ASG, or that of its competitors, or the IT sector up to the present time," said Lewis. "It has a lot to do with the nerves of investment managers as well as the state of their portfolios and the attitudes of their investors."

It is those nerves that have spread to the CEOs and managing directors of Australia's ICT companies; and they are not standing firm in the face of imagined adversity.

In fact, Lewis pointed out, ASG had increased its revenues by more than 46 per cent in the year ended 30 June, 2008, with net profit after tax growing 28 per cent. It's a similar story at other Australian IT services firms (for example, UXC, SMS Management and Technology and Oakton). The local divisions of international giants (such as IBM) have also broadly increased their revenues over the past several years.

Lewis admitted that the full impact of the global financial crisis was yet to be felt in Australia.

The problem is that there is little evidence to suggest that there is any real need for such an unprecedented pullback.

However it is also unclear just whether that impact will hit the local ICT industry much at all. There's just too much going on, and recruitment firms continue to emphasise that we are still in a skills crunch.

For starters, most of Australia's major banks have committed hundreds of millions, approaching billions in some cases, of dollars in IT spending over the next few years to rejuvenate their core banking systems.

It's a similar case in state and federal governments, including not only mammoth institutions such as the Australian Taxation Office, but also health, education and transport departments around the nation. And other areas of the private sector (such as retail and resources) will also continue to outlay IT funds for major projects.

Then there's the telecommunications field; most of Australia's telcos are still growing, especially in the mobile field and broadband fields, and Kevin Rudd's $4.7 billion broadband network (which could blow out to as much as $25 billion with private sector investment) is expected to generate a massive amount of development effort for vendors like Ericsson and telcos alike.

In-house IT departments will likely see some budget shrinkages, but IT is so crucial to most businesses these days, they are unlikely to be substantial.

With this in mind, let me pass on a couple of pieces of advice for those laying off staff. Firstly, there is significant evidence that downsizing isn't a great quick fix to your company's woes. In the long term, it may be better to keep those extra workers around and take a few hits.

Perhaps more importantly, don't be too quick to ditch workers you may have to re-hire just a few months down the track.

They may not return. And word will get around about how they were treated.

Topics: IBM, Broadband, IT Employment, NBN, Telstra, Telcos, IT Priorities, Hewlett-Packard, E-Commerce, Tech Industry

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24 comments
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  • IT layoffs are picking up all over the place

    The layoff train is just starting. I'm aware that plans for massive layoffs are being finalised now and that the new year will see many thousands of IT workers tossed out of work all over the country but particularly in Sydney and Melbourne.
    2009 is going to be an awful year for IT (un)employment.
    anonymous
  • IT layoffs are picking up all over the place

    Has zdnet.com.au seen the balance sheets of any of the organisations mentioned? Are you privvy to their pipeline forecasts?
    Without that data, this story is pure speculation
    anonymous
  • Balance sheets

    hi there,

    I have seen a lot of balance sheets in my time! The ASX-listed firms are required to disclose everything. I have seen broad overviews of a lot of the rest of the companies' financial documents, which they are required to file with the Australian Securities and Investments Commission.

    But I guess in a broader sense .... IT normally deals with long-term contracts. Everything doesn't just fall in a heap in a month, or even 3,4 or 6 months.

    Cheers,

    Renai LeMay
    anonymous
  • Don't act like fools!

    If this is true it is clearly an overreaction ...and yet another sign of the severe skill shortage -- among Australian managers!

    Even in Europe, that is hit much harder than Australia, there is still a strong demand in IT. Also, official Australian numbers show no sign that IT expenditure will decrease next year. Actually it's going in a different direction. This would simply be another evidence of Australian managers showing a complete inability to think long term.

    Before the credit crunch, there was an absolute shortage of skilled IT professionals that held back economic growth. The nation has worked hard (with the help of heavy government intervention and legislation) to attract foreign professionals and build up a critical mass of IT knowledge and competence. If we are not educated about this, we risk losing that competence pool to just in time for the next upturn of the economy only to sit there with our pants down -- again with the world's weakest IT workforce!

    It takes time to "grow" a generation of skilled professionals -- in IT or other areas. Don't make this easy mistake because you don't know better.
    anonymous
  • U.S.A. catches a cold we catch pneumonia.

    Renai it is good to be an optimist but much better to be a realist. Anybody who has followed the financial disasters that are happening around the world know that the chill wind is coming.

    Australia has not felt it yet but after Christmas things will be different. The forecast of 200,000 out of work might not be that far off the mark. Anybody who has a job had better hang on tight.

    Doubters should read the financial news reports to understand that people will be tightening the purse strings after Santa has paid us a visit. My hope is that the Kevin Rudd spend-up isn't wasted.
    anonymous
  • Exactly correct

    hi

    I definitely have to agree with this. Suddenly our large Aussie IT services company is firing everyone who is not on a project. This is even while there are
    major long term contracts coming in, which we cannot meet because we have fired our skilled resources. I think Aussie ICT managers have no idea of how to manage a company
    anonymous
  • Crazy

    I'm sorry to hear that Arthur -- hope things are OK with you guys. It certainly is a crazy time.

    Cheers,

    Renai
    anonymous
  • Negativity

    It's widespread negativity that is fuelling this 'financial crisis'. Will done for doing your own little part to contribute to that negativity. Idiot.

    No-one knows how things will pan out over the coming year. Anyone who thinks they do is full of it.

    I am a beleiver in positive thinking and if more of us did that, the place would be better for it.
    anonymous
  • Panic v's Protective Messures

    Great article Renee. I am seeing contractors get laid off as the low hanging fruit right now. This is currently for no good reason other than if the all deals on the table get pulled (most likely delayed) then IT companies are not left holding the bag. The risk of holding onto people is greater than additional cost of having to re-hire people when everything is confirmed. My guess is that when those IT contract people are deperate for work they will be re-hired at a lower rate than what they get now so the additional cost may in fact be a saving in long run.

    Let's not forget the senior manager bonus factor and what really motivates decision making in times like these. :-)
    anonymous
  • Panic v's Protective Messures

    Sorry Renai. Slip of the finger.
    anonymous
  • Protective measures

    Great comment! This sums the situation up very nicely.

    Renai
    anonymous
  • Great comment

    Great comment ... we're still hearing from recruiters that there is an ICT skills shortage out there. Obviously not everyone who loses their job is going to find a new one quickly ... but I think the retrenchments going on are short-sighted. We need to keep this industry growing, not cut it back!
    anonymous
  • Protective vs suicide

    I completely disagree. DCannon - You missed my point in "being educated about this".

    Skilled professional folks are extremely mobile -- both geographically and in terms of career changes. Ironically, you unintentionally depicted my suggestion that Aussie managers have difficulties to view things long term:

    IT is a skilled profession and you get what you pay for. And what you don't pay for - you would be best off without. This is not an area where you want to save. I'd say the risk (and cost) of lowering the quality of your IT operation is far larger than holding on to people when even the most pessimistic economic forecast is still showing an expected growth (yet, small but still). Besides -- you can always lay people off when (if) things turn out really bad. Now is not the time! As has been clearly shown the last 4-6 years, you don't just go out and pick up IT talent from the streets whenever you need them. Really - is it that hard to learn even from RECENT history?

    This downturn is lightly to have a limited effect on Australia and will eventually be over. Just as it emerged fast it may disappear fast. Building up an industry takes far longer and not thinking a head may well turn into a disappointment when things start to pick up.

    A far bigger threat is the aging population, low application rates to higher education and quality problems in higher education. The later is evident in the panic actions shown by some Australian manager when things are getting a little bit shaky. It's like they read about business management in a book -- but didn't quite understand what they were reading. Managing a business from what looks obvious in a simplified spreadsheet ("doooh, if we lay of this and that many of our most crucial resources -- we'll save a fortune just like that") is not exactly what I would call business excellence. Back to school!
    anonymous
  • IT layoffs at Oakton

    I am currently with Oakton, and over the last few months the redundancies have been taking place continuously. First it was two here and three there, and now an entire team.
    Initially people were getting packages, but this may not be the case any more.
    Merry Christmas.
    anonymous
  • More Stupidity

    There is also a factor of removing or scaling back the sales teams, forgetting the fact that the sales teams are the ones out there beating down doors for the projects and work that will execute. Sack or shrink the sales teams sends messages to customers of a company in trouble, therefore the work goes elsewhere and the engineering teams get laid off next.

    All very knee jerk for many of these companies
    anonymous
  • IT layoffs at Oakton

    wait until next year to see just what panic sets in. anyone not on billable work is a target. So how many of the exec are being retrenched?
    anonymous
  • Investigating

    hi there,

    anyone who has any info about what's happening at Oakton, could you please drop me a line at renai.lemay@zdnet.com.au? We're looking into this at the moment. Don't worry, it'll be a completely confidential discussion.

    Alternatively I'm on 02 8514 9907.

    Cheers,

    Renai
    News Editor
    ZDNet.com.au
    anonymous
  • Protective vs Suicide

    Anonymous (or should I call you Jerry Maguire?) - I agree with you and I didn't miss your initial point. I was merely providing commentary around the existing situation. Whether it be right or wrong, this is how management is reacting. Your views are long term and in a perfect world scenario with mangement understanding the macro picture of loosing good (sorry, great) talent to other countries, etc. My point is that management do not make decisions based on these things. They make decisions on how they are financially motivated / compensated on an annual basis!! You may be right, but are you real?
    anonymous
  • Oakton

    There are rumors that Oakton are short on cash reserves and that the venture into Canberra has been frustrated by self interest from the old Acumen partners.
    anonymous
  • Don't act like fools

    Bravo Renai on a great article and so to to this fine fellow on how short sighted management is here in Australia.

    It's merely a knee jerk reaction and a follow the leader mentality, without any regard for negative ripple effect it has among Australian families.
    anonymous