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Science & Technology
DotCom Economy

Only time will tell how long the slide will continue

From Diana J. Choyce
May 21 - Jun 03, 2001

The meteoric rise of the DotCom economy of the last few years has finally hit the wall. Some say its just a shakeout and will turn around to stabilize. Some doomsayers predict the e-economy is in a death roll. Stocks that were worth millions last year are only worth pocket change now. Or even worse, have been delisted altogether from the Nasdaq. This past April saw an 84 per cent increase in US DotCom layoffs. Chicago-based Challenger, Gray and Christmas said that April dotcom layoffs in the US totalled a record 17,540, an 84 per cent increase over the March total of 9,533. Last year, there were only 327 dotcom layoffs in the month of April. April was 37 per cent higher than the 12,828 in layoffs in January. In the first four months of 2001, 51,564 dotcom cuts have been recorded, more than any other four-month period since the organization began tracking the layoffs in December, 1999. While the consultancy said that Internet technology companies led the April layoffs with 6,059, online financial services companies also saw a sharp increase in layoffs, from 302 in March to 2,341 in April. "We are seeing a telling shift in the types of companies that are announcing job cuts," said the consultancy's CEO John A. Challenger in a statement. Challenger attributed the increase to Internet troubles for companies that have both an online and an offline presence. "We now see more and more of these old economy-new economy hybrids cutting their online staffs," Challenger observed. "Companies that were hoping, if not expecting, to eventually shift the lion's share of their business to the Internet may be forced to consider entirely new strategies for both short term and long term. "DotCom companies are closing at an alarming rate.The number of Internet companies forced to close in April rose 20 per cent compared on March figures, bringing the total number of dot-com closures since January last year to 435. Internet tracking group Webmergers has reported that 55 e-commerce, online consulting and Internet access firms shut last month, in comparison to March when the figure was 44. The number of dot-com closures has been steadily increasing since the Internet bubble burst in April 2000, and almost half of the 435 closures since January 2000 have taken place this year. February 2001, when a total of 58 dot-coms went under, was the worst month for the sector.

The European net economy has also been pulled down into the dotcom deathslide. Siemens said it would cut 2,000 additional jobs at its fixed line telecoms networks business, bringing the total number of job cuts at its worldwide telecoms operations for the year so far to 8,100, or about two per cent of its 400,000 staff. Brokat AG, an ebusiness software specialist, said it would cut its 1,400-strong workforce and impose an overall hiring freeze to reduce costs, while multimedia agency Pixelpark said it would cut 20 per cent of its 1,000 employees. "I was expecting Siemens to be honest and I think it's quite possible there will be more cuts, that's quite clear,'' said Wolfgang Mueller, an official at the IG Metall union in Munich. Former Siemens joint venture Epcos AG, the world's second largest electronic components maker, said it was cutting hundreds of jobs from its operations in Germany and Austria as well as affecting thousands of sub-contractors positions in eastern Europe and Asia. Many of the job losses announced by the larger companies will occur outside Germany but the fresh cuts come in the wake of unemployment figures, which showed the number of people out of work in Germany rising for the fourth month in a row in April to 3.8 million.

Other supportive services that were riding the dotcom highs are also feeling the lows. Some landlords, based in San Francisco, charged more than $100 a square foot for office space to dotcom companies and demanded choice stock options from their technology company tenants. Today, many of those options are worthless and it's the landlords' turn to beg. Some desperate property owners are offering golf clubs, expensive tech gadgets and even luxury cars to brokers who can fill spaces vacated by technology companies. Commercial real estate vacancies in San Francisco more than doubled during the first quarter of 2001 compared to the previous quarter, with available space leaping from 3.7 million to 8.6 million square feet. Internet companies accounted for 77 per cent of the newly vacated space from October 2000 to February 2001, according to CoStar Group Inc., which provides information services to the commercial real estate industry. In addition, thousands of layed off workers are pounding the pavement looking for new jobs. Many are finding that their skills are ill-suited to offline companies. Others that rode the upper executive positions are finding it equally hard to find jobs that pay the same as what they were used to earning. Only time will tell how long the slide will continue. And whether it will stabilize before pushing the general economy into a similar spiral. Is e-commerce dead? Probably not, but when the frenzy is over, it may look very very different.