http://www.msnbc.msn.com/id/28425432/
Fallout begins after dismal holiday season
‘The downturn has been catastrophic,’ according to one retail analyst
A few years ago, when I was laid off from Intel, I wondered to myself where the end of outsourcing was, and how sound the long term wisdom behind the strategic management decision to outsource was.
Right now, the crash of the domestic automotive industry, largely due in part to their own hubris, and the collapse of the banking industry, based on high risk speculative investment and questionable mortgage loan practices, have the headlines. But I wonder…
My original thought at the time was that knowledge workers, before the collapse of the dot com bubble, were one of the fastest growing segments of new wealth in the United States. They were making a lot of money, and spending it lavishly on toys that they couldn’t previously afford. There were a few at the top buying *very* expensive toys, of course, but there was a huge mass below that buying DVDs, big screen TVs, new PCs, and lots of other expensive tech gear. It was this huge, sprawling IT economy – and tech and electronic giants were often one of the biggest beneficiaries of this new economy. But home sales, the food industry, and the automotive industry weren’t losing out in the deal, either.
Now, at the time, some of these same companies, consumed with greed and driven by a desire to appease stockholders and boards of directors looked for ways to grow their markets and increase their profits. At Intel, I often heard how the US market was saturated, and that the biggest growth markets were Europe to a certain extent, and Asia to a much larger extent. Intel’s motto of “Continuous Improvement” translates into “anything but rapid market growth is failure”, and Intel is irrationally driven to achieve that goal. At this time Intel stock had fallen after a split for one of the first times in the company’s history, and had stayed relatively flat for years after that split. They were desperate to re-reach their previous lows in the 30s/share, and had a clear desire to see the upper 50s again. I think that desire drove them to take bad counsel and make bad strategic decisions throughout this period, but perhaps none as short sighted as their decision to aggressively outsource.
At the time I questioned this. Certainly there are a lot of people in China and India and a growing commercial affluence there – but I wondered just how many of those billions of people would ever really be able to afford a few high end Intel PCs for gaming, several big screen TVs, and surround sound receivers to pump up the jams for all those new electronics.
The answer, to Intel, was to move operations to IIDC. Intel India Data Center. In India, they could afford a senior level NT engineer with top notch British education for a 3rd or less than a similar domestic worker. It goes without saying that the management profile of Intel in America has grown increasingly Indian due to H1B visa employees. This is because Intel claims “They cannot find enough domestic workers skilled in the sciences and math to fill their highly technical positions”. I’ve got news for you, but neither management nor Win32 system engineering require a scientific level understanding of EITHER science or math. I used to know an engineer there who called IT “grey collar” work – not quite white collar, not quite blue collar. Management, well we all know management requires even less skill in science or math than IT. So then why are so many relatively common jobs at Intel that do not require advanced degrees in science or math filled by Indians on H1B visas? Perhaps because Intel is being a little less than honest about why they prefer H1B visas.
In any case, off to India went a huge portion of the Intel Folsom Data Center jobs, never to return – with the seemingly inarguable position, “Intel has to do what is in Intel’s best interests and the best interests of the stockholders”.
But long-term, thought I at this time – what is the impact of laying off tens of thousands, hundreds of thousands, of your most likely domestic consumers; your domestic demographic who is most likely to buy your most bleeding edge technology. This seems like an especially short sighted plan when you see the tremendous “growth” potential of a target market that prefers to access Internet and online services by CELL PHONES or relatively low end PCs.
Have fun selling all those Netbooks to the relatively AFFLUENT Indians and Chinese, Intel. I don’t think it is going to pay off like you thought it would… and I wonder how many of them are going to prefer a nice iPhone to an Atom based Netbook, anyhow. This forecast of the unlimited growth in India and China may be as premature as Apple’s forecast of three Newton PDAs in the pocket of every man, woman and child in the world.
And in the meantime, I think the shrinking sales of high end domestic gaming rigs here in your home market is going to far offset any modest gains you see in Asia.
And 5 years ago, I predicted this. You’re not alone here, you’ve got a lot of bellwether company to console yourself with.
Make no doubt about it, Intel, and most of these other companies, consider themselves international corporations that are not necessarily tied to the domestic economy. They’re not that concerned with a crash of the domestic economy – in fact, such a thing might be good for them, in the long run, with over $11 billion dollars in reserves in their war chest. A rock bottom fire-sale on all kinds of things could benefit them greatly. But a global recession or depression might be a different story – and they may not have foreseen how the largest consumer market in the world crashing might have a ripple affect all the way to… oh, India and China, maybe.
Here is what I think. Short-sighted management made decisions based solely on what the profits on the books would be in a quarter, maybe a year down the road. They made decisions based on what those decisions would do to the share price in the same short-term view. They did this in the interest of maximizing their promotion potential, and their wage earning potential in the short term, without a long term strategy of even possibly being with the company more than a few short years down the road. They lied to themselves and convinced themselves that these decisions were made in the “best interests” of the company. I truly believe they honestly deluded themselves on this matter. They did this because they had no long term vision. They couldn’t see beyond maybe 3 years down the road at the most, even if they tried. And the corporate ladder is made up to reward this kind of behavior.
But ultimately, I think my forecast, at least in part, is coming into play now. We’re seeing the hangover of all this irresponsible, greed driven, consumer behavior, at all levels. Irresponsible consumers awash with new wealth and credit buying European sports cars and McMansions and Big Screen TVs and super-Swedish-massage reclining leather chairs, employed by by ruthless executive management willing to do anything to maximize short term profits and bring those shares up, all supported by banks and investors willing to shovel ever more money into higher and higher risk opportunities like a bad roulette player putting his money all over the board hoping that one or two numbers will hit big enough to cover his losses.
But Intel has another philosophy, “Do your core business”. Intel makes semiconductors. They’re a manufacturing company. They’re not a tech company, they’re not a PC company, they’re not a cell phone company, they’re not a music player company, and they’re not an electronics company. They’re religious about this mantra at Intel – and, true enough, every time they stray too far from their core business, it is a disaster and a failure. But there may be another philosophy hidden in there that they missed, “Keep your core customers”. Intel’s domestic workforce shrunk incredibly since 2003. But their overall workforce grew slightly during this time. I’m not a scientist and don’t have a degree in higher math, but I think I can work out the numbers on THAT one.
So as Intel sits and ponders this season’s dismal retail sales, especially in the electronics sector, and manages to dodge a lot of the direct focus by the media on the impact of this (because after all, they’re not a retail electronics company, they’re a manufacturer), I’m sure there is a spark of recognition going through their minds…
If the big domestic PC makers struggle, they’re going to place a lot less demand on the market for their supply chain. If this spreads globally, that could be a pretty significant impact for companies in The Manufacturing industries.
Hey, Intel, I’m not bitter, the severance package was nice – I made more that year than I would have if I had stayed with you, and I only really worked half the year. Best of luck, I hope I’m wrong. After all, I *am* a shareholder, too…
But if it happens, don’t say I didn’t tell you so. And, I think it is going to happen. I’m almost certain of it.
