Why today’s tech shock won’t be another Boeing Bust for Seattle

It’s the holidays, so time for family, mistletoe, festive lights and layoffs.

Sometimes the reasons for cutbacks are “just business” (e.g., most corporate budgets start anew in January, and they want to reposition investments for the new calendar year). Other times, cutbacks signify trouble, such as a recession.

So, what are we to make of the widespread layoffs in the tech sector?

For example, Intel just revealed plans to eliminate hundreds of jobs at its Silicon Valley heart. The semiconductor giant was preparing thousands of cuts companywide, according to a Bloomberg report in October. These are sure to reach into Intel’s stronghold in Portland.

The big reason: Personal computer sales in the third quarter experienced their steepest decline in more than 20 years.

In the local ho-ho-oh department, Microsoft announced 1,000 layoffs companywide, especially in its gaming division. And Amazon is cutting, too.

My colleague Lauren Rosenblatt reported last month that the company was reducing employment by up to 10,000 positions, including 3% of corporate workers in the United States. The direct effect on Amazon’s Seattle headquarters, where the company employs 55,000, isn’t yet clear.

CEO Andy Jassy informed employees that the staff reductions would continue into next year.

Amazon and Microsoft aren’t alone. The state reported that Washington’s information sector lost 5,500 jobs in October. The reduction comes after years of increased hiring.

Even with October’s losses, more than 171,000 Washingtonians work in the information field. At the peak of the dot-com bubble in 2001, the state registered nearly 102,000 information workers. By comparison, Arizona, which has nearly the same population as Washington, has only 50,000 information employees.

It’s tempting to say Elon Musk’s hubris-ridden $44 billion takeover of Twitter represented Peak Tech, with only trouble ahead. Tempting, but too simplistic.

Silicon Valley venture capitalist and businessman Roger McNamee argues that the invasion of Ukraine caught most corporations off guard, making them realize a new era was upon them.

“I believe it will be remembered as the trigger that ushered in a new economic era, with interest rates, inflation, geopolitical tensions, and instability at significantly higher levels than in the past decade,” he wrote on the Project Syndicate site. (Project Syndicate provides a wide range of opinion pieces by top experts.)

“For tech, a new economic environment presents both challenges and opportunities,” he wrote. “Many tech businesses will not recover. Crypto, Twitter, and Meta’s best days appear to be behind them. Other tech businesses, probably including Amazon and Apple, will recover, but perhaps more slowly than they would like.”

To this I’d add the “decoupling” of China and the United States disrupting Big Tech’s 10,000-mile supply chain. It affects everything from semiconductors to devices such as iPhones.

For example, in October the Biden administration instituted unprecedented restrictions on China’s access to advanced semiconductors.

“The new restrictions also attempt to settle a long-running debate within U.S. technology policy,” according to Matt Seehan, a fellow at the Carnegie Endowment for International Peace. “That debate centered on a perceived trade-off between two competing goals: damaging Chinese capabilities today and maintaining American leverage in the future.

“With the latest rules, the U.S. government is betting that it can so deeply undermine China’s semiconductor fabrication capabilities that it won’t matter how motivated or well-resourced China’s efforts are to create its own semiconductor industry — they simply won’t be able to catch up.”

China has its own troubles with its COVID-19 shutdowns. For example, Foxconn, Apple’s largest manufacturer, shut off its Zhengzhou plant and confined some 200,000 workers inside. The result: Apple said production would face “a significantly reduced capacity,” with customers facing long wait times for the latest iPhones.

Beijing’s “zero-COVID” policy brought on protests not seen since the days of Tiananmen Square (and its resulting massacre). As a consequence, the Communist Party has eased some restrictions. But they won’t be enough to help American tech companies.

Tech’s reset doesn’t guarantee a national recession (even though “Dr. Doom,” economist Nouriel Roubini, expects a nasty one). During President Ronald Reagan’s “morning in America,” the overall economy was recovering but individual sectors were still suffering. 

Now, one of those sectoral recessions is likely to hit the Seattle region. But it won’t be as severe as the Boeing Bust of 1969-71, when this was a metropolitan area heavily dependent on one company. Today’s Seattle economy is far more diverse.

According to the new State Technology and Science Index from the Milken Institute, Washington ranks No. 6, down one notch from the 2020 report. Washington is a Tier 1 state in tech and science, behind Massachusetts, California, Colorado, Maryland and Utah. Mississippi ranks last.

The index grades states on research and development, risk capital and entrepreneurial infrastructure, investment in human capital, tech employment and tech concentration, and dynamism.

All this means Seattle and Washington will come out the other side of a tech recession in a strong position.

But the next year and perhaps beyond will be a rough ride.