Eight Tech Trends for 2006
By Spencer Ante
Of course, Davis wasn’t just seeking an advanced degree anywhere. He was accepted to the graduate program in the College of Engineering at the University of Illinois at Urbana-Champagne, one of the nation’s top engineering schools.
Last summer, Davis’ investment paid off. After getting his M.A. in computer science, Davis interviewed with 25 companies for various software engineering jobs. He ended up with offers from Lockheed Martin (LMT), Microstrategy (MSTR), and Altera (ALTR).
‘A GOOD PLACE.’ He accepted the one from Altera, a chipmaker in Silicon Valley, and began working last June out of its San Jose (Calif.) office. He’s already working on a high-profile project, helping to create software that manages the flow of electric signals on a new computer chip. "Engineering is a good place to be," says Davis, 25.
The tech job market has sprung back to life despite ongoing fears over outsourcing and the fallout from the tech recession. In 2005 some 125,000 tech jobs were created, according to Moody’s Economy.com. This year, predicts Mark Zandi, chief economist of Economy.com, the industry will have its best year since 2000, creating 217,000 jobs with rising wages.
While the pace of hiring pales in comparison to the late 1990s, when the industry churned out more than 300,000 jobs a year, the industry appears to be reaching a steady pace of creating an average of 150,000 jobs a year. Over the next five years, Zandi forecasts that tech will create 782,000 jobs, or 8.6% of the economy’s projected 9.1 million new jobs. "As the memory of the tech bust fades, we seem to be getting better and better job growth," says Zandi.
MORE TECHIES. Corporate America is spending money on technology again, so the hiring is relatively broad-based. Lehman Brothers economist Ethan S. Harris predicts that spending on business equipment and software will rise 10.9% this year, compared with 11.2% in 2005.
A series of shocks, including the terrorist attacks on September 11, the tech wreck, and the Iraq War, led companies to underinvest in capital and labor, argues Harris. "As a result, equipment investment in particular is very low relative to revenues, profits, and the easy financing environment," he says. "A gradual catch-up process is under way, and even if the overall economy slows modestly in the year ahead, capital spending will not slow."
Google (GOOG), Microsoft (MSFT), Accenture (ACN), Amazon (AMZN), Advanced Micro Devices (AMD), Altera (ALTR), Infosys (INFY), and Citrix Systems (CTXS) all say they plan to hire more techies in the U.S. in 2006. Many successful startups, such as OfficeTiger and NetSuite, continue to expand their workforces as well.
POCKETS OF WEAKNESS. High-level software engineers, management consultants, and computer scientists are hot, while low-level engineering jobs continue to be shipped overseas. "We’ve been hiring at a rate of 10 people per day" for the last year or so, says Lynn Fox, a Google spokesperson. "It hasn’t slowed." As of the third quarter in 2005, Google had 4,989 employees, up from 3,021 at the end of 2004. On its Web site, Google has openings for 707 U.S. jobs, as well as hundreds more overseas.
On the other hand, pockets of weakness remain. Consolidation continues to dampen job growth prospects of major sectors, such as telecommunications and enterprise software. Oracle (ORCL), the world’s No. 2 software maker, says that it does not plan to do much hiring, since it is in the process of acquiring Siebel Systems (SEBL). Adobe Systems (ADBE) is in the process of laying off about 700 people this year as it integrates its purchase of Macromedia.
Some economists say telecom may actually see job growth for the first time since 2001. There are signs the industry is bottoming out. Last year the telecom sector shed only 1,500 jobs, according to the Bureau of Labor Statistics (BLS). In November the industry added 2,000 jobs.
SLOWER PACE. The wireless industry continues to flourish, and broadband is a key source of growth for traditional phone companies. Still, Verizon (VZ) says it plans to lay off 7,000 people this year as part of its integration of MCI. And more layoffs are expected to come from the mega-merger of AT&T (T) and SBC (SBC).
The world’s No. 1 software company, however, is bucking that downward trend. This year, Microsoft plans to launch a major upgrade of its Windows operating system called Vista. Microsoft says it plans to add 1,600 to 2,000 jobs in the U.S., and 2,400 to 3,000 jobs overseas. Those numbers are roughly equivalent to how many the company hired last year. "We hire for a number of positions such as, but not limited to, software developers, software developers in test, and program managers," says a spokeswoman.
Management consulting continues to supply a stream of new jobs. Last year management and technical consulting added 34,000 jobs, the most of any category tracked by the BLS. This year that growth is expected to continue, though at a slightly slower pace. Consultant Accenture (ACN) expects to hire more than 5,500 people in the U.S., while adding 35,000 workers outside the U.S. Last year, Accenture hired about 7,600 in the U.S., and 35,000 outside the country.
SPAWNING FEARS. New pockets of job growth are popping up in unexpected places. For example, outsourcing companies are building their U.S staffs to serve customers and manage teams dispersed across the globe. Indian outsourcing giant Infosys (INFY) plans to hire 300 workers in the U.S. for its new consulting division by the summer of 2007, as well as 300 students from American universities for this year.
Meanwhile, business outsourcer OfficeTiger expects to add 50 to 75 people in the U.S. Still, the bulk of its hiring is overseas, as it plans to add 1,000 workers in India, Sri Lanka, and Europe.
Global competition from India, China, and elsewhere has spawned fears that tech wages won’t rise again. But wages are growing, even outstripping average salary growth in nonfarm industries.
Last year the average salary in high tech grew 5.1%, to $69,000, up from a 4.3% gain the previous year, according to Economy.com. In 2005, nonfarm wages increased 4.4%. This year, Zandi predicts, wages will rise in the mid- to high-single digits. "The market is just now to the point where employees are gaining some leverage with their employers," he says.
WORK FROM HOME. Another emerging trend is the increasing decentralization of the U.S. tech industry. Silicon Valley used to dominate the job scene, but that is less and less true, says Rajeev Dhawan, director of economic forecasting at Georgia State University’s College of Business. Even though the tech industry added 125,000 jobs last year, only 2,000 of those jobs came from the Valley.
The high price of Valley real estate and the increasing acceptance of telecommuting have driven many companies to set up offices in different parts of the country or to let more people work from home. Software provider Citrix Systems (CTXS), for example, plans to hire 120 to 200 workers to help staff its development centers in Florida, Washington, and Santa Barbara, Calif. Tech jobs "will get a little more dispersed," says Dhawan.
Yet Silicon Valley retains its allure as ground zero for the tech industry. One of the reasons that Altera’s new hire Davis chose to work for the chipmaker was so he could enjoy the golden sunshine of California’s Bay Area. As a former member of the Illinois cycling team, Davis does not miss the freezing cold temperatures that descend each winter on the nation’s heartland. "When your water bottle starts freezing, it gets a little old," he says. Now, Davis enjoys biking year-round in the warm weather. "I’m in heaven," he says.
Ante is a writer for BusinessWeek in New York
with BusinessWeek writers Rob Hof, Sarah Lacy, and Cliff Edwards in San Mateo, Calif., and Jay Greene in Redmond, Wash.
Edited by Beth Belton