Industry not shocked by Seagate close

The only real surprise arising from the loss of 1,400 jobs in Seagate's Clonmel plant is that anyone in authority could have been so unfamiliar with the general volatility of the technology sector that they did not see the prospect on the horizon.

In particular, problems in the disk-drive market have been widely reported in the technology press for months and Seagate had issued performance warnings both in the previous quarter and again, in the weeks prior to the Clonmel announcement.

And presumably the Industrial Development Authority and other relevant sections of Government follow the reports of industry analysts, who have been predicting slowdowns in a range of markets for some time.

Those trends will continue, says principal analyst, Mr Donald De Palma, of Massachusetts-based industry analysts, Forrester Research.

Across the technology industry, he says, demand for products is slowing while at the same time, every market segment is glutted with vendors.

"There's a limited capacity for any market to absorb an influx of new technologies," says Mr De Palma. "Margins are just being chipped right down to the bone."

According to the IDA's own figures, 30-40 per cent of Ireland's exports come from the electronics and software sector, with most of that output 70 per cent going to the European Union in general and Britain in particular.

The electronics industry contributes 10-15 per cent of Ireland's gross national product.

But as anyone who follows the stock market knows, technology can be a roller-coaster ride. Technology is a constantly-changing and developing field, where last year's stellar start-up company can be this year's bankruptcy.

Companies have to be nimble and aggressive to succeed. According to a recent article in the San Jose Mercury-News, more than a third of technology companies in Silicon Valley with initial public offerings in 1996 were ailing.

A third had done well, another third were stagnant and showed no movement, and that unfortunate final third had atrophied and its stock slipped to below its initial offering price.

Larger players do not necessarily have greater stability. Oracle, the database specialist and second largest software manufacturer worldwide (which employs more than 400 people in Ireland), has proven this spectacularly over the past two weeks.

After catastrophic quarterly results, Oracle stock slid 29 per cent and company chief executive, Mr Larry Ellison, lost $2.14 billion (£1.5 billion) of personal wealth as a result.

Because of narrowing margins and market uncertainties, large technology firms are looking for ways of cutting costs, with manufacturing divisions a frequent target. Often, as at Seagate, production requires easily-found semi-skilled labour, making relocation relatively easy.

If a company hits bumps in demand, manufacturing sites are closed or consolidated. Computer company AST is considering cutbacks or closure of its Limerick manufacturing plant due to a slowdown in demand for its machines. Apple Computer's facility in Cork has been the focus of much anxiety for the same reasons.

But shutdowns and relocations are not just a problem for satellite technology regions Silicon Valley-based facilities are just as vulnerable. Last spring, chipmaker National Semiconductor closed two plants here in Santa Clara and shifted production to Scotland and Texas, while maintaining its headquarters in Silicon Valley. Some 500 jobs were lost.

Another chipmaker, VLSI Technology, axed 300 employees at its San Jose wafer plant this year and moved production to Texas. In both cases, as at Seagate, the companies argued that the facilities weren't equipped to the level necessary to make operations cost-efficient. Increasingly, Silicon Valley companies relocate entire divisions or open new facilities outside the region because the San Francisco Bay Area has a higher cost of living than almost anywhere else in the country. Per capita income, at $29,000, is second only to New York city.

But salaries are driven up by spiralling living and housing costs, which means many employees now make one or two-hour commutes from the outlying regions in which they can afford to own a home. In turn, that has created traffic problems that once were thought only the provenance of the Valley's southern neighbour, Los Angeles.

California's central valley and towns which skirt the Sierra Nevada mountain range offer cheaper labour and overheads to technology companies like Hewlett-Packard, which has shifted some divisions out to Roseville, in the Sierra foothills. Other regions of the country, like Texas, the Pacific Northwest states, and Massachusetts are becoming mini Silicon Valleys. Like Ireland, they've worked to sell themselves as lower-cost alternatives to California.

As with a good stock portfolio, economic strength for regions which form relationships with technology companies comes from diversity. Despite glitches within individual tech sectors, the heart of the Silicon Valley region, Santa Clara, is the third largest export region in the US in dollar volume. That's because overall, technology is a solid industry, even if a volatile one. But risk needs to be spread.

Ireland wisely has steadily moved away from a focus on basic, and economically vulnerable, manufacturing facilities.

The IDA strongly encourages companies to engage in research and development, the areas which tend to tie a company to a region by virtue of an intellectual investment in employees. Pull out, and risk losing the brain power that helps push a company forward.

As many in Ireland have argued over the past 10 days, Ireland is right to have encouraged growth in the technology area.

These are the industries of the future, and have provided employment and other benefits on a scale that has made Ireland one of the more dynamic economies in the world.

For the first time, for example, there are jobs for high-level computer science and engineering graduates, and instead of leaving the country, graduates are returning from abroad.

At the same time, fluctuations in a slippery, fast-growing industry mean the technology industry carries an element of risk equal to its level of reward.

Ireland will need to exercise skill in staying aware of the twists and turns in this complex market. And it needs to realise that it will have to ride out the downturns just like other tech-focused regions (although one suspects that the Government was far more aware of what was going on in the disk-drive market than it has been willing to admit).

As Mr De Palma notes, "What happened with Seagate in Ireland is really just symptomatic of what's going on across the sector, in California or the Pacific Rim or any area where there's been a significant investment in this area."

The good news is that he feels the overall technology slowdown is "more a hiccup in the market" than a long-term deceleration.

And keep in mind that from a Silicon Valley perspective, Ireland steals jobs from Californians every time a Valley company decides to relocate there.

The global market is a tough playground.