Even Bigger Nightmare On Tech Street

Updated: The technology sector, already rocked by the credit crunch and slowing global economies, is facing a bleak 2009, the impact of which is going to be felt across the entire ecosystem. From PC makers to chipmakers to chip equipment makers, almost everyone is bracing for a stomach-churning ride.

“The problem is three times worse than everybody thinks,” said Terry Gou, chairman of Hon Hai Precision Industry Co., a large Taiwan-based contract manufacturer. According to The Wall Street Journal, he is looking to cut jobs in his factories, most of them in mainland China.

Now here is a man who should know the actual extent of the troubles. His company’s customers include Apple (s AAPL), Nintendo and Hewlett Packard (s HPQ). Its subsidiary, Foxconn, makes handsets for Motorola (s MOT) and Nokia (s NOK). Any slowdown in orders from his end customers affects his business. Closer to home in Silicon Valley, companies like Cisco Systems (s CSCO) and Hewlett-Packard (s HWP) and Adobe (s ADBE) are shutting down for the holidays to save money.

In other words, the entire technology ecosystem is slowing down to a crawl. Chipmakers Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. have slashed their revenue forecasts and are putting employees on unpaid leave. Last week, the Gartner group issued a report forecasting a 16.3 percent decline in semiconductor sales in 2009. Many feel that they are being optimistic, especially when consumers are holding onto their cash tighter than ever.

PCs and mobile handsets, the twin drivers of technology demand, have seen their sales slump. The worsening sales of handsets are taking down some big names. Sony Ericsson is going to sell six million less phones in the fourth quarter of 2008, according to Mark Sue, analyst with RBC Capital Markets. In the first quarter of 2008, Sony Ericsson will sell 18.5 million devices. “Internal plans indicate SNE may end 2009 with units down as much as -20% YoY,” Sue writes in a note to his clients. While Sony Ericsson has its own sets of problems, the overall weakness in the demand for cell phones is leaving no room for handset makers to miss key product launches or release duds.

The impact of slowing PC and handset sales is being felt by companies like Intel (s INTC), Texas Instruments (s TXN) and National Semiconductor (s NSM), all having indicated that their revenues are going to decline next year. Further down the food chain, even semiconductor equipment makers are cutting jobs and running for the proverbial hills.

Never before have we witnessed such a sharp and sudden fall-off in lithography system demand, triggered by an unprecedented mix of falling end-demand for semiconductors, weak memory prices and restricted access to capital for our customers,” Eric Meurice, ASML’s president and CEO, said in a press statement. ASML, based in Veldhoven, The Netherlands, supplies equipment to Intel, among other chipmakers.

In July 2008, we wrote about the vulnerability of the online advertising sector.

We know the housing and financial sector-related ads have already declined drastically, now we’re going to start to see other sectors cut back on advertising, too — and that is going to have a negative impact on everyone from large social networks to ad networks to Yahoo and Google to small startups, including weblogs like ours.

Oh boy… another night of worrying and thinking about the nightmare on tech street!

Updated with correction: Adobe took umbrage with their inclusion in the post as one of the companies that was shutting down to save money. Well, it is a bit of a nit pick on their part. Here is their comment via email.

However, it has been Adobe’s policy for approximately 15 years to have a winter shutdown period concurrent with the Christmas and New Year’s holidays. The shutdown is not related to the slowing economy. This winter, the shutdown will extend from Wednesday, December 24, 2008 through Friday, January 2, 2009. Employees will receive most of this time as a paid holiday, although they will be asked to utilize paid vacation time for December 29 and 30.