Brian Gaar, Austin American-Statesman, Analysts: Austin tech scene is back from recession
May 10, 2014
Back in 2009, in the middle of the nation’s economic downturn, Austin’s tech sector was taking a beating.
Worldwide PC sales were slowing. Companies were tightening their belts. Tech startups were failing. At the end of 2009, the area’s number of jobs in key tech industries had slumped to less than 82,000 — the lowest since the dot-com bust of the early 2000s.
“It was a grim place for tech in the worst of the recession as layoffs were being reported all over the city,” said tech analyst Patrick Moorhead of Moor Insights & Strategy. “It was ugly.”
But five years later, things are looking brighter for Austin’s technology sector.
Despite national fears of another tech bubble, local analysts and economists say they’re optimistic when it comes to the health of Austin’s tech sector.
Austin’s tech sector’s total employment has climbed back up to more than 100,000 jobs — a jump of about 19 percent since the end of the recession in 2009, according to Brian Kelsey, principal of Civic Analytics, an Austin-based economic consulting firm. Austin is on pace this year to exceed its 2001 tech employment, Kelsey said, “which would be a remarkable achievement given the depths of the recession experienced locally after the dot-com bust.”
Local high-tech companies supplied about 9 percent of the area’s jobs in 2012, according to data from Civic Analytics and the Austin Technology Council. If local tech jobs reach 101,000 this year, those numbers would rise to almost 12 percent of the metro area’s roughly 855,000 jobs.
As it bounces back, the area’s tech sector does, however, have a different look as it evolves away from hardware and PC sales. At the same time Dell Inc., long the anchor of the area’s tech scene, is now privately held and in transition. Apple Inc. is boosting its Austin presence with a new operations center. At Flextronics’ Austin site, they are building the first U.S.-made Apple computers in years. Advanced Micro Devices says it is poised to boom.
“The overall strength of Austin’s tech sector,” Kelsey said, “has created a much different experience during this recovery compared to the dot-com bust.”
Time of transition
Perhaps the biggest transition can be found at Dell Inc., which went private about six months ago in a $25 billion buyout headed by company CEO and founder Michael Dell. Since then, the company has downsized through a combination of layoffs and voluntary severances. The company hasn’t said how many employees have exited or been laid off.
That shrinkage comes as Dell Inc. — which made its name selling personal computers — continues to remake itself into a stronger supplier of advanced information technology hardware, software and services for business customers.
Dell Inc. needs to transition into more kinds of “infrastructure hardware” like data centers, which will require more expertise in networking and storage – things that Dell historically hasn’t been involved in as much, said Cody Acree, managing director and senior research analyst for Ascendiant Capital Markets.
Eventually, Dell will “look a bit more Cisco-like or IBM-like, for that matter, where there’s a lot of software and services that go along with the hardware,” he said.
Elsewhere, Advanced Micro Devices, which is struggling to regain lost sales in the lucrative market for server processors, unveiled a chip that’s aimed at reviving sales of chips that run servers, the powerful computers that store and dish out data for websites and corporations.
Lisa Su, a senior vice president at AMD, gave the first demonstration of the Seattle chip, which uses ARM Holdings technology, at a presentation in San Francisco last week.
AMD, the only other maker of processors using Intel’s x86 standard, is switching some of its designs to ARM, betting that the technology that dominates in phones and tablets will find a role in servers. The Sunnyvale, Calif.-based chipmaker is targeting machines used by companies such as Facebook Inc. and Google Inc. to perform simple functions, such as logging users into their accounts.
“For our customers, we’re trying to be here creating something you can’t get anywhere else,” Su said. “We are setting ourselves up for the future. It’ll take time.”
AMD, which has a significant presence in Austin, also said this month that it has obtained an ARM architecture license. That license will allow AMD to design its own ARM-based chips as opposed to just using the available ARM cores. The new chip could be huge for AMD, Moorhead said, because it could get AMD’s products into the tablet market, as well as Google-made laptops.
“This could be a game-changer,” Moorhead said.
Moorhead said Austin is tops in the country for chip design, with huge presences from such companies as AMD, as well as Intel, Apple, Samsung, ARM, Freescale and Qualcomm, all of which have design operations here.
The city is also strong in mobile technology, but not as much in devices, given lackluster offerings from companies like Dell, he said.
Moorhead pointed to venture capital as a soft spot locally, saying the level of investment has fallen off precipitously since the dot-com era of the late 1990s.
“Overall, the Austin tech scene is very healthy as there is a good deal (of) investments in mobile and the cloud,” he said. “We are a bit hardware heavy, and I’d like to see more world-class software and services activity, but we need more VC investment to make that happen.”
Austin is continuing to see an evolution from manufacturing to services, but job growth is evident in both lately, Kelsey said. Mobile is driving a lot of the growth in Austin — such industries as custom programming and systems design have grown by nearly 7,000 jobs since 2009. On the manufacturing side, Austin is back above 2009 employment levels in many industries, he said.
“In fact, comparing employment today to where we were coming out of the recession in 2009, a slight majority of tech manufacturing industries in Austin have added jobs,” he said.
According to data compiled by Economic Modeling Specialists International, there were more than 97,000 jobs in key tech industries in the Austin area last year – ranging from semiconductor manufacturing to software programmers.
That’s up from 2009, when there were less than 82,000 tech jobs. It’s also higher than 2007, when there were more than 91,000 such jobs.
The Dell factor
Of course, Austin’s tech sector health is always partially tied to Dell Inc.’s health, given that the company is the largest private employer in the area, with about 14,000 employees.
In a note to company employees this month commemorating the company’s 30th anniversary, Michael Dell said the company is building momentum.
“We’re leading the industry in enterprise flash deployments, and leading with our security and cloud integration solutions,” he wrote. “Our services business is rapidly acquiring new customers and huge deals in key verticals like healthcare and finance.”
If Dell Inc. is headed in the right way, that’s good news for the Austin area, Acree said.
“I think it’s continuing to grow and be very strong, but of course Dell’s position in the PC space drives a lot of that,” he said. “And with the PC market in decline – and that’s not likely to change – Dell has got to figure out … if it can be equally important to other sectors of tech.”
Other companies’ impact
Austin’s other major tech players are making important moves as well — among them tech giant Apple Inc.
The California-based computer maker is building on a 39-acre site adjacent to its present Austin operations, which employ more than 3,000 people in its Americas Operations Center. While the company didn’t respond to requests for comment from the American-Statesman, it has provided some details about its Austin project in return for the estimated $35 million in state and local tax incentives it will receive for the Austin expansion.
The company has said it plans to spend $282 million on new buildings and equipment in Austin over the next decade. That is expected to include seven new office buildings with a combined 1 million square feet or more of space. Those buildings will house an estimated 3,600 new workers needed to support Apple’s continued growth.
The jobs will run the gamut of skills required to run Apple’s business operations for the entire Western Hemisphere.
But Apple has also hired employees in chip design and development locally. Those jobs presumably are supporting the Intrinsity Inc. design team that Apple acquired in 2010. That design team, analysts say, has been heavily involved in developing the new systems chips that run Apple’s mobile products — both iPhones and iPads.
And late last year, Apple confirmed that its new Mac Pro computers would be built at the Flextronics Americas factory in Northwest Austin.
That further solidified Central Texas’ status as one of Apple’s primary hubs outside Silicon Valley. By locating Mac Pro production in Austin, Apple has established a direct or near-direct role in almost 5,000 current Central Texas jobs — and could expand that to as many as 8,700 over the next decade.
A Flextronics spokeswoman declined to discuss the company’s relationship with Apple.
Elsewhere in the Austin tech scene, IBM has shifted from a former manufacturing outpost to an engineering and technology development hub.
Last month, IBM introduced a new Power Systems server that was developed in Austin, with an open platform that gives programmers more flexibility to develop uses for the device.
Power8 is the name IBM has given to the new hardware, which includes a new microprocessor and a lineup of servers. The servers and processors were developed in Austin, which is a leading research and development site for IBM with an estimated 6,000 employees here.
Semiconductors are also one of Austin’s longtime areas of tech expertise. And perhaps no company has invested more heavily in Austin than South Korea-based Samsung Electronics Co.
Samsung has made a historically big manufacturing investment in Central Texas and created one of the biggest chip manufacturing complexes in North America, with at least $15 billion in new investment. The company employs about 2,600 people locally and produces, among other things, advanced low-power processors that are used in mobile devices such as phones and tablets.
“We make up a huge portion of Samsung’s overall capacity in that market,” Samsung spokeswoman Catherine Morse said. “And so what we do here is crucial.”
In another promising sign for local tech employers, Emerson Process Management earlier this year unveiled a $70 million facility in Round Rock designed to help its customers operate large-scale automation projects. And even smaller players like Active Power, which makes backup power systems, tout such big-name clients as Oracle, Yahoo and Hewlett-Packard.
Overall, analysts say, the future for Austin’s tech scene looks good, as Dell Inc., AMD and others move to diversify their businesses and become less reliant on PC sales.
“If companies can adjust to the new normal, which is really what has happened in the last two years,” Acree said, “then an economy like Austin’s reaches a degree of stability, where that diversity is offsetting the declines in the PC market.”
Additional information from Bloomberg News.
Austin jobs in key tech industries
Source: Economic Modeling Specialists International
Major Austin tech employers
Dell Inc. (14,000 jobs) – PC maker and supplier of advanced IT hardware, software and services
IBM (6,000) – engineering and technology development
Freescale Semiconductor (5,000) — produces and designs embedded hardware
Apple Inc. (more than 3,000) – business operations, chip design
Samsung Electronics Co. (2,600) – chip manufacturing
Advanced Micro Devices (2,000) — develops computer processors and related technologies
Intel Corp. (more than 1,000) – chipmaker
This story is part of the American-Statesman’s ongoing coverage of the Austin technology sector. Tech reporter Brian Gaar has tracked the area’s top technology-related stories, including Dell Inc.’s transition to a privately held company, Apple Inc.’s expansion in Central Texas and the growth of the area’s mobile technology sector.