For Telecom Workers, Burst Of Bubble Takes Heavy Toll (was: employment market for applied cryptographers?)

Steve Schear schear at lvcm.com
Tue Aug 20 15:37:56 PDT 2002


[Because of its relevance and since most list members are probably not WSJ 
subscribers, I've taken the liberty of posting the entire article. sds]

> From the Wall Street Journal --
>
>For Telecom Workers, Burst Of Bubble Takes Heavy Toll
>By REBECCA BLUMENSTEIN
>
>RICHARDSON, Texas -- Two years ago, J. Michael Dugan spread the word to
>his fellow optical engineers in North Texas that he was starting a company
>that could make them all rich. The telecommunications business was hot,
>and optical engineers were the hottest commodities of them all, commanding
>big signing bonuses and six-figure salaries.
>
>Mr. Dugan, a burly Texan with more than 20 years under his belt at the
>giant French equipment maker Alcatel SA, was persuasive. So many flocked
>to his annual summer party in July 2000 to learn more about Latus
>Lightworks that he ran out of food. The start-up took off quickly, hiring
>120 employees as the engineers raced to devise ways to squeeze more data
>and voice traffic through a hair-thin strand of fiber-optic glass.
>
>Then the bubble burst.
>
>A few weeks ago, when all those engineers gathered again in Mr. Dugan's
>backyard, it was to commiserate and swap job leads. Ken Maxham, a cheery
>59-year-old who comes from a long line of engineers, was worried about his
>unemployment benefits running out as his savings dwindle. He had cut back
>expenses as much as possible, but basic health insurance costs $750 a
>month and his wife was putting off going to the dentist for a toothache.
>
>David Wolf, who at 37 is one of the youngest optical engineers around, was
>counting the days until his second start-up was due to run out of money.
>The fresh-faced father of three young children was pruning expenses such
>as his daughter's gymnastics lessons and worrying about the future. Mr.
>Dugan, whose work as a temporary consultant was about to end, was
>contemplating returning to school at age 50.
>
>And the party was buzzing about a cruel twist of fate: Two of the former
>colleagues had just gone head-to-head for one of the few remaining telecom
>jobs out there. The one in the more precarious financial position didn't
>get it.
>
>"When I see someone I haven't seen in a while, my first question is, 'Do
>you have a job?' " said Bruce Raeside, a 46-year-old Michigan native who
>also worked as a Latus engineer. "It's almost like Detroit in the '70s."
>
>In many ways, it's worse. Like the massive declines in the nation's steel,
>oil and automobile industries in decades past, the disintegration of the
>telecom business is leaving deep wounds in the U.S. work force. But labor
>historians say telecom stands out for the unprecedented speed of the
>boom-and-bust cycle. After telecom was deregulated in 1996, it quickly
>expanded by some 331,000 jobs before peaking in late 2000. Since the
>downturn started, though, companies have announced layoffs that have wiped
>out all those new jobs and more -- a total of well over 500,000 workers,
>according to a tally by The Wall Street Journal. By contrast, it took two
>decades for the ranks of the United Auto Workers to fall to 732,000 from
>1.5 million, as the auto industry was forced to become much more efficient
>in the face of foreign competition.
>
>The number of telecom jobs grew faster and has fallen much harder than the
>overall job market, according to James Glen, an economist with
>Economy.com, a West Chester, Pa., research firm. He says the 12% drop in
>telecom jobs is still gaining steam, especially as the rout claims bigger
>and bigger companies such as Global Crossing Ltd. and WorldCom Inc. And
>the economic and human cost of the telecom bust far exceeds that of the
>highly publicized Internet crash, which by and large involved smaller
>companies.
>
>Telecom has turned into one of history's biggest bubbles because so much
>money poured into the industry during the stock-market boom, creating some
>$470 billion in debt and a vast glut of capacity. Once a sleepy industry
>known for its modest growth, telecom took off like a rocket in the late
>'90s as companies rushed to lace the world with ultra-fast fiber-optic
>networks to carry an expected onslaught of Internet traffic. But after a
>frenzy of spending and hiring, it suddenly became clear in mid-2001 that
>the Internet wasn't growing nearly as fast as the 1,000-fold annual
>increases originally predicted. The huge run-up has now been replaced by a
>merciless ride down. Rumors of foreclosures and marital problems have
>replaced word of the latest IPO. Some laid-off telecom workers are even
>turning up in local homeless shelters.
>
>So much money was spent buying telecom gear during the frenzy that there
>is now seven years' worth of excess inventory, says Lonnie Martin, chief
>executive of White Rock Networks, a Richardson start-up that is trying to
>hang on. He values the excess supply at some $160 billion. "That is an
>awful lot of exuberance to get rid of," he says.
>
>There are few places where the hangover is more severe than here in the
>sun-blasted plains north of Dallas. Back during the boom years, developers
>couldn't throw up office buildings fast enough to keep pace with the
>demand. Telecom jobs doubled to 90,000 between 1995 and the peak of the
>bubble as big names such as Cisco Systems Inc. stormed into town and
>companies such as Nortel Networks Corp. quadrupled their work forces.
>Money was flowing so freely that countless start-ups emerged from nowhere.
>Now, vacancy rates in the area known as the Telecom Corridor have shot up
>to 34%. The vast expanses of empty parking lots make the area look like a
>corporate ghost town.
>
>And the layoffs keep coming. While the Latus workers left stable jobs to
>join the start-up, they know plenty of colleagues who stayed behind and
>lost their jobs anyway. Big suppliers such as Nortel and Alcatel had
>already shed half their work forces before WorldCom's collapse. Xalted
>Networks Inc. just laid off most of its Texas engineers and issued a press
>release saying it's moving its software development to Bangalore, India,
>where it plans to hire 70 engineers in a bid to conserve cash.
>
>Change of Fortune
>
>The change of fortune is especially jarring to telecom's engineers, many
>of whom chose their profession because it promised a stable paycheck and
>seemingly limitless growth. Mr. Dugan, who has degrees in physics and
>electrical engineering, shifted into telecom after down-sizings in NASA's
>space program and the Texas oil industry, where he built support
>electronics for the oil diggers. Mr. Raeside came on after surviving
>layoffs at semiconductor companies through the 1980s.
>
>During the boom, no one was more in demand than the eclectic band of
>optical engineers who had worked for years in relative obscurity
>transmitting millions of calls a second through tiny hairs of glass by
>using lasers of light invisible to the human eye. Their value soared in a
>climate where any innovation could quickly become the next hot IPO.
>Suddenly, companies were paying salaries well over $100,000 to lure top
>talent.
>
>As some of the early start-ups were purchased by bigger companies in deals
>that made their founders rich, the walls of the big companies started to
>feel a bit confining. Mr. Dugan left Alcatel in January 2000,
>contemplating a few offers. He was hanging around his house one February
>morning when he was contacted out of the blue by Michael Zadikian, who had
>sold his company, Monterey Networks, to Cisco Systems Inc. for $500
>million in 1999.
>
>Mr. Zadikian had a new plan to launch four start-ups at once to develop a
>single system that phone companies could use for all of their needs. He
>wanted Mr. Dugan to focus on the so-called long haul, the cross-country
>and undersea networks that companies were racing to build. Mr. Dugan
>signed on.
>
>Latus was following in a rich tradition. The former MCI Communications
>Inc. started here in the late '70s, using the microwave technology
>deployed by Collins Radio to challenge AT&T Corp.'s monopoly. But
>microwave towers couldn't be placed more than 35 miles apart because of
>the curvature of the earth, leading MCI to push for advances in
>fiber-optic technology. In the early '80s, MCI embraced a new technology
>that used light waves to transmit calls on one strand of fiber, a signal
>that was so strong MCI only needed to install equipment to boost it every
>1,000 miles or so. Companies rushed into Richardson to help give MCI a
>competitive edge, a customer and supplier relationship that has flourished
>for years, but which is now in jeopardy with the collapse of MCI's parent,
>WorldCom.
>
>The goal of Latus was ambitious: to develop a system that could send data
>and voice traffic at higher speeds and longer distances than ever before.
>Optical networking was all abuzz about a technology called dense wave
>division multiplexing that could divide a single strand of fiber into
>dozens of channels by beaming different colors of light through it. The
>Latus system had 256 different channels, and was designed to go more than
>1,200 miles before the signal needed to be boosted again so it could
>continue on.
>
>The company didn't have a name until March, when Mr. Dugan, flying home
>from a convention, bought a Latin-English dictionary at an airport and
>found the word, "latus," meaning wide, open and expansive. Latus got $28
>million in its first round of funding in July of 2000 from a group of
>investors eager to follow Mr. Zadikian's success.
>
>David Wolf knew he was at a turning point as he decided whether to follow
>his former boss to Latus. A friend of his late father told him to do it
>because it was a once-in-a-lifetime opportunity. His wife, Susan, advised
>making the leap as well. The couple had just purchased some property north
>of their home in Allen, Texas, to build a bigger house to accommodate
>their expanding family.
>
>"Do it, as long as you get paid the same," Susan told her husband. Even if
>it didn't work out, the couple reasoned that Mr. Wolf could take advantage
>of one of several other job offers. In a matter of days, Mr. Wolf found
>himself plunking down $5,000 on his credit card to buy a laptop so he
>could start work at Latus on Monday. He remembers thinking with amusement
>that there were no expense forms to fill out to get the money back, but he
>trusted Mr. Dugan.
>
>They found some office space to rent and began hiring workers. "At every
>board meeting, they said, 'Spend the money. Spend the money,' " recalls
>Mr. Wolf. "The engineers were the hardest to find." Latus had to pay at
>least $100,000 and as much as $120,000, plus bonuses, for the very senior
>engineers, who often were playing more than three job offers off each
>other. The start-up handed out 20% of its total shares to employees, and
>those who joined first were given the largest number of options. Another
>start-up raffled off a new BMW to employees who referred their colleagues
>to the company.
>
>Money seemed to be everywhere -- and in many senses, it was. Capital
>spending by telecom companies at the height of the boom soared to 106% of
>revenue, according to Mr. Glen at Economy.com. Historically, that figure
>had been just 38%.
>
>At Latus, Ken Maxham jumped in as employee No. 11, Bruce Raeside as
>employee No. 16 and Amy Dugan as employee No. 47. Mrs. Dugan joined
>despite some nervousness about perceptions of nepotism. A respected
>engineer herself, she reasoned that joining her husband's company meant
>the two could work day and night on Latus.
>
>The scramble began to get the technology ready for viewing at Supercomm, a
>huge trade show in June of 2001. The engineers sometimes put in 20-hour
>days working out kinks in the product, which looked like a bunch of
>refrigerators full of wires. "Our entire existence was hinged on meeting
>our claims," says Mr. Dugan. "I said there is no way we can go back and
>tell the board there appeared to be fundamental physics limitations."
>
>What they didn't realize was that economic limitations would prove the
>bigger threat. Latus was launched precisely at the peak of the bubble,
>when money was flowing so freely in telecom that companies seemed willing
>to buy anything.
>
>It was at Supercomm in Atlanta that the big buyers began showing signs of
>flagging demand. Mr. Dugan had to rush out to California in the middle of
>the show to give a funding pitch to one of the original investors. But the
>second round of financing for Latus became almost impossible as the spigot
>of capital shut off. An initial public offering became a distant dream.
>
>Mr. Dugan was hoping the uncertainty was just a slight fluctuation in the
>market. That summer, the Dugans threw an even bigger party than before,
>and catered it for the first time, bringing in trays of Mexican food under
>a huge rented tent. Around that time, Susan Wolf started joking with Mr.
>Dugan about whether her husband would still be able to bring home a
>paycheck. An accountant, she works only during tax time to bring in a few
>thousand dollars. Mr. Dugan knew it was a joke, but he began feeling the
>responsibility on his shoulders.
>
>The first layoffs hit the Richardson area in the middle of 2001. Susan
>Wolf began hearing stories in her neighborhood. "It is like the black
>plague. You hear it happening to someone your neighbor knows. Then her
>brother is laid off, and then it happens to you," she told her husband
>over dinner recently with a guest. "It goes from the edges in -- closer
>and closer -- and finally gets here."
>
>The company was notified that it lost its funding the morning of Sept. 11.
>Mr. Dugan was waiting for a conference call among the Latus board when the
>second plane hit the World Trade Center, but the call went on as investors
>notified them that funding would be cut off. The founders were given only
>10 days to find a new backer -- an almost impossible feat because any
>potential bidders would have had to travel by bus to visit the company,
>since all flights were grounded for days by terrorism fears. "We got
>bombed twice," says Mr. Dugan, who doesn't blame the investors for their
>decision given the climate.
>
>On Sept. 12, he called an all-hands meeting and told his fellow Latus
>employees to update their resumes and finish their projects. "It's not
>over, but it doesn't look good at all," he told them.
>
>On Sept. 23, Mr. Dugan invited them all to the local Omni Hotel, the place
>where all the deals were made during better times. He told them that Latus
>would be shut down, and its doors padlocked as the bank cleared out its
>equipment. Everyone would lose their jobs immediately. Mr. Dugan made
>arrangements to sign them up for unemployment benefits on the spot, and
>then the Dugans paid for drinks for all. "A lot of these people were my
>friends. They didn't hold it against me," says Mr. Dugan. "But I felt
>badly for them."
>
>When Latus shut down, the Wolf family cut down on spending as they could.
>They stopped hiring babysitters and going out to dinner, and cut back on
>groceries.
>
>David Wolf stayed at home looking for a job, surprising his children the
>first time that he picked them up from school. To fill his time, to the
>slight irritation of his wife, he plunged into another start-up with Mr.
>Dugan and a few others to develop another optical product. They even paid
>out of their own pockets for Mr. Dugan to present the product at a show in
>California earlier this year. But with the downturn so pronounced, they
>received little interest. The fiber-optic amplifier is now sitting in a
>case in Mr. Dugan's living room.
>
>As he flung himself into a new start-up, Mr. Dugan and others held
>meetings at the local Starbucks, which had become the unofficial meeting
>place for the unemployed. He says it is a strange experience to run into
>people during the middle of the day. "It is like, 'Oh, this happened to
>you, too,' " he says.
>
>Mr. Maxham started looking for a job immediately. Even though he is 59, he
>was perhaps worst off financially because he had invested 30 years of
>retirement savings in tech stocks after leaving Alcatel. "I was a
>believer, but that was a bad decision," says Mr. Maxham, who lost
>"hundreds of thousands" of dollars. Initially, he was mystified by the
>scarcity of jobs because he had turned down seven job offers before
>joining Latus. As he searched every day for jobs, unemployment benefits of
>about $300 a week kicked in.
>
>To ease the tension, Mr. Maxham plays electric bass guitar in a band of
>engineers called Signal2Noise. But it wasn't much of an escape: At one
>point, half of the band was out of work. He felt increasingly guilty about
>his precarious financial situation and apologized at one point to his
>wife, Penny. "I am not angry," she told him. "I sort of know that we are
>going to be OK." Still, it was rough recently when she had to accept money
>from her parents to travel back to Idaho to visit them.
>
>For months now, the bottom has been getting deeper. Robert Shapiro, head
>of the local telecom branch of the national engineering association,
>thinks the cycle must be at the bottom. "How could it get any worse?" asks
>Mr. Shapiro, who is working a temporary job after months of unemployment.
>Attendance at the group's monthly meetings at the local Holiday Inn has
>doubled since engineers now have extra time. Mr. Shapiro estimates that
>half of the association's members have been laid off. Meetings now start
>with job-hunting tips.
>
>Part of the problem is that there is no place for the highly specialized
>engineers to turn as the tech industry continues to slump. Krish Prabhu,
>the former chief operating officer of Alcatel who lives in the Dallas
>area, hears the desperation as companies ask for money and former
>colleagues call for job tips. A partner with Morgenthaler Ventures, a
>venture-capital firm, Mr. Prabhu says it will be tough for any start-up to
>survive. "There is a nervousness about whether this downturn is part of a
>cycle or a fundamental change that telecom has become a commodity like the
>computer industry," says Mr. Prabhu.
>
>The ripples are spreading. The city of Richardson is being hit by a drop
>of more than 20% of its sales tax and a coming hit to its property taxes
>from all the empty office buildings. Foreclosures in Collin County, where
>many telecom workers live, are up 79% over last year, especially for homes
>worth $250,000 or more. The process is brutally efficient in Texas: Once a
>house is posted for foreclosure, the owner has only 21 days to come up
>with the money before it is auctioned.
>
>Howard Dahlka, executive director of the Samaritan Inn, a homeless shelter
>in nearby McKinney, is seeing the shell-shocked faces of telecom workers
>who have lost their homes. "It is a whole new breed, what we are seeing
>here," he says.
>
>People in Trouble
>
>Just in the past week, Samaritan has received 15 calls from people who are
>expecting to lose their homes, and he worries whether his 58-bed shelter
>will have to turn people away. Bill Kewin, an engineer who was laid off
>from WorldCom six weeks ago, says many WorldCom workers are in very bad
>financial shape because their 401(k) plans are worth virtually nothing.
>Many have put their homes on the market and don't know where they are
>going next. "There are a lot of people who are in trouble," he says.
>
>As November turned into December, Mr. Dugan had found no work. His wife,
>Amy, thankfully did land a job for $100,000 a year at a telecom
>manufacturer, giving them a degree of financial stability they are
>grateful for. But it isn't easy for Mr. Dugan, who has 13 patents to his
>name. He eventually got a little work consulting for a start-up, but
>expects to lose that job in about a month. Something permanent feels
>pretty far off. He's even thinking of going back to school to study
>medicine. "I don't have a sense of accomplishment," he says. "I still have
>more to do."
>
>Across town at the Wolf household, tension rose as Christmas approached
>and David still didn't have a job. The couple fretted about Christmas, and
>how to contribute to the gift-giving rituals with their extended family.
>They didn't want to ask for help but were happy to accept cash gifts to
>help ease the pinch. Susan Wolf was most worried about the $10,000 bill
>for private school for one of their children with some special needs. Her
>parents stepped in to help foot the bill late last year.
>
>Finally, in January, David got a job at Yotta Networks, another local
>start-up that is focusing on long-haul networks. He makes about $100,000 a
>year, but Yotta has gone through two sets of layoffs and is set to run out
>of its funding in a matter of weeks. Company officials are negotiating
>with a promising new customer, but the start-up is burning through $1
>million a month.
>
>The Wolfs estimate they have only enough savings to last three months.
>"I'm getting nervous," says Mr. Wolf. "I've got a lot of people who are
>telling me just to get out of telecom. I don't want to end up on the
>street again." Susan Wolf says that if she needs to, she will resort to
>anything to pay this year's school tuition. "I'll move into an apartment
>if I have to."
>
>In April, Mr. Maxham thought his prayers had been answered. A company
>called Celion Networks Inc. needed an engineer. He quickly called to
>arrange an interview. Then a friend tipped him off that Mr. Raeside, his
>old colleague from Latus, was also in the running for the job. After
>agonizing the day before the interview, he decided to deal with the
>competition head-on. "I put a good word in for him," says Mr. Maxham.
>
>He felt the interview went well. The job seemed like a perfect fit. They
>needed a systems engineer -- a big-picture guy who supervises the hardware
>design of a new product. But while he was waiting to see if he'd get
>another interview, the phone rang with some disquieting news. It was Mr.
>Raeside, letting him know as a courtesy that he'd been asked back for a
>second interview. He called again when he got hired.
>
>The two men remain friends, but Mr. Raeside seemed sheepish when he
>spotted him this year at Mr. Dugan's party. "I was lucky," he said softly.
>"I am really convinced that it came down to either one of us. We were both
>perfect for the job."
>
>The job only lasted four months. Mr. Raeside was laid off on Friday.
>
>The party itself was much tamer this year. Guests were asked to bring
>potluck dishes, and the biggest attraction was a big tent Mr. Dugan
>designed himself to save money.
>
>Mr. Maxham attends job workshops run by various churches in the area. As
>every week passes, he notices more and more of the unemployed coming. Lisa
>Miller, the executive director of Career/HiTech Connection, the biggest
>workshop in the area, makes it her mission to keep spirits high. "You will
>find a job," Ms. Miller told the crowd packing the Preston Hollow
>Presbyterian Church one recent Tuesday night as she explained the
>importance of networking. But as the telecom crisis deepens, Mr. Maxham
>becomes less convinced there are even jobs to be had. He sat with a grim
>look one recent night as job openings were called off, none of them for
>engineers.
>
>As Mr. Maxham's savings account dwindles to under $10,000, things are
>getting very shaky. He now buys only food that is on sale, looks for the
>cheapest gas and has put off replacing his wife's 10-year-old car. He
>won't go to a food bank because he says they give away too much meat,
>which he doesn't like. Repairs are going undone. Recently, Mr. Maxham set
>out with sealant to repair some leaks on his roof. If he doesn't find any
>work by September, he says that money will "get very tight."
>
>It already has. Penny Maxham says that she is trying to ignore a toothache
>because the couple has no dental coverage. She quit her job a couple of
>years ago to fulfill a dream of getting a Ph.D. in neuroscience, but she
>is considering going back to work.
>
>Once there was a time when Mr. Maxham vowed never to leave engineering.
>His father was an engineer, and his three grown children are engineers.
>But a month ago, Mr. Maxham's unemployment benefits ran out, and he is
>reconsidering. He recently applied to teach physics at a community
>college. A friend recently asked him to help install some computers in
>cars. He is open to anything because he really needs the money.
>
>"It's frustrating," says Mr. Maxham, who in his 30 years as an engineer
>earned seven patents. An eighth just arrived in the mail last week. "I
>just enjoyed being an engineer so much. I was born like that and I passed
>it along to my children. ... But maybe I will become a teacher, just like
>my dad did in the Depression."
>
>Write to Rebecca Blumenstein at rebecca.blumenstein at wsj.com1
>
>Hyperlinks in this Article:
>(1) mailto:rebecca.blumenstein at wsj.com
>(2) 
><http://online.wsj.com/article/0,,SB1029102020679872395,00.html>http://online.wsj.com/article/0,,SB1029102020679872395,00.html
>(3) 
><http://online.wsj.com/article/0,,SB10281640071014240,00.html>http://online.wsj.com/article/0,,SB10281640071014240,00.html
>(4) 
><http://online.wsj.com/article/0,,SB1015984276246327360,00.html>http://online.wsj.com/article/0,,SB1015984276246327360,00.html





More information about the cypherpunks-legacy mailing list