Asian fallout drifts into Northern Colorado

Long-term effects in region may not be as bad as feared, but serious job losses have resulted

Even at the height of Japan’s prosperity in the mid-1980s, Japanese economic analysts were fond of saying: “When the United States sneezes, Japan catches pneumonia.” Now, observers of national and local economic trends are reversing that aphorism.

After months of speculation, the effects of deteriorating financial conditions throughout Asian markets are beginning to affect employment and job creation in Northern Colorado. The fallout appears ominous, especially with respect to employment and continued job creation. Of greatest concern are recent announcements of layoffs and closures at Northern Colorado manufacturers.

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Merix Corp., an Oregon-based manufacturer of printed circuit boards, announced that it will permanently close its Loveland site. The closure will cost an estimated 370 jobs.

In June, Hewlett-Packard Co. announced that it was ending manufacture of tape backup devices at its Loveland site by the end of October. A planned “restructuring” of 140 jobs is under way. Hewlett-Packard, the region’s largest private employer, also announced reductions in the salaries of some management personnel. The work-force and salary moves are said to be in response to “competitive pressures.”

The news follows on the heels of the loss of 128 jobs at Advanced Energy Industries Inc., 25 at Teledyne Water Pik and 25 at ConAgra Inc., as well as the sale of Symbios Inc., and huge drops in the stock value of several local companies.

Other companies that have announced cuts – or are expected to – include Applied Films Corp. in Weld County and EFTC Corp. in Greeley.

Despite these setbacks, some local economists say the threats to the regional economy that loom on the employment horizon may have far less to do with economic conditions in Japan and Russia, far more to do with U.S. monetary policy and its effect on the U.S. economy.

“I do not think enough of Colorado’s economy depends on sectors affected by the Asian financial crisis,´ said John Green, an economist at the University of Northern Colorado. “Northern Coloradans are not heavily employed in sectors like manufacturing for export and some services.”

Steve Beitler, manager of investor communications for Hewlett-Packard, the region’s largest employer in the manufacturing sector, agrees that the Asian situation is a serious issue for the Palo Alto-based parent company, but not as serious as it has been characterized.

“Asia-Pacific is about 15 percent of Hewlett-Packard’s total revenues for all our businesses,” Beitler said. “Of that 15 percent, about a third, or 5 percent, of our total business comes from Japan. Before the Asian financial situation worsened, Asia-Pacific was a source of really good growth for us. Japan had been sluggish for a long time, but the other nations in that part of the world were growing, especially Korea.”

The collapse of the regional economy wiped out the growth being experienced by Hewlett-Packard as well as other businesses. So, the work-force restructuring in Loveland is related to Hewlett-Packard’s Asian exposure, but it may be less serious in the long term than some analysts believe.

“The situation in Asia has affected Hewlett-Packard in terms of growth,” Beitler said. “The job restructuring that resulted is within our testing and measurement organization. In Colorado, we have a heavy test-and-measurement component.”

A total of about 140 workers are affected. They manufacture backup tape devices for personal computers. That business will continue to exist for Hewlett-Packard Loveland as the Workforce Information Management Division. Manufacturing will now be done through a contractor. The manufacture of the backup tape devices is one of Hewlett-Packard’s test-and-measurement-division businesses. Because Hewlett-Packard’s Colorado division has a large component in the affected business, the work-force restructuring appears more serious.

Local Hewlett-Packard officials downplay the Asian connection, as well as the possibility of future local job losses as a continued consequence of the Asian crisis.

“It was announced in June that as of the end of October, H-P would no longer be manufacturing tape devices on the Loveland site,´ said Jim Willard, public-relations manager of Hewlett-Packard’s Loveland branch. “The decision was made in May, but it was based on an analysis done in February, March and April. It really was a function of competitive pressures, costs and profit margins.”

Willard was also quick to point out that the affected workers were not laid off, nor were workers in any of Hewlett-Packards eight or nine other business components.

“We have never had a layoff, except one related to an acquisition,” Willard noted. Those 140 folks had several options: a voluntary severance package, a move to another location into a job vacated by an employee who opted for the severance package or placement in an available job.”

Beitler points out that Hewlett-Packard plans to increase its future investment in Asia once there are signs of a turnaround in profit potential.

“We are not shutting down in Asia in any sense,” Beitler said. “Earlier this year, our CEO was in South Korea to announce that we would be investing $200 million there. What we want to see is a return to growth. We remain very optimistic about that region in the long term.”

The local situation at Merix may be of greater long-term concern. The company announced plans to close down its Loveland operation completely. Local officials referred inquiries to a spokesperson at the company’s Oregon headquarters who failed to return repeated calls.

If there is a long-term consequence locally to the growing global economic crisis, the real-estate market is usually a good place to see the effects. So far, none are being observed.

Taking note of the Hewlett-Packard work-force restructuring, Steve Pfister, a broker with Realtec Commercial Real Estate Services Inc. of Fort Collins, points out that “local real estate is highly affected by local job growth, and H-P just shipped a bunch of jobs out of the country.”

Pfister adds that the Asian situation “may be contributing to a slowdown in the local economy, but it is difficult to get accurate readings until six months after they have happened.”