Chapter | 10 Information Technology

❖ Can Texas take information technology to a newly disruptive level?

global leader in making and designing “The semiconductor Introduction the tiny semiconductor chips that run industry drives a Information technology (IT) in modern computers and electronic devices. $3 trillion economy the workplace has transformed the way But semiconductor companies have been corporations operate in the global market shrinking their workforces in the Lone in electronics. And and has allowed small businesses access to Star State. And a shrinking workforce in that [semiconductor] markets outside their traditional operating such a foundational industry has Powers concerned about the future of the Texas sector drives areas. The ability to store, protect, process, transmit and retrieve information easily economy. “If we lose this talented and nanotechnology and and inexpensively will remain critical to skilled workforce they might not come is driving all kinds all industries as even small businesses “go back — unless we can find new jobs for global.” them in the new economy.” of things smaller. If Texas continues to grow its total we lose this talented number of IT jobs, but that growth is | What’s Happening and skilled workforce being challenged. The state’s foundation of universities, business-support organizations Structural changes are affecting they might not come and existing companies will draw the companies in Texas that make back — unless we tech-design firms and tech-design jobs semiconductors, computers, electronic can find new jobs of the future. Yet that path is threatened products and even audiovisual equipment. by an erosion of jobs in the cornerstone Using newer fabrication plants in Asia with for them in the new semiconductor industry, a constrained less-expensive labor has shifted some work economy.” education system and limited access to overseas. And a tough economy in the capital. United States has resulted in less demand Texas has lost more than 24,000 jobs in here and, thus, less demand for workers at the semiconductor manufacturing sector the Texas facilities of those companies. — Pike Powers, Texas since the peak year of 2001. This concerns Emblematic of the state’s IT cluster is attorney and economic many Texans who aren’t convinced that Texas Instruments (TI), a global leader in advisor dozens of new IT start-up companies, semiconductor microchip manufacturing. each employing only a few people, will TI’s microchips run in everything from be enough to pull Texas into the “new electric toothbrushes to automobiles to economy.” cell phones. TI is trying to broaden its “The semiconductor industry drives product line outside the traditional digital a $3 trillion economy in electronics. microchips used in cell phones and other And that [semiconductor] sector drives digital devices for which TI is best known. nanotechnology and is driving all kinds of But such diversification requires talent and things smaller,” said Austin attorney Pike access to new customers. Powers, who has been involved in growing TI has been looking in 2009 and 2010 tech companies in Texas for decades. to hire technicians for its Dallas microchip According to Powers, Texas has been a fabrication plants. “Our revenues are

70 | CHAPTER 10 Information Technology “There is a real need for engineers in this state. We would like to see the number of electrical engineers coming out of our universities doubled,” Mayes said. “We need to grow more worker talent. We need more Tier 1 research universities. And we need more research.”

— Gray Mayes, Texas Instruments

up, and our orders have been up since customers, partners and fabrication plant May 2009. There was a lot of pent-up workers is critical for quality control and demand from our customers over the past relationship development with the original “We’ve got a year. So we’re hiring,” said Gray Mayes, equipment manufacturers that use TI great competitive director of government relations for Texas microchips. Balancing face-to-face contact advantage because Instruments. “We are struggling to hire with customer locations is challenging, technicians in our fabs [fabrication plants]. especially when 90% of those customers we’ve got a great We’re bringing in more contractors.” have their engineers and OEM (original foundation from equipment manufacturing) plants outside And hiring technicians with skills and these big tech experience in microchip production isn’t the United States. “It would help if we had TI’s only concern. A core issue for the direct flights to China from Texas,” Mayes companies. We have Dallas-based company is getting a steady said. great employers like stream of workers with a Master’s degree Cornerstone companies such as TI, as Texas Instruments, in electrical engineering — a challenge in well as AT&T, Dell, and EDS (Electronic Texas. Data Systems, now known as HP AT&T, Dell and “There is a real need for engineers in Enterprise Services), are critical because others that attract they attract other tech companies, and even this state. We would like to see the number great companies to of electrical engineers coming out of our their former employees tend to start up universities doubled,” Mayes said. “We new tech companies, said Skip Moore, lead Texas that want to do need to grow more worker talent. We need partner of the regional technology, media business with them. more Tier 1 research universities. And we and telecommunications practice at the need more research.” Dallas office of Deloitte & Touche LLP. And from that we SEMATECH, a multicompany research To encourage talent development, the have attracted a lot consortium headquartered in Austin, has TI Foundation is supporting programs to been a major contributor to building the IT of good people here. test and train more high school and junior cluster in Texas. That is the underlying high teachers of math and science. The organization hopes that such programs will “We’ve got a great competitive core value.” spur more teenagers to consider going to advantage because we’ve got a great foundation from these big tech companies,” college to study science and engineering — — Skip Moore, Deloitte & and eventually help the company create and Moore said. “We have great employers like Touche LLP build future products in Texas. Texas Instruments, AT&T, Dell and others that attract great companies to Texas that TI has been trying to keep as much want to do business with them. And from production as possible in the United States that we have attracted a lot of good people and in Texas, Mayes said. But face-to- here. That is the underlying core value.” face contact between TI engineers and its

CHAPTER 10 | 71 High-Demand Occupations in Texas Occupations Number of Jobs in 2006 Growth Through 2016 Computer system analyst 43,850 36% Computer support specialist 42,950 20% Database administrator 10,400 34% Computer software system engineer 31,150 30% Computer software application engineer 30,900 46% Network and computer system administrator 25,250 33% Network system and data communications analyst 17,750 56% Electronic engineering technician 15,850 14% Computer and office machinery repairer 15,150 14% Electrical engineer 14,300 14%

So u r c e Texas Workforce Commission Labor Market and Career Information Department. Table 10.1 Still, Moore has seen many big fields (e.g., a 4% loss in the number of technology employers in Texas shift work semiconductor jobs and a 22% loss in the to Southeast Asia. number of computer products jobs in that “Even some software development jobs four-year period). have gone to India and China. But the • Modest job growth (7%) occurred in data high-end jobs in companies have stayed centers and gaming sector companies. here,” Moore said. “It’s the innovation • Jobs increased in software programming part of all this that is really critical. and other high-tech design companies Innovation is going to be around software along with a strong increase in the and communications and microchips. You number of those companies (e.g., 39% can’t just move all innovation to India and growth in the number of jobs at computer China. The jobs are going to be where the consulting and software programming innovation is happening.” companies). But Moore and other IT industry leaders These trends affect the Texas economy share concerns about future workers who because manufacturing companies are now in the Texas education system. are exporters. Makers of computers, According to these business professionals, semiconductors and electronics equipment schools, including junior high, high school exported $32.1 billion of their goods in and college, are constrained and are not 2009, making that sector second only turning out enough young people with an to chemical makers as the largest Texas interest in engineering, much less a degree exporter. And export sales directly grow the in engineering. Texas and local economies. But aside from vertical industries, IT- | The Data related occupations have shown growth in Texas across the industrial spectrum. The world of IT is dynamic. Looking According to the Texas Workforce at vertical industry employment statewide Commission’s Labor Market and Career from first quarter 2005 to first quarter 2009 Information department, 10 IT-related shows the following highlights: occupations are in high demand and are • Jobs were lost in technology equipment expected to remain vigorous through 2016 manufacturing and related production (see Table 10.1).

72 | CHAPTER 10 solid business plans have been looking | So What? for money. But Texas has fewer than 20 The year 2009 proved difficult, even venture capital firms actively investing, for those with established IT skills. Major and they invest in only four or five tech IT consulting firms were shedding workers companies a year — the past normal rate of as their Fortune 1000 clients held off on investing. The result is that too many good projects, said Doug Wu, software executive IT start-up firms won’t receive the money in residence at the Houston Technology they need to get off the ground. Center. But demand is up for content “There are half as many investors, management, cloud computing and investing half as much of their money,” specialized software development. Clark said. In 2009, the Texas IT industry was also The state Emerging Technology Fund hit with both structural change and cyclical (ETF) helps many Texas tech companies, change, said Andrew Clark, president of but it has limits, said Walter Ulrich, the Houston Angel Network and a veteran president of the Houston Technology “There are not of Compaq and other IT firms. These Center. ETF funding criteria call for one- changes involve customers holding off time start-up funding of groundbreaking, enough venture computer, software and other technology “disruptive” technology. But because capital firms in purchases, which in turn means suppliers the IT industry is rather mature, most Texas. There are half need fewer employees, as in the case of Texas IT companies don’t have a radical computer maker Dell, which closed an “disruptive” product and usually don’t as many investors, Austin plant and laid off workers due to qualify for ETF consideration. The ETF investing half as much lower sales. IT veterans of this industry committee is looking for game-changing are hopeful for a new round of technology technology that is not an improvement to of their money.” investment to stimulate production and existing products but a completely new job growth as the economy begins to show product that will open completely new — Andrew Clark, Houston signs of recovery. markets. Another catch is that companies Angel Network Clark also pointed out that cyclical that receive ETF money cannot go back for changes, in which companies change their a second round of funds to keep growing. entire product focus, are also being felt at Another spin on the IT sector is the IT companies across Texas, including the proliferation of data centers — large following organizations: buildings that house hundreds of computer • Cypress Semiconductor Corp., which servers to run software or backup data for closed its 245-worker plant in Round multiple companies — which have the Rock, Texas, in 2008 added advantage of jobs for existing Texas IT workers. • Dell, which revolutionized the supply chain with superefficient factories and is Data centers filled with hundreds of now trying to sell its factories to third- servers and employing dozens of computer party manufacturers hardware and software maintenance workers will eventually cover Texas, said • Samsung, which announced in August Prabhudev Konana, a professor of IT 2009 that it is cutting 500 workers from business at the University of Texas at its Austin production facility while also Austin. Konana predicted that data centers, investing $500 million to retrofit a sister which house data for small and midsize plant companies, will dot the landscape of Texas There are multiple factors affecting IT within five years — somewhat like self- employment in Texas. storage facilities for electronic information. “There are not enough venture capital “You’re going to see massive data firms in Texas,” said Clark of the Houston centers just for health care information Angel Network. He pointed out that about storage,” Konana said. “Eventually every 200 young, Texas IT companies with company is going to need a data center that

CHAPTER 10 | 73 they can rent. We’re going to have data programmers and other IT workers who centers around like we have video stores are more than a third less expensive than all around today. And we can have it in Texas workers. This is another structural Texas.” challenge facing tech companies in Texas. “We’re in the early stages of the life The advantages Texas has in the IT cycle for data centers. These kinds of jobs field are large numbers of skilled, lower are not going to go out of this country,” priced workers and lower operation costs added Konana. “Firms are very cautious compared with IT centers in California with data, especially customer data. If I ran and Massachusetts. But though Texas has a company, I wouldn’t want my data or my price advantages inside the United States, customers’ data stored in another country even Texas cannot compete with Southeast because of threats of terrorism or theft.” Asia when it comes to number of skilled But the economic power of data centers workers, the price of workers and the cost is still being debated. Rob Adams, a of running a company. former venture capitalist and now a UT- “If we want to be a leader in the IT Austin business professor, disagrees that industry of the future, we need to be a companies will pay a premium to keep their gateway to Southeast Asia,” Adams said. customer data and critical information “Anybody making semiconductors in stored inside the United States. He pointed Texas is just waiting to get laid off,” said to Merrill Lynch and Bank of America’s Adams. “Assume manufacturing is going move to create a data center in Singapore, to go away. And assume that data centers thanks to big incentives offered by the city. will eventually go the way of manufacturing Singapore and other Asian locations and will also go away.” Such is the price of have a distinct economic advantage global competition. over companies in the United States, Concedes Bill Aspray Jr., professor of IT particularly regarding worker salaries. history at the University of Texas at Austin, Texas has a competitive advantage over the “You will see a lessening of job loss for IT hubs of California and New England these manufacturers, but the job loss will due to less-expensive workers, usually a continue.” third less in pay. But India and China have

The Potential of Gaming

Few IT industries in Texas are hotter than gaming and computer simulation. One example of a gaming startup is AnaLogix Development Corp., which has three full-time employees and four contractors who have developed a wireless video- game controller that senses three-dimensional movement. The new company has survived off the savings of its founders along with a $250,000 investment from the state’s Emerging Technology Fund. AnaLogix is in Austin because, according to Ravi Rao, AnaLogix vice president and cofounder, the company’s partners were already in Austin employed in tech jobs when the company was created.

Rao pointed to the Seattle and San Jose areas as current, hot gaming industry hubs. But Rao and his partners are entrenched in Austin and are staying as they move forward with new products for gaming, health care and the military. “Austin has a gaming community, and it’s affordable here,” said Rao.

74 | CHAPTER 10 Chapter 10 | Suggested Strategies

 Think Globally, Plan Regionally more companies conduct transactions over the Internet, the ability to protect financial data, both in company Crucial strategies related to IT include encouraging databases and in transit, is paramount. Increased speed entrepreneurship, enticing high-tech executives and and computational ability of computer microprocessors venture capitalists to live in Texas and promoting long- demand that security algorithms be sufficiently complex term investment. to keep from being defeated. Computer security software “R&D is taking a big hit in the technology field. When companies must deal with constant updates of computer companies invest less in R&D, you’ll see entrepreneurs operating systems and Web-browsing software, both of step up and take the risk. Then their companies grow and which create new vulnerabilities for hackers and identity either get bought out by the companies that didn’t invest thieves to exploit. in R&D or possibly become big companies themselves,” “We’re in a period of deep change structurally and said Ryan Confer, director of operations at Innovate technologically. You can feel the tectonic plates shifting Texas, a tech business support organization. under our feet in our roles in the technology field,” said Adjusting to the labor savings and balancing the Powers, who is involved in multiple efforts in Texas to distribution of workers between existing large companies attract, launch and grow tech companies. and new start-up firms is the trick for Texas leaders, said In the meantime, dislocated Texas IT workers may Marc Nathan, director of IT entrepreneur development have to brush up on new skills to obtain any of the new at the Houston Technology Center. technology jobs. In the first quarter of 2010, according Making that balance is easier in the big business to the Conference Board, more than 24,000 jobs were centers of Houston, Dallas and Austin, where companies posted online for computer systems analysts/software have a large base of IT workers and many Fortune engineers in Texas. But many of these jobs require 1000 companies. These companies have their own IT updated skill sets. An emphasis on skill upgrade training staff, but they also use outside consulting firms. That for IT workers is critical to reemploy many of these population of existing technology workers could push the dislocated workers. Texas education institutions may Texas economy forward with new ideas for products and need to consider more short-term certificate training companies, said Nathan. programs to retrain IT workers quickly. “When oil is down, entrepreneurship goes up. The glass is still half full for Powers. He pointed Supporting entrepreneurship is what we should do,” said to the many Central Texas semiconductor plants that Nathan. “Focusing on an entrepreneurial culture will create are creating microchips for use in energy-saving or white-collar jobs, especially in Houston. Nobody comes to green products. Powers also noted that Austin hosted Houston to retire. People come to Houston to work.” international conventions for supercomputing and Some rays of light shine bright in the IT world. robotics in 2009, raising the profile of the capital city, Broadband remains hot as is the fiber-to-home market. and that 7 of the 10 fastest computers in the world are The ability to securely transmit and receive information running on AMD processor chips that were made or across great distances in seconds has become critical. designed in Austin. The Organization for Economic Cooperation and “We’ve become a creative center that is attracting Development (OECD) believes fiber optics will be the brilliant people,” said Powers, who believes that Central backbone of the broadband future. Texas is moving toward a new, computer-centered Another increasingly hot field is the computer security economy of supercomputing, robotics, medical devices industry, involving both hardware and software. As and nanotechnology products that can change mankind.

“When oil is down, entrepreneurship goes up. Supporting entrepreneurship is what we should do. Focusing on an entrepreneurial culture will create white-collar jobs, especially in Houston. Nobody comes to Houston to retire. People come to Houston to work.”

— Marc Nathan, Houston Technology Center CHAPTER 10 | 75