Tech Companies Not Immune to Government Shutdown

Tech Companies Not Immune to Government Shutdown
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Tech Companies Not Immune to Government Shutdown Tech Companies Not Immune to Government ShutdownNEW YORK – On Sunday, the sixth-largest U.S. Government contractor, United Technologies (NYSE:UTX) announced that the company had reversed plans to furlough as many as 4,000 workers in connection with the current shutdown of the Federal Government.  The announcement came after the Pentagon said that most civilian employees at the Department of Defense would be put back to work.


As previously reported, the Connecticut-based company had announced plans to furlough 2,000 workers at their Sikorsky Aircraft unit on Monday.  That unit assembles the hi-tech Black Hawk helicopters and the shutdown would have affected thousands of suppliers including technology firms that provide equipment packs for avionics, weapons systems, and other components.  The announcement was brought on by the Pentagon’s furlough of military inspectors required to oversee production.  Employees at Pratt & Whitney and UTC Aerospace also faced furloughs if the shutdown continued.

Over the weekend, the Pentagon announced that nearly 90 percent of the more than 350,000 civilian employees it furloughed last week will be coming back to work, for now.  While United Technologies was one of the first Government contractor to change their furlough plans, Lockheed Martin Corp. (NYSE:LMT) had not called off plans to put employees on leave as of 6 p.m. in Washington.

The shutdown, which is now entering its second week, is expected to affect virtually all vital industries in the U.S. including the tech industry.  The closure of Government contractors that rely on technology components is just the beginning.  According to Michael McGeary at DevBeat many tech companies could face a drag on their cash flow as tech companies doing business with the Government will experience late payments; this includes tech giants like Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) down to tech startups with Government contracts.  In addition, as the tech sector has become an essential part of the economic recovery, the Government shutdown could delay hiring plans at many firms.

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Other obstacles created by the shutdown include delays in passport and visa services, for the tech industry this means that issuance of H-1B visas will be put on hold for the time being.  In addition, spectrum management, consumer protection, and enforcement of competition rules, or at least the enforcement thereof, will be non-existent during the shutdown.  Finally, the IPO market could take a hit in the lead up to the debt ceiling, which is expected to be breached on October 17.  As the Government’s willingness to continue funding the massive deficit comes into focus, investors could become nervous about dollar denominated investments and might pull back from investing in the U.S. as such more volatility in U.S. financial markets should be expected in the coming weeks.