Massachusetts lost 121 software companies and 3,859 software-related jobs during the past year, according to an industry group's figures, suggesting that one of the most vibrant sectors of the 1990s has yet to join in the state's tepid economic recovery.
It was the fourth straight year of declines in the number of software businesses and jobs, a survey published in the Massachusetts Software Council annual directory shows. But losses in both categories narrowed from last year, and software industry leaders insisted they have seen more encouraging signs in recent months.
Council chairman Paul Egerman, chief executive of speech recognition software firm eScription Corp. in Needham, said the 2004 figures were based on a survey taken earlier in the year. But while spending on software has since picked up, and many companies have resumed hiring, efficiency gains and the shifting of programming work offshore may be holding back employment growth, he suggested.
"Outsourcing could be one factor," Egerman said. "A lot of small companies feel they are under pressure to do outsourcing. It's become almost a condition for companies getting venture capital."
The council's survey found that 2,781 companies in Massachusetts sell software and related high-tech products and services, a drop of 4.2 percent from 2,902 last year. This year's list includes 2,381 with headquarters in the state and 400 based outside the state but with operations here. Last year, 2,525 software companies were based in Massachusetts and 377 based elsewhere.
As for jobs, software companies employed 124,807 workers in Massachusetts this year, a 3.0 percent decrease from last year's 128,666 jobs. The figures include jobs at both software-only companies and the software divisions of hardware or electronics firms.
Last year, the number of Massachusetts software companies fell 5.7 percent, and the number of jobs 4.9 percent, from 2002.
While software leaders last year had predicted their business was stabilizing, recent reports from council members indicate that many are only now boosting their payrolls.
"I see this as a bottom," said Joyce L. Plotkin, the software council's president. "All the indicators are that we're settling out. The word from large companies and small companies is: We're hiring."
Egerman agreed that next year's survey would show expansion. "One of the toughest things for businesspeople is figuring out when to pivot," he contended. "When times are bad, you manage around cost. But when things are going better, you manage around revenue and growing the company."
Robert Weisman can be reached at email@example.com.