How the Big Tech Epidemic Bubble Popped

New York

In January 2021, Microsoft CEO Satya Nadella spoke highly of how the first year of the pandemic had produced a stunning shift to online services, benefiting his company in the process. “What we’ve witnessed over the past year is the dawn of a second wave of digital transformation that is sweeping every company and every industry,” he said.

Two years later, the situation looks much more dire. Microsoft announced this week that it plans to lay off 10,000 employees as businesses review their digital spending during the pandemic and grapple with broader economic uncertainty. Microsoft customers, Nadella said, are now trying to “do more with less.”

Microsoft isn’t the only company experiencing such a dramatic turnaround. Days later, a Google parent Alphabet followed suit, saying it plans to cut about 12,000 jobs, or more than 6% of its workforce.

Over the past three months, Amazon, Google, Microsoft and Facebook parent Meta have announced plans to cut more than 50,000 employees from their collective ranks, marking a stunning reversal. The early days of the pandemic saw tech giants ramping up to meet the growing demand of countless households living, shopping and working online. At the time, many tech leaders seemed to expect that growth to continue unabated.

By September 2022, Amazon ( AMZN ) had more than doubled its corporate headcount compared to the same month in 2019, hiring more than half a million additional workers and significantly expanding its warehouse space. Meta nearly doubled its headcount between March 2020 and September of last year. Microsoft ( MSFT ) and Google ( GOOGL GOOGLE ) also hired thousands of additional workers, as did other tech companies such as Salesforce ( CRM ), Snap ( SNAP ) and Twitter, all of which have announced layoffs in recent weeks.

But many of those same leaders seem to have misjudged how much growth will continue in the wake of the pandemic as people return to their offline lives.

In recent months, high interest rates, inflation and fears of a recession that have caused a pullback in advertising and consumer spending have all weighed on tech companies’ profits and share prices. Wall Street analysts now expect single-digit revenue growth for Google, Microsoft and Amazon in the December quarter, and declines for Meta and Apple when they report earnings in the coming weeks, according to Refinitiv estimates. :

The latest layoffs in many cases represent a relatively small percentage of each company’s total workforce, essentially wiping out the last year of profits for some but leaving them with tens or in some cases hundreds of thousands of workers. But it still disrupts the lives of many workers who are now left scrambling for new jobs after their employers exit a period of seemingly endless growth.

“They went from being on top of the world to making some really tough decisions,” said Scott Kessler, global technology, media and telecommunications leader at investment firm Third Bridge. “To see this dramatic reversal of fortunes … it’s not just the magnitude of these moves, but the speed at which they’re made. You’ve seen companies make the wrong strategic decisions at the wrong times.”

Apple ( AAPL ) remains the only major tech company yet to announce layoffs, though the iPhone maker has reportedly frozen all areas except research and development. Apple ( AAPL ) grew its workforce by 20% from 2019 to last year, significantly less than some of its peers.

“They seem to have taken a more thoughtful approach to hiring and overall management of the company,” Kessler said.

Tech CEOs, from Meta’s Mark Zuckerberg to Salesforce’s Marc Benioff, have blamed themselves for over-hiring early in the pandemic and misunderstanding how growth in demand for their products would ease as Covid-19 restrictions eased. Pichai also took the blame for Alphabet’s cuts on Friday and said he intended to return the company’s focus to its core business and “highest priorities.”

“The fact that these changes will affect the lives of Googlers weighs heavily on me, and I take full responsibility for the decisions that got us here,” Pichai said in a letter to employees that was made public. on the company’s website on Friday.

Notably, however, none of the Big Tech company CEOs layoffs of now supervisory workers appear to have been affected by any change in their compensation or title.

Announcements of tech cuts are likely to continue into the upcoming earnings season, Kessler said, amid continued economic warning signs. And even companies that aren’t feeling the pain yet can follow their peers’ lead by cutting their workforces.

“I think there’s an element [some companies saying]”We may not see this now, but all the other big companies, these companies that we compete with, that we know we respect, are taking actions like this, so maybe we should think and act accordingly,” he said. Kessler. said:


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