How the Big Tech Pandemic Bubble Burst | CNN Business
In January 2021, Microsoft CEO Satya Nadella spoke highly of how the first year of the pandemic had led to a surprising shift toward online services, benefiting his company in the process. “What we have witnessed over the past year is the dawn of a second wave of digital transformation that is sweeping across all businesses and all sectors,” he said.
Two years later, the situation seems much tougher. This week, Microsoft said it planned to lay off 10,000 employees as companies rethink their pandemic-era digital spending and face broader economic uncertainty. Microsoft customers, Nadella said, are now trying to “do more with less.”
Microsoft is not the only company undergoing such a dramatic change. Days later, Google-parent Alphabet followed suit, saying it plans to cut about 12,000 jobs, representing 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, an impressive investment of in the early days of the pandemic, when tech giants were growing rapidly to meet the growing demand of countless households living, shopping and working online. At the time, many tech leaders seemed to expect this 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 vastly expanding its warehouse footprint. Meta nearly doubled its workforce between March 2020 and September last year. Microsoft ( MSFT ) and Google ( GOOGL GOOGLE ) also hired thousands of additional workers, as did other tech companies like Salesforce ( CRM ), Snap ( SNAP ) and Twitter, which have also announced layoffs in recent weeks.
But many of these same leaders seem to have misjudged how much pandemic-fueled growth would continue once people returned to their offline lives.
In recent months, higher interest rates, inflation and recession fears that have led to a pullback in advertising and consumer spending have weighed on tech companies’ profits and share prices. Wall Street analysts now project single-digit revenue growth in the important December quarter for Google, Microsoft and Amazon, and declines for Meta and Apple when they report earnings in the coming weeks, according to the Refinitiv estimates.
The recent cuts in most cases represent a relatively small percentage of each company’s overall workforce, essentially wiping out the last year of gains for some but leaving them with tens or, in some cases, hundreds of thousands of workers remaining But it nonetheless changes the lives of many workers who are now left scrambling for new jobs after their employers abandon a period of seemingly limitless growth.
“They went from being on top of the world to having to make really tough decisions,” said Scott Kessler, global technology, media and telecommunications sector leader at investment firm Third Bridge. “To see this dramatic reversal of fortunes … is not just the magnitude of these moves, but the speed at which they’ve played. You’ve seen companies make the wrong strategic decisions at the wrong times.”
Apple ( AAPL ) remains an outlier as a major tech company that has yet to announce layoffs, although the iPhone maker has reportedly instituted a hiring freeze in all areas except research and development. Apple ( AAPL ) grew its workforce by 20% from 2019 to last year, far less than some of its peers.
“They’ve taken a seemingly more thoughtful approach to hiring and generally managing 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 a surge in demand for their products would cool once it cooled. reduce Covid-19 restrictions. Pichai on Friday also took the blame for Alphabet’s cuts, saying he plans to return the company’s focus to its core business and “higher priorities.”
“The fact that these changes affect the lives of Googlers weighs heavily on me, and I take full responsibility for the decisions that got us here,” Pichai said in an email to employees that was posted Friday on Google’s website. the company.
It is worth noting, however, none of the CEOs of the Big Tech company now the oversight of layoffs appears to have been affected by any changes to their compensation or title.
Tech layoff announcements are likely to continue into the upcoming earnings season, Kessler said, amid ongoing economic warning signs. And even companies that may not be feeling the pain yet can follow their peers’ lead in cutting their workforces.
“I think there is an element of [some companies saying]”We may not see it right now, but all these big companies, these companies that we compete with, that we know, that we respect, are taking these kinds of actions, so maybe we should think and act accordingly,” Kessler. said