How Big Tech’s pandemic bubble burst

New York

In January 2021, Microsoft CEO Satya Nadella lofted how the first year of the pandemic sparked a staggering shift to online services, benefiting his company in the process. I spoke in words. “What we have witnessed over the past year is the dawn of the second wave of digital transformation that will sweep every company and every industry,” he said.

Two years later, things are even tougher. This week, Microsoft said it plans to lay off 10,000 employees as companies rethink digital spending in the pandemic era and face broader economic uncertainty. According to Nadella, Microsoft’s customers are now trying to “do more with less.”

Microsoft is not the only company to experience such a dramatic reversal.A few days later, Google-Parent The company Alphabet followed suit, announcing plans to cut about 12,000 jobs, more than 6% of its workforce.

In the past three months, Meta, the parent company of Amazon, Google, Microsoft and Facebook, has announced plans to cut more than 50,000 employees from its overall ranks. In the early days of the pandemic, when tech giants were growing rapidly to meet the surging demand from millions of households living, shopping and working online. At the time, many technology leaders seemed to expect this growth to continue unabated.

By September 2022, Amazon (AMZN) will more than double its workforce compared to the same month in 2019, hiring over 500,000 additional employees and significantly expanding its warehouse footprint. expanded to Meta nearly doubled its headcount between March 2020 and September last year. Microsoft (MSFT) and Google (GOOGL GOOGLE) also hired thousands of new employees, as did other tech companies such as Salesforce (CRM), Snap (SNAP) and Twitter.

But many of those same leaders seem to have misjudged how long the pandemic-spurred growth will continue even after people return to living offline.

Rising interest rates, inflation and recession fears have caused advertising and consumer spending to slump in recent months, all weighing on tech earnings and stock prices. Wall Street analysts now project single-digit revenue growth in the all-important December quarter for Google, Microsoft and Amazon, with Meta and Apple reporting earnings in the coming weeks, according to Refinitiv estimates. We expect it to decrease over time.

For the most part, recent job cuts represent only a relatively small percentage of each company’s overall headcount, some essentially wiping out last year’s profits, but tens of thousands, and sometimes hundreds of thousands employees remain. But it is nonetheless upending the lives of many workers who are left looking for new jobs after their employers have completed a seemingly endless period of growth.

“They have had to make very difficult decisions from the top of the world,” said Scott Kessler, global sector leader for technology, media and telecommunications at investment firm Third Bridge. “To see this dramatic reversal of fortune…it’s not just the magnitude of these moves, but the speed with which they unfolded. We’ve seen companies make the wrong strategic decisions at the wrong time. .”

Apple (AAPL), which has reportedly frozen hiring in all sectors except R&D, remains an outlier as one of the major tech companies yet to announce layoffs. Apple (AAPL) increased its headcount by 20% from 2019 to last year, significantly less than some of its peers.

“They seem to be taking a more thoughtful approach to hiring and managing the company as a whole,” says Kessler.

Tech CEOs from Meta’s Mark Zuckerberg to Salesforce’s Marc Benioff overhire early in the pandemic and wonder how the surge in demand for their products will cool once Covid-19 restrictions are eased. I’ve been blaming myself for misreading. Pichai said Friday that he also took responsibility for Alphabet’s cuts and plans to return the company’s focus to its core business and “top priorities.”

“The fact that these changes affect the lives of Googlers weighs heavily on me. I take full responsibility for the decisions that have brought us here,” Pichai said Friday in a statement to the company. said in an email to employees posted on the website.

However, none of them are CEOs of big tech companies in particular. Now, the laid-off director appears to have been hit with a change in pay or title.

Kessler said tech layoff announcements are likely to continue into next earnings season amid continuing economic warning signs. And even companies that haven’t felt the pain yet may follow in the footsteps of their peers by laying off staff.

“I think there is an element of [some companies saying]“We may not be seeing this right now, but all the other big companies, these companies that we compete against, we know, we respect, are this kind of is taking action, so perhaps we should think and act accordingly.

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