Tech companies are rapidly reducing their workforce. In January alone, 23,670 employees were laid off from 85 tech companies, according to Layoffs.fyi, marking the highest number since March when nearly 38,000 people were laid off.
Back-to-Back Layoffs in the Tech Industry
SAP announcing adjustments affecting 8,000 employees and Microsoft cutting 1,900 positions in its gaming division show the increased activity in job changes and layoffs earlier this week. Fintech startup Brex laid off 20% of its workforce, and eBay reduced its full-time staff by 1,000 jobs, equivalent to 9% of its workforce, emphasizing the need to organize teams for speed, aiming for greater agility, collaboration, and quicker decision-making, according to a memo to from eBay's CEO, Jamie Iannone.
Google acknowledged cutting several hundred jobs earlier this month, while Amazon eliminated positions in its Prime Video, MGM Studios, Twitch, and Audible divisions. Unity is reducing its staff by about 25%, and Discord, a popular messaging service among gamers, is letting go of 17% of its workforce.
Layoffs Preceding Tech Earnings Quarterly Report by Alphabet, Amazon, Apple, Meta and Microsoft
The activity surge precedes the upcoming tech quarterly earnings report of Alphabet, Amazon, Apple, Meta, and Microsoft next week. Investors have praised the cost-cutting measures implemented by companies last year in response to rising inflation, interest rate hikes, recession concerns, and a tough market in 2022.
Last January, layoffs reached their highest point when 277 technology companies cut nearly 90,000 jobs as the industry faced the conclusion of a more than decade-long bull market. Most workforce adjustments occurred in the first quarter of 2023, with the number of job cuts decreasing each month until September before ticking up toward the year's end. One reason for the surge in January could be that companies, while budgeting for the year ahead, have realized they can do more with less.
Repositioning the Tech Industry for AI
As per CEO Mark Zuckerberg, 2023 was the year of efficiency, resulting in an almost 200% stock value increase alongside 20,000 job cuts. Artificial intelligence (AI) was emphasized throughout the industry, with automation possibilities in customer service, travel bookings, and marketing campaigns.
The excitement around AI has sparked economic worries about reduced reliance on human labor as technology advances. However, the impact is being felt more immediately in the workforce, where the high demand for AI has led some tech companies to trim staff in certain areas to allocate more resources for the intensive development of AI products.
Art Zeile, the CEO of DHI Group, which owns the tech recruiting platform Dice, noted that companies are downsizing employees linked to unsuccessful product lines or divisions to reposition for AI, highlighting that the cuts observed this January is significantly lower than the numbers from a year earlier, adding that "it's not the kind of news that it was earlier."
Different Verbiages on Downsizing Workforce
Company executives use various terms to communicate their downsizing message to employees and investors, but the common theme is their effort to become more focused.
Microsoft Gaming CEO Phil Spencer stated that the company's layoffs are part of a broader "execution plan" to minimize "areas of overlap" three months after Microsoft acquired Activision Blizzard.
SAP mentioned that its restructuring aims to enhance focus on key strategic growth areas, particularly Business AI.
In a memo titled "2024 priorities and the year ahead," Alphabet CEO Sundar Pichai informed employees that the company has ambitious goals and will invest in significant priorities this year and that "to create the capacity for this investment, we have to make tough choices."
At Amazon's Audible unit, CEO Bob Carrigan stated that the company needs to operate in a "leaner and more efficient" manner for the foreseeable future.
Nigel Vaz, CEO of consulting firm Publicis Sapient, told CNBC that some companies might be considering the success Meta and Salesforce achieved after significant cost-cutting measures last year. Salesforce reduced its workforce by about 10% in January 2023, and its stock nearly doubled for the year, marking its best performance since 2009. Similarly, after Meta announced cuts, the company's shares had their best year since Facebook debuted on the Nasdaq in 2012.
Vaz mentioned that Meta and Salesforce are two companies' examples, saying, "The minute they got the impetus, then demonstrated what happens when you act with an edge on stuff that you probably knew you needed to do."
Job Cuts Outside Tech Industry
Layoffs are not confined to the tech industry alone. Citigroup recently announced a 10% workforce reduction. Levi Strauss is also laying off at least 10% of its global corporate workforce in a restructuring move. Even media giant Paramount is making cuts to operate as a more efficient company.
In the tech sector, both large and small companies across consumer and enterprise markets are cutting jobs. Larger publicly traded companies are intensely focused on profitability, margins, and cost-cutting, while smaller tech businesses, including contractors, freelancers, and overseas workers, also feel the impact.
Optimism on Tech Earnings Announcements
While the upcoming tech earnings announcements will provide a clearer outlook, recent macroeconomic reports offer optimism. The economy grew faster than expected in the fourth quarter, and inflation showed signs of cooling. Gross domestic product (GDP) increased at a 3.3% annualized rate, beating Wall Street estimates, and consumer prices rose 2.7% annually, down from 5.9% a year ago.
Investors are optimistic about the possibility of Federal Reserve rate cuts in 2024, following the central bank's 11 rate hikes in less than two years to combat inflation. Corporate leaders, including Vaz, express optimism about inflation significantly decreasing while spending rebounds in various sectors.
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