Google Announces Mass Lay-Offs: Will More Tech Companies Follow Suit?
February 12 2023 - 01:44PM
Finscreener.org
The ongoing macro environment is
extremely challenging for corporates and equity investors. The
triple whammy of rising interest rates, red-hot inflation, and the
threat of an upcoming recession have resulted in corporate layoffs
across the board.
Several companies on Wall Street
are now looking to reduce costs and focus on improving the bottom
line as consumer demand remains quite subdued. In fact, the first
five weeks of 2023 has seen close to 100,000 job cuts, and this
number is likely to move higher in the coming
months.
According to a report from
Easymarkets, a new-age trading and investing platform, the
ongoing earnings will be a key driver of company policies in the
near term.
All eyes on big-tech
Alphabet IncU+02019s (NASDAQ: GOOG)
Google has recently joined its peers and chosen to lay off a
significant number of workers, reducing its headcount by 12,000 (or
6%). The company’s former staff has openly criticized the rationale
behind the move, which seems somewhat ruthless and impersonal, with
information about their loss of employment being disseminated via
the technologies they had a hand in creating.
ItU+02019s just the latest in a
string of large-scale big tech layoffs in recent months.
Amazon (NASDAQ:
AMZN),
Meta (NASDAQ:
META), and
Microsoft (NASDAQ:
MSFT) are some of the
more notable companies terminating thousands of
staff.
Tech employment in Silicon Valley
skyrocketed after the Covid-19 outbreak forced people to shift and
expand their online presence. During this time basically all the
big tech companies rapidly expanded their workforces to keep up
with the surge in demand.
Are there more cuts coming across
the industry this year? Probably.
According to
Layoffs.fyi, a website
that records job layoffs in the industry, about 200,000 tech
workers have been let go since the start of last year
already.
There are several factors at play
that have forced the hand of these companies to shed their
workforce. LetU+02019s look at a few of them.
Recession & Inflation
In July 2022, the U.S. Bureau of
Economic Analysis reported a second consecutive quarter of economic
contraction, sparking recession fears. News media still fear a
recession, and economists are uncertain.
Rising costs force businesses to
decrease their expenses, and since workers are a companyU+02019s
biggest expenditure, theyU+02019re usually the first to go.
Advertising cuts hurt IT companies like Meta, Google,
Snap (NYSE:
SNAP), and ByteDance as
they majorly depend on this revenue stream.
Higher rates
The Fed has increased rates eight
times since the beginning of 2022 and may have more to go in 2023.
Due to the increasing expenses, companies can generally borrow less
at higher interest rates, and the increased fees also affect VCs
and other startup financings. Companies avoid riskier investments
during times like these when the economy is uncertain, and often
they rethink recruiting and expansion.
Pressure from Investors
As revenue declines, shareholders
often demand that corporations cut costs after a time of rapid
expansion. Companies like Microsoft and Meta have
received criticism
from investors for having large
workforces relative to their competitors.
Is Artificial Intelligence replacing
workers?
In a
note from Alphabet CEO
Sundar Pichai on January 20th, their company’s layoffs were
announced as a means for the firm to strengthen its emphasis on
artificial intelligence, among other things. With a huge push and
competition for this space amongst many of the big tech firms,
itU+02019s not hard to see more layoffs coming down the pike in the
near future as a result.
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