Suddenly the light came on and the music went off: the party was over. After two years of frenzy in the technology sector, with explosive growth and enviable expectations in the face of increasing digitization after the global coronavirus pandemic, it’s time to address the hangover. The first to open the ban was Meta (Facebook). This ‘black’ month of January, three more of the group of the five largest have arrived: Alphabet (Google), Amazon and Microsoft, with Apple as the only one that has not yet taken out the scissors. There is a phrase from the CEO of the owner of Google, Sundar Pichai, that sums up the situation: “We hire for another reality.”
The outbreak of the coronavirus pandemic was a headache for many industries. Not for the technology company, which saw how the increase in digital services boosted its business. More purchases online, more teleworking, more consumption at home, more software, more spending in the cloud… This led companies to skyrocket their outlays to invest and meet demand. Amazon accelerated in the openings of centers. Google or Microsoft hired many more employees and built more data centers. But in the face of a creeping ‘back to normal’ early last year, valuations, based on those past growth expectations, fell. The party was coming to an end.
What were double-digit growth in revenues turned into a clear slowdown. Between January and September, Amazon barely grew its sales volume by 9.7% and returned to the feared net losses on its income statement. Google increased its billing -mainly from cloud services and online advertising- by 6% in the summer quarter (compared to 41% in 2021) and profits plummeted to 13,900 million, 6,000 million less than a year before. During the last months of last year they studied the measures. And the first to take action on the matter was It was just the anteroom.
In the first three weeks of January, the rest of the competitors came together to put an end to the frenzy. Amazon will lay off more than 18,000 employees worldwide, especially in the area of devices and human resources, in addition to warehouses. Of course, this barely represents 1% of its global workforce, including the large logistics area. This week two other giants have also approved more cuts in their councils: Alphabet will cut 12,000 employees, 6% of the total, while Microsoft will cut some 10,000 (more than 4.5%).
The letter that Alphabet’s CEO, Sundar Pichai, has sent to his staff sums up the current situation well: “In the last two years we have seen periods of spectacular growth. We hire for a different economic reality than the one we face today.” Among their priorities there is one that has become an obsession for all these companies: artificial intelligence. For his part, Doug Herrington, head of the Consumer division, warned in a letter: “As we head into 2023, we continue in uncertain economic times.” Microsoft CEO Satya Nadella elaborated further: “Customers accelerated their digital spend during Covid; we are now seeing how they are optimizing their spend to do more with less; we are also seeing companies across industries more cautious.”
Apple is the only one that has not entered this phase of cuts, totally unprecedented in the last decade of very strong growth in the entire sector. The iPhone maker has been less aggressive in growing its workforce. Revenue growth was 8% in its last fiscal year and profit growth was 9%. Its workforce amounted to 164,000 employees worldwide at the end of September. This represents a rise of just 11% compared to the same period in 2020, by far the lowest rate of this elite of technological giants.
The rest of the rivals have shot up their squads, so these cuts still do not cover the growth experienced in recent years. For example, Alphabet had 123,000 workers in the first quarter of 2020, when Covid broke out. In September it added just over 186,000. This represents a growth of 50%. The proportions are more or less similar in the rest. The most paradigmatic case is that of Meta (Facebook): it has gone from March 2020 to September 2022 from 44,000 to 87,000 workers. Seeing that the adjustments are still not being especially aggressive in terms of the global number of their squads, it remains to be seen if there will be a second wave throughout this 2023 still with uncertainty.
These measures are having their effects in Spain. Meta closed its Employment Regulation File (ERE), with the departure of just under 20% of its local workforce. Twitter has also initiated a collective dismissal procedure for the closure of its office and the dismissal of a good part of the almost 30 workers. The three that have taken measures in this month of January will have to notify the conditions. To carry out a negotiated ERE, at least 10% of the local squad must win. The big five have thousands of workers, with Amazon as the main employee for its logistics division.
The ‘domino effect’ in the rest of the technology sector is also being felt among smaller companies. Startups are also getting a wave of exits. In Spain there have been relevant cases such as Typeform, which laid off 25% of its workforce, or Devo. Both are unicorns that grew strongly during the pandemic and that today are looking to adjust costs to lengthen their boxes. Wallbox, although it does not fall into that category as it is already a listed company, also joined this week with the announcement of layoffs for 15% of the workforce. The music has turned off. Now it remains to manage the hangover.