How Big Tech’s pandemic bubble burst

New York

In January 2021, Microsoft CEO Satya Nadella spoke highly of how the first year of the pandemic had sparked an incredible 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 has swept every company and every industry,” he said.

Two years later, the situation is much more serious. This week, Microsoft said it plans to cut 10,000 jobs as companies reassess their pandemic-era digital spending and face broader economic uncertainty. Microsoft’s customers, Nadella said, are now trying to “do more with less.”

Microsoft is not the only company experiencing such a dramatic turnaround. A few days later, Google-parent Alphabet followed suit, saying it planned to cut about 12,000 jobs, more than 6% of its workforce.

Over the past three months, Amazon, Google, Microsoft and Facebook parent Meta have announced plans to lay off more than 50,000 employees from their collective ranks, a stunning turnaround from in the early days of the pandemic when tech giants grew rapidly to meet the growing demand of countless households living, shopping and working online. At the time, many tech leaders seemed to expect growth to continue unabated.

Through September 2022, Amazon ( AMZN ) has more than doubled its corporate headcount compared to the same month in 2019, hiring more than half a million additional workers and significantly expanding its warehouse footprint. Meta almost doubled the number of employees 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, all of which also announced layoffs in recent weeks.

But many of those same leaders appear to have misjudged how much pandemic-fueled growth will continue once people return to their offline lives.

In recent months, higher interest rates, inflation and recession fears that have led to a decline in advertising and consumer spending have weighed on tech company profits and stock prices. According to Refinitiv estimates, Wall Street analysts now expect single-digit revenue growth during the all-important December quarter for Google, Microsoft and Amazon, and declines for Meta and Apple when they report earnings in the coming weeks.

The recent cuts in most cases amount to a relatively small percentage of each company’s total 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 left. But it does change the lives of many workers who are now left to look for new jobs after their employers exit a period of seemingly limitless growth.

“They went from being on top of the world to having to make some really tough decisions,” said Scott Kessler, global head of technology, media and telecommunications at investment firm Third Bridge. “To see this dramatic reversal of fortunes … is not only the magnitude of these moves, but also the speed with which they took place. You saw companies making the wrong strategic decisions at the wrong times.”

Apple ( AAPL ) remains the exception as the one major tech company that has yet to announce layoffs, though the iPhone maker has reportedly instituted a hiring freeze in all areas except research and development. Apple ( AAPL ) grew its staff by 20% from 2019 to last year, significantly less than some of its peers.

“They’ve taken what appears to be a more deliberate approach to hiring and overall management of the company,” Kessler said.

Tech CEOs, from Meta’s Mark Zuckerberg to Salesforce’s Marc Benioff, blamed themselves for over-hiring early in the pandemic and misreading how the surge in demand for their products would moderate after Covid-19 restrictions eased. Pichai also took the blame for Alphabet’s cuts on Friday and said he plans to return the company’s focus to its core business and “highest priorities.”

“The fact that these changes will affect the lives of Google employees weighs heavily on me, and I take full responsibility for the decisions that got us here,” Pichai said in an email to employees posted on the company’s website Friday.

Notably, however, none of the CEOs of major tech companies Now monitoring layoffs seems to be affected by any change in their compensation or title.

Tech layoff announcements are likely to continue in 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 downsizing.

“I think there is an element [some companies saying]”Maybe we don’t see this now, but all these other big companies, these companies that we compete with, that we know, that we respect, are taking actions like this, so maybe we should think and act accordingly,” Kessler said.

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