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A recurring pattern of recent employee layoffs among tech giants reveals these companies are hedging against economic uncertainties.
Despite the current economic conditions, a number of tech giants are still likely to embark on company layoffs even though they are turning profits. These layoffs have been ascribed to a slowdown in operational growth and seen as a hedge against economic uncertainties.
Across the United States, Europe, and Asia, tech giants such as Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and SAP have embarked on mass layoffs. Financial services company Jefferies weighed in on the layoff trend, saying:
“Headcount reduction is a result of over-hiring during the pandemic and a slower growth outlook than originally forecasted.”
Also observing that elevated interest rates have impacted consumer spending, Jefferies added that “[tech giants] need to reduce headcount in order to regain operating efficiency with a headcount that matches current demand trends”.
The surge in interest rates also renders capital more expensive and sees companies, including startups, reduce headcount costs. Looking at this development another way, a report by Bank of America Global Research stated that “particularly for startups, the surge in employment was partly fueled by cheap capital”.
Global Tech Giants that Have Resorted to Staff Layoffs to Remain Competitive
For the last quarter of 2022, Microsoft reported a net profit of $16.4 billion, representing an 8% drawdown year-over-year. The consumer software company’s results benefited immensely from its cloud business, up 27% YoY to $27.1 billion. In Microsoft’s annual report, company CEO Satya Nadella noted:
“We reported $198 billion in revenue and $83 billion in operating income. And the Microsoft Cloud surpassed $100 billion in annualized revenue for the first time.”
However, Microsoft’s glowing Q4 2022 outing did not prevent the Washington-based company from downsizing staff earlier this year. In January, Microsoft announced it was laying off 10,000 employees to prepare for slower revenue growth.
E-commerce giant Amazon also announced the layoffs of more than 18,000 workers in January. This grim announcement came even though the company beat analysts’ estimates for its Q4 2022 results. Like Microsoft, Amazon chalked up its downsizing to recessionary pressures and a drawdown in consumer spending.
Germany’s SAP announced it was cutting 3,000 jobs in January despite meeting its guidance across the board for the 2022 full year. Meanwhile, Singaporean tech company Sea Group let roughly 500 full-time and contractual staff go despite posting its first quarterly profit since its inception. Elsewhere in Asia, Indonesia’s GoTo Group has also cut many jobs despite relative profitability.
In February, leading semiconductor company Dell (NYSE: DELL) announced a 5% staff layoff. This announcement came even though the company reported a record revenue haul of $102.3 billion for the 2023 fiscal year.
Dell’s operating income was also up to $5.77 billion (24%) at the time.
The Apple Formula
Unlike most leading tech players, Apple (NASDAQ: AAPL) has refrained from mass layoffs. However, the iPhone maker is also bracing for more austere economic parameters by hiring at a slower pace. In March, Apple also reportedly delayed some employee bonuses, as the company experienced production headwinds in China.