Status: 11/15/2022 4:17 p.m
Job cuts are rampant at US tech giants. Whether Amazon or Facebook: Thousands of employees are suddenly laid off. The development has different causes and poses major challenges.
After Twitter and the Facebook parent Meta, now Amazon: Today the report made the rounds that the world’s largest online mail order company Amazon is planning its biggest job cuts to date. The once rapidly growing technology giants are in a crisis mood.
According to the New York Times, Amazon wants to start cutting around 10,000 jobs this week. The newspaper relies on insiders. A few days ago, Meta announced job cuts of a similar magnitude. And after Tesla boss Elon Musk took over the Twitter price reporting service, he even fired half of the workforce. Even bankruptcy cannot be ruled out, Musk said, to the dismay of the remaining employees and the financial market.
Bunch of reasons for the layoffs
The wave of layoffs at the US giants in the tech sector has many causes, including economic developments as well as changes in various areas of the tech sector. Possible bad decisions and bad investments in individual companies are now causing a hard impact in the present, which is no longer quite so rosy, with less favorable prospects for the coming years.
“Some of the companies in the tech sector are certainly using the moment to cut jobs, although it could just as well have been started half a year ago,” says digital expert Sunnie Groeneveld from the consulting firm inspire 925. She sees the phase of layoffs mainly as a reaction to the end of the “corona boom”, which had given many of the companies in the tech sector a kind of special boom.
Selection of staff
Meta boss Mark Zuckerberg had already said at a virtual employee meeting in the summer that not all employees met the company’s high standards. Sundar Pinchai, head of Google and the parent company Alphabet, launched an initiative in August that is intended to make employees more efficient and productive.
Of course, many of the company leaders are also reacting to the impending recession, which is likely to affect not only the USA but also the global economy. The prospect of declining sales and profits alone makes US managers act. Unlike in Europe, for example, job cuts among US techs are often much more radical.
“The economic situation is tense. The management tends to tackle the restructuring at times when the companies are still doing reasonably well,” says Wolfgang Jenewein, Professor of Human Resource Management at the University of St. Gallen. “If the macroeconomic figures come in as they are currently being forecast, they want to make the company fit and align it accordingly for the future.”
Sales and profits are shrinking to an unusual extent
The tech companies can see from their own balance sheets for the past few quarters that demand for their services and products is falling. Facebook, for example, suffered its first drop in sales since going public in 2012 in the past quarter. Profits halved to $4.4 billion between July and September.
Amazon also had to accept a loss in profits in the third quarter. And although the revenues of the Internet group were still growing, they were below expectations and were primarily driven by the AWS division, which operates huge data centers in the “cloud”.
The decline in demand from customers and users is affecting the big tech companies differently depending on their business model, says Mic Hirschbrich, CEO of the software company Apollo.ia. “While Alphabet and Meta are heavily dependent on advertising budgets and user subscriptions, Apple and Microsoft, as hardware and standard software providers, are generally more robust in an advertising slump.” Microsoft, for example, is currently suffering from a significant slump in the PC market, which recently shrank by more than ten percent in the USA and Europe compared to the previous year.
Interest rate environment makes further expansion difficult
The upheavals on the financial markets also hit the tech gorillas, who are used to success and hungry for expansion. The falling share prices of Meta, Microsoft, Apple and Co. are accompanied by falling interest from investors. Takeovers of competitors or interesting start-up companies, which are often paid for in treasury shares, have become correspondingly more difficult or more expensive.
The rise in interest rates also ensures that capital for further expansion on the market can only be obtained at higher interest costs, another obstacle to growth, especially for the tech industry.
Visions and turnaround opportunities
Questionable management decisions at some of the tech giants have the potential to fuel further downsizing. The future vision of the “Metaverse” at Facebook’s parent company Meta could go down in tech history as a billion-dollar flop. The introduction of paid verification on Twitter by the new owner Elon Musk, for example, has led to uncertainty among some advertisers and a budget cut at the short message service. Expert Hirschbrich sees Twitter as a chance for a complete turnaround under Musk’s leadership: “I think Musk is able to turn Twitter into a real competitor for media companies and also to introduce services such as a payment function via the platform .”
Last but not least, many of the US technology giants are suffering from competition from their own industry. This applies to Facebook, for example, whose platform appears less attractive to many younger users than that of its Chinese competitor TikTok. “The tech industry keeps inventing and cannibalizing itself,” says consultant Groeneveld, “it’s quite possible that in a few months many of the employees who have now been made redundant will soon be working on new, exciting applications in other companies.”