Wave of layoffs at Alphabet and Co.: What is behind the wave of layoffs?


analysis

Status: 01/20/2023 5:22 p.m

With Alphabet, the next big tech company has announced that it will lay off thousands of employees. What’s next for the industry, which has lived beyond its means in recent years?

By Antonia Mannweiler, tagesschau.de

“Thank you for working so hard to help people and businesses everywhere. Your contributions have been invaluable and we are grateful for them,” Alphabet CEO Sundar Pichai wrote in an email to employees today in response to his announcement, thousands to cut jobs in the company. It’s cold consolation for the 12,000 “Googlers,” as Pichai calls them, who are losing their jobs.

Alphabet is not the first large tech company to recently announce that it will lay off thousands in a clear cut. Only yesterday Microsoft announced the job cuts of 10,000 jobs – almost five percent of the workforce; Amazon announced a total of 18,000 job cuts earlier this month. At the Facebook parent company Meta, on the other hand, the first job cuts are pending: a total of 13 percent of the workforce, i.e. around 11,000 people, will lose their jobs. But one of the big US tech companies is still missing from the list: Apple, currently the most valuable listed company, is the only tech giant that has not yet announced any job cuts.

Regular layoffs

In addition to the established tech giants, numerous other tech companies have also announced layoffs in a veritable wave of layoffs. The food delivery service DoorDash wants to part with 1,250 employees, the US transport service Lyft from 700, the crypto exchange Coinbase from 1,200, the computer manufacturer HP from 6,000 and SAP competitor Salesforce from as many as 8,000 employees.

Thousands of jobs created

The reasons for the clear job cuts lie in the clearly gloomier economic situation, triggered by high inflation and interest rates – and recession worries. However, the large wave of layoffs can also be explained by the overzealousness of the technology industry, which faced almost unlimited growth for many years. In the ten years between 2012 and 2022, Microsoft only made gains on the stock exchange year after year, in 2019 the share was about 59 percent higher, in 2021 it was even 65 percent higher. The shares of the Google parent company Alphabet recorded growth of more than 80 percent in 2021. The other technology companies showed a similar picture before the sudden slump followed in 2022.

The tech companies have therefore created thousands of jobs in recent years to deal with the rapid growth and optimistic projections. Thomas Lehr, capital market strategist at asset manager Flossbach von Storch, also blames the special boom caused by the pandemic. Digitization is also progressing now, but not at the same pace as at the peak of the pandemic.

However, the tech industry assumed the growth would continue. Since 2019, the Windows provider Microsoft has increased its workforce by more than 75,000 employees to 221,000. From 2019 to the end of 2021, the Facebook parent company Meta gained more than 27,000 employees, and Amazon’s number of employees more than doubled in the same period to 1.6 million employees worldwide at the end of 2021. Only the iPhone manufacturer Apple was slower , where the number of employees rose from 137,000 to 154,000 in the same period.

“Certain excess”

Tech companies have avoided downturns for more than ten years, says Fabian Dömer of consulting firm Arthur D. Little tagesschau.de. The growth seemed limitless: “They have increased to a certain extent.” From an economic point of view, it is currently an overdue and healthy correction – albeit on a dramatic scale, according to Dömer.

In announcing the layoffs, the company bosses themselves admitted this misconception – that growth would continue. Alphabet boss Pichai wrote in his email to employees today that they had experienced a phase of “dramatic growth” in the past two years. They have adjusted to a different economic reality than the one found today. Meta boss Mark Zuckerberg also wrote to his employees in November that unfortunately things had not developed as he had expected.

A chance for the future

The tech industry is now concerned with getting the costs that have got out of hand back under control. This also includes saving on personnel costs. The layoffs put pressure on the remaining employees, says capital market strategist Lehr. In recent years of rapid growth in the industry, there has been a real scramble for talent – with ever increasing salaries and benefits for employees. The tech companies in Silicon Valley in particular had absurd salary demands, and the wind is now turning a bit.

The tech companies in the USA would also continue to reduce or review their investments in “other bets” – i.e. projects outside their core business – due to higher interest rates and the cost explosion. Looking ahead, Lehr believes this is an opportunity: Alphabet, Microsoft, Meta and Amazon all have one thing in common: they all have a highly profitable core business. Of course, in the long term, companies made a living from trying out crazy things. In the short term, however, this will be scaled back. Industry expert Dömer from Arthur D. Little also sees the current crisis as an opportunity for correction and self-reflection. “Experience shows that this is actually the breeding ground for innovation.” But he expects more layoffs in the coming months.

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