Microsoft And Amazon Lay Off Thousands

Key takeaways

• Microsoft is laying off 5% of its workforce, citing recessions as a key factor
• Amazon still holds the title of biggest layoff yet, with 18,000 employees fired
• The bigger picture shows big-ticket investments and a shifting of long-term priorities, especially with the introduction of AI

It’s not been a great month for tech companies. Microsoft has announced its first round of mass layoffs in years, hot on the heels of many other giants in the market doing the same.

Amazon and Microsoft alone make up 28,000 jobs lost in January. We’re yet to see the highs of over 50,000 workers across 217 companies being laid off in November 2022, but we’re still two weeks out from the month being over.

The real question is whether this is cause for concern in the wider tech market or a natural correction after a bumper couple of years. There’s certainly more than meets the eye with these strategic culls.

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The Microsoft layoffs

Yesterday (Jan 18), CEO Satya Nadella shared that Microsoft will be reducing its workforce by 10,000. Microsoft employs roughly 220,000 globally, so the cuts amount to around 5% of its total workforce.

Nadella blamed the shifting macroeconomic climate, saying “we’re now seeing [customers] optimize their digital spend to do more with less”. Microsoft plans on taking a $1.2bn charge towards severance pay, lease consolidation and changes to its hardware portfolio.

The company is set to announce its earnings next week, but the growth is expected to be significantly smaller than in previous years. Some are concerned the 5% reduction figure means more layoffs might be on the horizon in 2023.

The Amazon cull

Microsoft’s announcement comes after Amazon rang in the new year with the biggest jobs cut headline to date. The shopping leviathan said it planned to cut 18,000 of its global employees.

CEO Andy Jessy said in a blog post that the reduction in workforce largely affected the conglomerate’s Stores and HR division. Earlier layoffs at the end of 2022 began with Amazon’s Devices and Books department.

The number is much bigger than the anticipated 10,000 job roles that would be cut, though Amazon clearly has its eyes on the long-term prize. Jassy also mentioned “companies that last a long time go through different phases. They’re not in heavy people expansion mode every year.”

But this may be a PR spin, given news of its $8bn unsecured loan emerged soon after the cuts were announced.

Is the rest of tech affected?

Meta was the first of the Big Tech giants to announce cuts to employee numbers, outlining a plan to reduce its workforce by roughly 13% across the parent company and Whatsapp. The total comes to roughly 11,000 workers.

CEO Mark Zuckerberg blamed market forces and a shift in priorities. “In this new environment, we need to become more capital efficient,” he said in a blog post.

Salesforce, which employs around 80,000 people across the world, has announced a 10% reduction in its workforce. The entire crypto industry is seeing big cuts as well, with Coinbase and Crypto.com being the latest to announce layoffs.

But interestingly, two of the other major players in Big Tech haven’t made any headline-hitting decisions yet. Apple hasn’t announced any mass layoffs thus far. Instead, the company has implemented a hiring freeze “across certain departments”.

Google hasn’t formally gone for a mass cull yet, but Google employees were said to be unhappy with the new employee evaluation process. Many view the harsher rating system as a sign of worse things to come.

Google’s parent company, Alphabet, reported a 27% drop in profits for Q3 last year down to $13.9bn. On a company earnings call in 2022, CFO Ruth Porat said “our actions to slow the pace of hiring will become more apparent in 2023.” That sounds pretty ominous.

Then there’s Twitter. Since billionaire-genius-playboy-philanthropist Elon Musk took over the company, roughly half of the 7,500-strong global workforce has been fired. But that’s less of a market turmoil situation and more of a, well, Elon situation.

The bigger picture

Do things look bad with these mass layoffs? Yes. Is that a reason to lose hope in the tech sector? Absolutely not. There’s some exciting innovation still to come from these companies and smaller players in the market.

The Silicon Valley bubble

It’s worth remembering that the Big Tech bods are in a Silicon Valley bubble. The demand for digital during the pandemic gave these companies an inflated sense of opportunity to grow. As Zuckerberg put it, “this did not play out the way I expected”.

Amazon’s Jessy admitted, “we’ve hired rapidly over the last several years”. Microsoft added 40,000 workers in its latest financial year – double the previous year’s headcount.

All of these together suggest Big Tech expanded rapidly, paid top dollar for the best talent, and the gamble hasn’t paid off. As a result, many think the layoffs are a correction in a red-hot market.

The Big Tech effect becomes more obvious when you look at other tech giants across the world. The latest Nash Squared report found that global tech spend is predicted to increase at its third-fastest rate in over 15 years.

Chinese telecoms giant Huawei has gone in the opposite direction: it plans on training one million ICT professionals worldwide by 2024 through the Huawei ICT Academies. So far, it hasn’t deviated from that goal.

Pivots

Some experts are suggesting the layoffs are a precursor to shifting priorities for these big companies. Despite the culls, Nadella also stated Microsoft “will continue to hire in key strategic areas” and “will continue to invest in strategic areas for our future”.

It’s not hard to connect the dots. Microsoft is allegedly investing $10bn in ChatGPT, the AI-based writing tool that has made waves since its launch. This is a big bet on what’s considered to be future technology, indicating the industry is pinning its hopes – and money – on AI.

In his letter to employees, Zuckerberg openly said Meta’s new structure will be to focus on “our AI discovery engine, our ads and business platforms, and our long-term vision for the metaverse”.

So with Big Tech, there’s still plenty of money to spend on strategic acquisitions and long-term visions.

What this means for investors

We’re seeing a consolidation phase play out in tech, and there are likely to be some surprising winners and losers emerging over the next few years. We may even see a shuffle of power on the top of the tech tree.

Regardless, the industry is likely to continue to be an attractive investment over the long term, as innovation drives value.

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