Barely one week into 2023, any idealistic dreams of a tech industry rally already look hopelessly misguided.
Tech giants Salesforce and Amazon delivered a double-whammy of bad news Wednesday, announcing significant layoffs designed to right-size their workforces following a pandemic-fueled hiring boom.
Salesforce plans to cut about 10,000 jobs, or roughly 12% of its headcount, amid a slowdown in sales revenue growth. Amazon said it now expects to slash 18,000 jobs, up from an earlier estimate of 10,000 positions in November, with CEO Andy Jassy partially citing “the uncertain economy.” Amazon’s layoffs are expected to affect about 6% of the company’s corporate workforce.
The announcements certainly won’t be the last this quarter for major tech companies, who are forecasted to struggle with sagging demand, corporate enterprise belt-tightening, and the continuation of Federal Reserve interest rate increases. Private companies also added far more jobs in December than Wall Street expected, according to payroll processing firm ADP, a development that portends more interest rate hikes.
“The new reality is that demand is fading,” Jeffries analyst Brent Thill told Fortune’s Alena Botros last month. “And employee hirings have been so brisk that if we’re effectively headed into a recession, it’s only inevitable that we’re going to have more cuts.”
For now, attention will turn to companies that went on hiring sprees during the pandemic but haven’t significantly culled their workforces following last year’s slackening in sales growth.
Apple and Alphabet haven’t instituted large-scale layoffs, choosing instead to freeze hiring and eliminate positions through attrition. However, the New York Times reported last week that Alphabet’s Google unit “has become a tinderbox of anxiety” over potential layoffs, citing interviews with 14 current and former employees.
Microsoft will face questions about the size of its workforce after trimming a tiny fraction of headcount last year. The tech giant’s shares fell 5% Wednesday following a rating downgrade from UBS and slipped another 3% in midday trading Thursday.
Same goes for Samsung, which is grappling with a stark slowdown in semiconductor sales and sluggish consumer electronics demand. CNBC reported Wednesday that analysts are expecting a sharp decline in the South Korean giant’s quarterly earnings guidance this week.
In the long run, however, it will be interesting to watch whether this pattern of rapid hiring followed by swift layoffs continues.
In some ways, the current environment mirrors the mid-2010s tech reshuffling, when some corporate giants hired like crazy coming out of the Great Recession, only to scale back amid a period of upheaval within the industry.
"I see this as another chapter in Silicon Valley's boom and bust story," Margaret O’Mara, a University of Washington history professor and author of The Code: Silicon Valley and the Remaking of America, told Yahoo Finance. "There's something of a rhythm to it, and it's been a long boom."
Yet the sheer scope of the pandemic hiring spree was unprecedented, powered by a mostly unfounded belief that COVID would dramatically reshuffle our habits. For example, Microsoft added 58,000 employees between mid-2020 and mid-2022, compared to 34,000 during a two-year stretch at the height of the last boom.
Over and over, tech executives have cited their misguided optimism that global economic growth and tech product demand would power the industry to even greater post-pandemic heights.
“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Salesforce CEO Marc Benioff wrote in a note to employees Wednesday.
While some employees and managers benefited from the hiring binge, the strategic approach led to a painful, destabilizing event for thousands of workers. Moving forward, one question is whether tech leaders modulate their hiring habits, opting for a slightly more conservative approach, when the next frothy cycle kicks into gear.
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Jacob Carpenter
