Big tech seems convinced that the global economy is headed for a recession.
Silicon Valley seems to be estimating that the economic slowdown will be sharp or even brutal. Tech companies and venture-capital firms, which finance tech startups, do not want to be caught off guard, especially when the economic data are not very reassuring.
Inflation, which affects both businesses and consumers, remains at levels not seen for 40 years. The headline consumer price index for June climbed 9.1% from a year earlier and up from the 8.6% pace recorded in May, according to Bureau of Labor Statistics data published July 13.
The June reading was the fastest since December 1981. This situation suggests that the Federal Reserve will remain very aggressive in its policy of raising interest rates, which in turn will depress consumption, the first engine of American growth, according to experts.
In addition, the dollar's strengthening against other currencies should hurt the revenue that multinationals generate in foreign markets. Big Tech is present in most countries worldwide.
Apple Plans to Slow Hiring
Multinationals want to gird for the hit from what Meta Platforms Chief Executive Mark Zuckerberg expects to be "one of the worst downturns that we've seen in recent history".
Apple (AAPL) plans to slow the pace of hiring and spending in certain divisions in 2023. According to Bloomberg News, this decision stems from the iPhone maker's increased caution in uncertain times.
These changes will not affect all teams, since Apple still plans to launch its next big thing, a virtual-reality headset, in 2023. This will be its first big product since 2015.
The decision by CEO Tim Cook's group is a worrying alarm as Apple has always managed to navigate crises without sustaining much of a scratch. The Cupertino, Calif., tech stalwart managed to beat analysts' financial estimates throughout the covid-19 pandemic and unveiled the iPhone, launched in 2007, as the financial crisis began.
Apple didn't immediately respond to a request for comment.
Social-media giant Meta (META) these days continues to slash costs.
Meta has just modified its expansion plans, in particular dropping an idea to build new offices in New York. Meta has just given up on a 300,000 square foot (27,870 square meter) space at 770 Broadway, an East Village building where Meta already has premises.
Meta, parent of Facebook, Instagram and WhatsApp, is also suspending plans to build new offices in Hudson Yards, West Midtown.
'New Possibilities'
"There are often a number of reasons why we wouldn't proceed with a particular deal, including office utilization," Jamila Reeves, a Meta spokesperson, said in an emailed statement.
"The past few years have brought new possibilities around the ways we connect and work. We are working to ensure we're making focused, balanced investments to support our most strategic long-term priorities."
Reeves added that the company remains "firmly committed to New York and [looks] forward to opening the Farley in the coming months, further anchoring our local footprint.” The Farley is a building near Pennsylvania Station.
Bloomberg News was first to report on Meta's new plans.
Prior to these decisions, the firm had decided to hire 6,000 to 7,000 new engineers in 2022, against an initial projection of 10,000 new recruits, TheStreet learned on July 1. That's a revision of 30% to 40%.
In May, a source told TheStreet that the social-media giant was planning to halt or in some cases slow hiring for most mid-to-senior-level positions. The goal was to revise priorities and align hiring targets with current market estimates and pacing, the source said.
Other tech giants have also taken cost-saving measures in anticipation of a deterioration in the economy. Alphabet (GOOGL), parent of Google, will slow hiring for the rest of the year in view of a potential recession.
"We’ll be slowing the pace of hiring for the rest of the year, while still supporting our most important opportunities," CEO Sundar Pichai recently wrote in a memo to employees.
"For the balance of 2022 and 2023, we’ll focus our hiring on engineering, technical and other critical roles, and make sure the great talent we do hire is aligned with our long-term priorities."
Software giant Microsoft (MSFT) is also hedging against a slowdown in the economy by cutting back on hires.
Before new positions can be made available, employees need to request permission from the leadership team of Rajesh Jha, executive vice president in charge of Office and part of Windows.
Fewer employees who work on the Windows, Office and Teams chat and conferencing software groups will be hired.
