AnalysisProfits are at record highs, so why are tech companies laying off so many workers?
Analysis
Profits are at record highs, so why are tech companies laying off so many workers?
The technology giant Cisco is set to announce a restructuring move that will include layoffs of thousands of employees. And it is not the only one. Since the beginning of the year, 141 technology companies have laid off 34,300 employees, despite most of them displaying excellent financial results. So why are workers still being fired, even when all the data indicates that it's time to go back to hiring?
The technology giant Cisco is expected to announce this week an extensive restructuring that will include the layoffs of thousands of employees. The company's quarterly report will only be published on Wednesday, so it is not yet known whether the move is related to weaker than expected performance. But what is known is that it is not the only company taking such steps, and that in other cases prominent technology companies made cuts, to varying extents, even with their revenues and profits on the rise.
According to data from the website Layoffs.fyi, which monitors the extent of layoffs in the technology sector, since the beginning of the year 141 technology companies have laid off 34,300 employees. The list does include layoffs resulting from the close of companies, but also boasts almost all the technology giants, and in particular those that presented excellent financial performances in their last quarterly report.
Microsoft laid off 1,900 workers five days before reporting a 17.6% jump in revenue to $62.02 billion; Google laid off more than a thousand workers, shortly before reporting a 13% increase in revenue to $86.31 billion; Amazon sent home a thousand employees despite a 14% increase in revenue to $169.96 billion; And Meta laid off several dozen employees, despite a 25% jump in revenue to $40.11 billion.
Rounds of layoffs were also recorded in smaller companies. Among others, Zoom laid off 150 employees (2% of its workforce); PayPal 2,500 employees (9% of the workforce, despite a 9% increase in revenue to $8.03 billion); Discord laid off 170 employees (17%), TikTok laid off 60, SAP laid off 8,000 (7% of the workforce, despite a 5% increase in revenue to $8.47 billion), eBay laid off 1,000 (9%), and Snap, the parent company of Snapchat, fired 540 employees (10% of the company's workforce, despite a 5% increase in revenue to $1.36 billion).
These rounds, for the most part, are admittedly not as wide as the large waves of layoffs of 2022 and 2023, but they are still significant and especially noticeable against the background of the difference in the current economic situation compared to last year. Back then, the global economy faced an uncertain economic crisis and fear of rampant inflation, which led to significant damage to the financial performance of almost all technology companies. These also suffered from rising expenses, the result of massive recruitments against the background of the tide experienced during the Coronavirus period.
But in the past year, the companies have made significant efficiency moves (in Meta, Mark Zuckerberg defined 2023 as "the year of efficiency"), cut expenses, got rid of a large number of employees and put both revenues and profits back on the growth track. In their most recent fiscal year, the Big Five (Microsoft, Apple, Amazon, Google, and Meta) generated total revenues of $1.63 trillion, 81% more than five years earlier. Investors rewarded them accordingly and the companies added $3.5 trillion to their total value.
So why are workers still being laid off, even when all the data indicates that it's time to go back to hiring, or at least stop the cuts? One reason is leftovers from the extensive recruitments of the pandemic period. According to the New York Times, from the end of 2019 until the start of the big rounds of layoffs, the number of employees at Apple, Amazon, Meta, Microsoft and Google increased by more than 900,000. In the last year and a half, due to the turnaround in the economic situation, the companies cut about 112,000 jobs. However, even today they employ 2.16 million people, 71% more than before the pandemic.
"Technology companies are still trying to reduce the extra weight they put on during the pandemic, given that high interest rates and the negative trend in the technology sector have lasted longer than expected," Layoffs.fyi founder Roger Lee told Bloomberg. "However, the current rounds of layoffs are often smaller and more focused than those of 2023."
That is, if last year the companies carried out a kind of panic layoffs, which were intended to reduce expenses at all costs, now the move is done in a more calculated way, and is directed mainly to business units and divisions that do not provide good enough performance. "We go through cycles where you see an intense focus on innovation, and then the pendulum swings and there's an intense focus on the bottom line," Tim Herbert, vice president of research at CompTIA, which monitors employment trends in the technology sector through analysis of job ads, told the New York Times. "But when I read that Amazon is cutting back Alexa employees or Google cutting the Pixel Phone team, that tells me there is more focus on the profit margin. They cut where they can and redeploy resources."
Another reason is a change in the focus of many companies to artificial intelligence (AI)-based developments or moving to work with AI-based tools. In this context, it is possible that not every layoff move will lead to a reduction in jobs, and that the company simply replaces employees with certain skills with employees with other talents. According to an analysis by CompTIA, the number of open jobs that are related to AI or require skills in the field increased from about 2,000 in December 2023 to 17,479 in January 2024. The number of vacancies in January increased by 18,000 compared to December, and the unemployment rate in the sector stands at 3.3% compared to 3.7% in the U.S. job market.
There are also cases where job cuts are made due to a transition to the use of AI, and that instead of hiring thousands of employees every quarter, companies prefer to invest in the development and implementation of AI capabilities. This trend emerges from what Meta CEO Mark Zuckerberg said in a conversation with analysts after the publication of the company's quarterly report last week. According to him, Meta laid off workers in January to reduce costs and "so that we can invest in a long-term and ambitious vision around AI." He added : "We operate better as a lean company."
"I feel that most of the layoffs have already happened, and that companies are going to start to recover," Bert Bean, CEO of staffing firm Insight Global, told Bloomberg. "But the situation is still very uncertain. The market will remain like this for another two quarters or so, until the Fed lowers the interest rate again."
