Do the Big Layoffs mean that Big Tech and Techies are in Big Trouble?
IT sector is laying people off and the figures are quite copious. Tech executives blame the Covid hiring spree, macroeconomic downturn, etc. But there are other factors at play as well. Anyhow, does this means the IT bubble has burst? Nay, the IT sector has a bright future.
The tech sector has observed unprecedented growth in the last decade. The global IT market was $3.6 Trillion in 2012, and in 2023, it grew to $8.8 Trillion. During the Covid-19 pandemic, many Tech Giants enjoyed a real bonanza. Alphabet, Apple, and Microsoft surpassed the $2 trillion market cap, while the market share of Meta was in the excess of $1 trillion.
The reason being everything was going virtual and demand for their IT services went through the ceiling. So, to meet the exploding demand, these Tech Giants went on a hiring spree.
But after Covid-19, things went back to normal. Resultantly, the virtual world faded away and it took away with it the surged demand for IT services. Now, the same companies are downsizing.
Big Tech is eyeing big downsizing
According to the outplacement firm Challenger, Gray & Christmas, Inc, the IT sector slashed around 97,000 jobs in 2022. While in 2021, the number was 13,000. This amounts to a 649% increase in job cuts.
The US Big Tech was at the forefront of these massive layoffs. All of the aforementioned Tech Giants took part in these job cuts.
IT sector is not in hot waters
By reading these layoff stats, one might think that this is the Lehman Brothers moment for the IT sector. But you can relax and take my word for it that the IT sector is not in hot waters. But one might be tempted to ask that if things are normal then why there is a huge cut in headcount?
In order to understand this, let’s see what these companies said about their job cuts.
Big Tech’s narrative on job cuts
They announced this dreadful news by wrapping it in sagely crafted communiqués. Let’s dig deeper.
Meta layoffs
Meta, the parent company of Facebook, Instagram, and WhatsApp, was the first company to initiate this domino effect. It dropped the first domino by announcing sizeable layoffs in November 2022. It gave marching orders to its 11,000 employees. This amounts to 13% of its total workforce.
Meta founder and CEO, Mark Zuckerberg, cited falling revenue, “macroeconomic downturn” and “increased competition” as the reasons for this significant layoff.
Amazon layoffs
Amazon had its fair share in this downsizing. In early January the company slashed 18,000 employees. This equates to 6% of its corporate employees. It is the largest in the company’s history.
Amazon CEO, Andy Jassy, cited “the uncertain economy” and the fact that the company had “hired rapidly” during Covid-19.
Alphabet layoffs
Alphabet, the parent company of Google, also laid off its workers. 12,000 of Google’s employees faced the axe. This corresponds to 6% of its workforce. This is the biggest reduction in the company’s 25-year history.
Alphabet CEO, Sundar Pichai, cited that the company had hired too many people after the “periods of dramatic growth” but now we face a “different economic reality”.
Microsoft layoffs
Microsoft also trimmed its staff recently. It reduced its headcount by 10,000 employees. It is equal to 5% of its workforce.
Microsoft CEO, Satya Nadella, cited “macroeconomic conditions” and “changing customer priorities” as the potential reason.
Big Tech’s narrative summarized
All these Big Tech companies gave somewhat similar reasons for this downsizing.
- Overhiring in Covid-19
- Post-Covid downswing
- High inflation
- Interest rate hike
These big cash cows are still milking
The aforementioned causes are very dissimilar to their effect ⸺ unprecedented layoffs. Because such a panic button is hit when there is an economic meltdown or bankruptcy on the horizon. But their balance sheet, on the contrary, proves that these cash cows are still milking.
Amazon, for instance, is still making huge investments. Amazon’s cloud services division, Amazon Web Services (AWS), announced on January 20 that it plans to invest $35 billion to expand data centers in Virginia by 2040.
Similarly, Microsoft vows to fight the legal battle against the Federal Trade Commission (FTC). Because it is blocking the Tech Giant from acquiring the leading video game developer Activision Blizzard for a price tag of staggering $68.7 billion.
This means that these Tech Giants are swimming in money.
There is more to these layoffs than meets the eye
Apart from the aforementioned reasons, there are other factors at play as well.
Capitalism is at work
Capitalism, a profit-led business strategy, has a big role to play in it. After Covid, the stock price of these Giants is on a downward trajectory, as shown in the following figure that I made using the yfinance API.
Essentially, these are public companies and work for the profit maximization of shareholders. Jim Anderson, the CEO of Beacon, while speaking to Al Jazeera, opined that the capitalist playbook says if your stock is under pressure, you cut costs. This is exactly what’s going on.
Possible recession
The job cuts are also carried out in the anticipation of a possible recession. Because Fed has raised the interest rate to 4.5%, the highest level in 15 years. According to Reuters, “There are broad-based fears the path the Fed is on will send the economy into recession”. So, job cuts are against this backdrop of recession.
Shifting priorities
One of the reasons for these job cuts is that these companies are reorienting their priorities. That is, they are directing their efforts and resources to certain areas while pulling back from others. Like Amazon is focusing on cloud services. Similarly, Alphabet is putting its bets on R&D. Thus, these companies are reworking their priorities.
Silver lining
There is a silver lining in these layoffs. Adrian Weckler, the technology editor at Irish Independent Newspapers, while speaking to Al Jazeera, said that these job cuts are good for many startups and small companies. Because during a boom or even in normal times, it is very difficult for them to hire and afford skilled IT and business minds. Now, these minds will be available and affordable to small businesses and innovating startups. So, we can expect some innovative products and services in the coming times.
Tech jobs are still in-demand
Should aspirant techies ⸺ data scientists, cyber security personnel, cloud engineers, system administrators, and embedded engineers ⸺ be worried about their career prospects? The answer is a resounding no!
Because despite the ripple of consternation carried out by these layoffs, tech jobs are still in high demand. The mind-boggling number of IT job postings on job search platforms like LinkedIn, Indeed, and Glassdoor are a testament to it. Moreover, the earlier mentioned discussion proved that this is not an IT bubble burst. So, IT scientists and engineers should not be worried too much about these job cuts.
Summing it up
The IT sector especially Tech Giants like Alphabet, Apple, Meta, Amazon, and Microsoft is cutting headcount. There are multiple factors at play like reducing the workforce to pre-Covid level, economic slowdown, and adjusting the stock price among others. This, in no way, means that computer scientists and engineers should be worried about their career prospects. The future of the IT sector is extremely bright.
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