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What the Great Tech Layoffs Tell Us: A Word Cloud Story of the Evolving Industry
Background
Background
In a matter of days, numerous tech titans, including Meta, Twitter, and Salesforce, have culled a substantial number of their staff, leading to the layoff of tens of thousands of tech workers, as the final stretch of the year approaches. According to Layoffs.fyi, a platform that monitors job cuts in the sector, over 20,300 tech professionals were pink-slipped in the United States in November alone, bringing the total layoffs in the industry to over 100,000 since the beginning of the year.
Throughout the summer, tech employees experienced a significant decline in their job security morale, as reports of mass layoffs, halted hiring, and retracted employment offers cast a pall over the previously worker-led recovery from the Covid pandemic.
Spread
Spread
Looking at how the layoffs have occurred across the world from the beginning of the pandemic to February 2023
As the above visualization indicates, layoffs has largely been seen in the United States, pre-dominantly in the west coast. There has been a reported 122,628 layoffs in the SF Bay Area alone.
There has also been significant layoffs reported in Western Europe and India as well.
Timeline
Timeline
The Layoff Landscape: A Visual Timeline of Job Losses from 2020-2023
As the world continues to grapple with the aftereffects of the COVID-19 pandemic, one of the most pressing concerns is the sharp uptick in layoffs across various industries. While the pandemic was initially responsible for a number of job losses, recent data reveals an alarming trend of escalating layoffs in the tech sector, particularly in the first quarter of 2023.
The magnitude of this trend is exemplified by the fact that the number of employees laid off in the first month of January 2023 alone surpassed the total layoffs that occurred throughout the entirety of 2022. The tech sector bore the brunt of the recent spate of layoffs, with over 70,000 workers losing their jobs in January 2023 alone.
Factors such as financial strain, supply chain disruptions, and government restrictions still loom large, but it's the tech layoffs that are generating the most concern, given the impact that the industry has on the broader economy. As the tech sector continues to be buffeted by an array of pressures, it remains to be seen how many more individuals will be impacted by the current spate of layoffs, and what the long-term implications for the industry and the workforce will be.
Industries in the U.S.
Industries in the U.S.
While the tech industry is experiencing its own set of challenges, the ripple effects of these layoffs can impact other industries. In this section, we will explore the ways in which layoffs in the tech industry can impact the other industries.
Initially during the pandemic, due to supply chain issues, there were a lot of layoffs in the transportation industry.
However by the beginning of February 2023, most of the layoffs were in the consumer and retail industry.
This impact on consumer and retail industries can be attributed to the fact that layoffs in the tech industry can also create economic uncertainty, which can impact consumer and retail industries. If there are widespread layoffs in the tech industry, it can lead to a decrease in consumer confidence and spending, as people become more cautious with their money. This can lead to reduced sales and revenue for retailers, which can eventually lead to layoffs.
Layoffs in Top Tech Companies
Layoffs in Top Tech Companies
Looking at the top tech companies that have had massive layoffs since the fourth quarter of 2022 to first month of 2023.
On average, most tech giants have laid off almost 8000 employees.
The triumvirate of technological giants, Amazon, Google, and Meta, have borne the brunt of the layoff tsunami, accounting for nearly 50% of the sector's workforce reductions.
Salesforce and Microsoft also account for over 15% of the total layoffs in this sector.
Causes and Impact of Layoffs in Top Tech Companies
Causes and Impact of Layoffs in Top Tech Companies
In this section we try to delve deeper into understanding what was the cause that led to big firms laying off thousands of employees in a just a small span of time.
The layoffs come in a period of slowing growth, higher interest rates to battle inflation, and fears of a possible recession in the coming months.
Layoffs come as digital advertisers are cutting back on spending and rising inflation curbs consumer spending
During the pandemic, there was a sudden surge in demand for Meta's products and services, which led to an overhiring of employees. However, the company's growth could not be sustained, and as the pandemic waned, there was a significant reduction in demand. This, combined with a backlash from investors for the company's reckless spending on metaverse (around $14 Billion), was a deadly combination that led to the downsizing of the company.
In November 2022, Facebook parent company Meta had announced its largest and most significant round of layoffs, which resulted in the termination of over 11,000 employees, or 13% of its staff.
The announcement created a sense of danger and emergency, as Meta's disappointing guidance for the fourth quarter of 2022 had wiped out one-fourth of its market cap, leading the stock to its lowest level since 2016. Despite having expanded headcount by about 60% during the pandemic, the tech giant had to make these severe cuts, as it faced fierce competition from rivals such as TikTok, a broad slowdown in online ad spending, and challenges from Apple's iOS changes.
Nonetheless, there appears to be a glimmer of hope as the stock price has slightly increased following the layoff of 11,000 employees by Meta.
Amazon had also initiated a new phase of job cuts that were projected to eradicate more than 18,000 employees, marking it the biggest downsizing in the e-commerce giant's 28-year history.
Amazon shares lost half their value in 2022, the worst year for shareholders since the dot-com crash in 2000.
During the Covid-19 pandemic, Amazon experienced a surge in hiring, increasing its global workforce to over 1.6 million by the end of 2021 from 798,000 in the fourth quarter of 2019.
So, Amazon's CEO Andy Jassy announced in January 2023 that the company had planned to lay off over 18,000 employees. Jassy blamed the need for cuts on “supply chain difficulties, inflation, and productivity overhang from growing our fulfillment and transportation networks so substantially during the pandemic.”
In Jan 2023, Alphabet, Google's parent company, announced a significant round of layoffs which eliminated approximately 12,000 jobs, equivalent to 6% of its workforce.
The job cuts affected various teams, including recruiting, some corporate functions, engineering, and products teams. This was a distressing development that further rocked the technology sector, with Alphabet feeling the pressure to streamline its operations amidst fierce competition from other tech firms.
Over the past two years, Alphabet's workforce grew by over 50,000 employees, as the global demand for its services rose sharply amidst the pandemic, leading to an increase in profits. However, the company's core digital advertising business witnessed a decline in recent quarters. Advertisers pulled back their spending due to economic downturn and recession fears, causing the company's revenue to slow down.
Alphabet's revenue growth for the three months through December 30 was expected to be a mere 1.7% compared to the previous year, according to Wall Street analysts. This marks a stark contrast from the 32% growth it achieved during the same period in the prior year. Analysts projected that the net income would be down by almost 25% year-over-year.
Despite the decline in the company's financials, there is a silver lining. Alphabet's stock value has started to rise gradually since Google's decision to cut back on costs.
Microsoft announced in that it was laying off 10,000 employees as the software maker was bracing for slower revenue growth. While major layoffs weren’t an annual exercise for the 47-year-old company, they did happen occasionally. In 2017, Microsoft laid off thousands of employees in a broad reorganization of its sales unit. Also, in 2014, after the acquisition of Nokia's devices and services business, Microsoft cut 18,000 people. The reduction that Microsoft announced on that day was the largest since the Nokia layoffs.
In the fiscal second quarter, Microsoft took a massive $1.2 billion charge that ultimately resulted in a negative impact of 12 cents to earnings per share. As a result, the company was forced to make significant workforce adjustments across all teams and geographies. While engineering teams were spared the brunt of the layoffs, sales and marketing teams were hit particularly hard.
Microsoft had forecasted a revenue growth rate of 2% for the fiscal second quarter, marking the slowest rate the company had seen since 2016.
However, amidst the bad news, Microsoft's announcement of its acquisition of ChatGPT received a surprisingly positive response in the market, resulting in an uptick in the company's stock value.
Apple has not announced any massive layoffs as of date.
Apple grew much more slowly during the pandemic. In fact, Apple’s hiring over the past few years has followed the same general trend since 2016.
As of September 2022, Apple had 164,000 employees, which includes both corporate employees as well as retail staff for its stores. But that was only a rise of 6.5% from the same period in 2021, amounting to real growth of 10,000 employees. Apple also hired judiciously in 2020, adding less than 7,000 employees in the year before September 2021.
A combination of factors, including a diversified business model, conservative financial management, and a strong corporate culture, may have contributed to Apple's ability to avoid major layoffs
The Cost of Over Projection
The Cost of Over Projection
"Over the past two years we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today " - Sundar Pichai (CEO, Alphabet)
“…we are taking a $1.2 billion charge in Q2 related to severance costs, changes to our hardware portfolio, and the cost of lease consolidation as we create higher density across our workspaces,” - Satya Nadella (CEO, Microsoft)
The tech industry has experienced significant growth in recent years, driven by the rapid adoption of technology by businesses and companies to facilitate remote work. This shift in working conditions led to an influx of investment in the tech industry, and companies such as Amazon, Alphabet, and Microsoft hired tens of thousands of employees to meet the surging demand. However, the industry's growth was over projected, and the recent slowdown in demand has left these companies with an oversized workforce.
This over-hiring has resulted in a wave of layoffs in the tech industry, with Amazon, Alphabet, and Microsoft among the companies affected. Many of these layoffs have been concentrated in non-technical roles such as human resources and marketing, reflecting the companies' focus on streamlining their operations. However, in contrast, Apple has managed to maintain its workforce despite the industry-wide layoffs.
While the recent layoffs may be a shock to the affected workers, they reflect the cyclical nature of the tech industry. Companies often ramp up hiring during periods of rapid growth, only to scale back when the demand tapers off. In the long run, these layoffs could position the companies for future growth by allowing them to operate more efficiently and focus on their core products and services.
Despite the current turbulence, the tech industry remains a vital and growing part of the global economy. As the world continues to rely on technology for communication and collaboration, the demand for tech products and services is expected to remain high. While the recent layoffs may be painful for those affected, they reflect the realities of a rapidly evolving industry, and the tech companies will continue to adapt and grow as the market evolves.
In frame: Mark Zuckerberg (CEO, Meta)
References
References
Lee, RL. (n.d.). https://layoffs.fyi. Retrieved March 8, 2023, from https://layoffs.fyi/.
https://www.google.com/finance/quote/GOOGL:NASDAQ
https://www.google.com/finance/quote/MSFT:NASDAQ?hl=en
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