Redundancies within the technology sector have reached 120,000 in 2022 so far, according to website layoffs.fyi, with some 30,000 people on course to lose their jobs at Twitter Inc (NYSE:TWTR), Facebook owner Meta Platforms Inc (NASDAQ:FB) and Amazon.com Inc (NASDAQ:AMZN) alone.
Google owner Alphabet Inc (NASDAQ:GOOG) has also come under scrutiny from TCI managing director, Christopher Hohn, who oversees a stake in the company worth US$6bn, accusing it of having “too many employees” with “the cost per employee … too high.”
Microsoft and Netflix are also among companies which have laid off staff this year.
What had seemed like a sure and stable sector that boomed during the pandemic now seems to be facing ever increasing uncertainty, but why the sudden downturn in fortunes?
Analysts suggest multiple reasons, not least the global economic downturn, but also overconfidence and mispredictions of consumer behaviour in a post-pandemic world as well as overinvestment similar to that seen during the nineties dot-com bubble.
What has been said?
Mark Zuckerberg, Meta CEO and founder recently issued an emotional statement in light of the company’s decision to lay off over 11,000 people, where he apologised for poor decision-making that had led to the layoffs.
Commenting on the company’s first cuts in its 18-year history, Zuckerberg said: “I want to take accountability for these decisions.”
In a significantly less emotional outburst, Elon Musk outlined that he had no choice but to offload several thousand staff from Twitter after he recently bought the company for US$44bn.
He tweeted: “Regarding Twitter’s reduction in force, unfortunately there is no choice when the company is losing over US$4M/day.”
Meanwhile, Amazon has made headlines recently, with reports that it plans to cut as many as 10,000 staff this week, although it declined to confirm the reports
Global economic downturn
An obvious explanation for these companies' need for cuts would be the arrival of a long-anticipated global economic downturn.
A slowdown of what has been a buoyant job market in recent years will inevitably affect many sectors, with tech very much unable to escape this according to Laura Petrone, principal analyst at market researcher GlobalData.
“We are used to thinking about tech companies as prosperous and invincible, but they now appear vulnerable in the face of the new economic reality.”
She outlined that companies like Twitter and Meta, which rely heavily on advertising for income, have been left endangered amid a deteriorating economic outlook which is forcing them into rethinking business models.
Elon Musk’s takeover of Twitter has seen him begin a struggle to reform the company into making profits, leaving him with “too much” on his plate.
He suggested that bankruptcy is even an option for Twitter, but also outlined that he hopes its organisational restructuring will be completed this week during a court case that has seen him defend a US$56bn pay packet from another of his companies, Tesla Inc (NASDAQ:TSLA).
Overconfidence after the pandemic
Increased online usage during the pandemic seemed to give tech firms a false sense of security, Petrone highlighted.
“Companies like Amazon and Meta were misled by the pandemic-driven boom in online spending and social media use,” she explained.
“They invested heavily based on the assumption that these habits would persist post-pandemic.”
Assumptions that ultimately have proved to be wrong and without lockdowns inundating people with spare time, they now have fewer hours in the day to spend on phones and on the internet.
For Amazon, job cuts follow an “aggressive expansion” during Covid, as outlined by AJ Bell’s Russ Mould, which saw it add “800,000 posts between 2019 and 2021”.
In light of the global economic situation, Amazon’s US delivery business has faced losses in the last four quarters while overseas these losses stretch back through five quarters.
“Amazon has had to respond accordingly” he added, with “nearly 80,000 job cuts having already been achieved through natural attrition in the early parts of this year”.
Dot-com bubble burst repeat?
A surge of investment into tech start-ups in the late 1990s saw many suffer short lifespans, as the overconfidence placed in them led to many going public too quickly without long-term plans.
What became known as the dot-com bubble sent clear a clear message to investors - that even in a booming tech market, firms could still succumb to overspending and ultimate failure.
However, Russ Mould suggests this message has been lost and after only twenty years it may be happening again.
“There are also echoes of the 1998-2000 tech bubble and how that was followed by a bust,” which saw cuts in capital expenditure and jobs as over-investment “came home to roost”.
“It is quite possible that we are seeing a repeat.”
“Tech firms and social media firms may have started to believe their own press and invest and hire as if the boom of 2020 would last forever.”
So, whether mismanagement is mainly to blame, with poor capital expenditure investments starting to take their toll, or it is the global economic turmoil causing operating costs to hike, it seems the security that the tech sector enjoyed during the pandemic has finally faltered.
Merely 20 years after the dot-com bubble burst, the same mistakes have seemingly been repeated and it is yet again staff members bearing the brunt of misfortunes.