How the Big Tech Pandemic Bubble Burst

New York

In January 2021, Microsoft CEO Satya Nadella spoke in lofty terms about how the first year of the pandemic had ushered in an incredible shift toward online services, benefiting his company in the process. “What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping through every company and every industry,” he said.

Two years later, the situation looks even more dire. Microsoft said this week it plans to lay off 10,000 employees as companies rethink digital spending in the era of the pandemic and confront broader economic uncertainty. Microsoft customers are now trying to “do more with less,” Nadella said.

Microsoft isn’t the only company experiencing such a dramatic reversal. Days later, the father of Google Alphabet followed suit, saying it plans to cut about 12,000 jobs, more than 6% of its staff.

Over the past three months, Amazon, Google, Microsoft, and Facebook affiliate Meta announced plans to cut more than 50,000 employees from their collective ranks, a stunning reversal of The early days of the pandemic when the tech giants were growing rapidly to meet the growing demand from the countless families who lived, shopped, and worked online. At the time, many tech leaders seemed to expect this growth to continue unabated.

By September of 2022, Amazon (AMZN) more than doubled its staff compared to the same month in 2019, hired more than half a million additional workers and significantly expanded its warehouse range. Meta nearly doubled its headcount between March 2020 and September last year. Microsoft (MSFT) and Google (GOOGL GOOGLE) have also hired thousands of additional workers, as have other tech companies like Salesforce (CRM), Snap (SNAP) and Twitter, which have all announced layoffs in recent weeks as well.

But many of those same leaders seem to have misjudged how long the growth spurred by the pandemic will last once people return to their offline lives.

In recent months, rising interest rates, inflation and recession fears have dampened advertising and consumer spending, weighing on tech companies’ earnings and stock prices. Wall Street analysts now expect single-digit revenue growth during the all-important December quarter for Google, Microsoft and Amazon, and down for Meta and Apple, when they report earnings in the coming weeks, Refinitiv estimates.

Recent cuts in most cases represent a relatively small percentage of each company’s total headcount, essentially wiping out some last year’s gains but leaving them with dozens or in some cases hundreds of thousands of workers remaining. It nonetheless upends the lives of many workers who have now left to find new jobs after their employers emerged from a period of seemingly unlimited growth.

“They’ve gone from being on top of the world to having to make some really tough decisions,” said Scott Kessler, global technology, media and telecoms sector leader at investment firm Thirdbridge. “To see this dramatic reversal of fortunes…not just the size of these moves but the speed at which they played. I’ve seen companies make the wrong strategic decisions at the wrong times.”

Apple (AAPL) is still far from being the major technology company yet to announce layoffs, even though the iPhone maker has imposed a hiring freeze in all areas except research and development. Apple (AAPL) grew its staff by 20% from 2019 through last year, significantly less than some of its peers.

“They took a seemingly more in-depth approach to staffing and the overall management of the company,” Kessler said.

CTOs from Meta Mark Zuckerberg to Salesforce’s Marc Benioff blamed themselves for overhiring early in the pandemic and misread how to quell a surge in demand for their products once Covid-19 restrictions eased. Pichai also blamed Alphabet’s cuts on Friday, and said he plans to return the company’s focus to its core business and its “top priorities.”

“The fact that these changes will affect the lives of Google employees weighs heavily on me, and I take full responsibility for the decisions that lead us here,” Pichai said in an email to employees posted to the company’s website on Friday.

However, none of the Big Tech CEOs are Now it appears that the oversight of the layoffs has undergone any change in compensation or title.

Tech layoff announcements are likely to continue into the upcoming earnings season, Kessler said, amid persistent economic warning signs. Even companies that may not yet feel the pain may follow the lead of their peers in shrinking their workforce.

“I think there is an element [some companies saying]We may not see this right now but all of these other big companies, these companies that we compete with, that we know, that we respect, take these kinds of actions, so maybe we should think and act accordingly,” Kessler said.

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