Explosive growth has been the norm in the tech sector for the past decade.
As the Covid-19 pandemic devastated the world and everyday life moved online, tech jobs skyrocketed even more across Silicon Valley. He doubled the number of employees some big tech companies, such as Amazon and Facebook parent company Meta, are hiring to meet new demand.
But now the vibrancy is waning.
The industry is facing its worst contraction in history, with Meta, Google, Microsoft and Amazon all announcing months of mass layoffs. More than 200,000 tech jobs have been lost since the beginning of last year, according to tech job tracker layoffs.fyi.
I don’t know the full extent of the pain yet, but here are five takeaways from what’s happened so far.
Cuts are historic for the tech industry
Silicon Valley has endured major recessions before, including the dotcom bankruptcy in the early 2000s and the economic hit of the Great Recession. But technology has historically been a resilient industry, weathering most economic challenges thanks to its scale and ubiquity.
“It’s been about a decade of phenomenal scale-up across the industry,” says Margaret O’Mara, a historian of Silicon Valley at the University of Washington. It’s always been a very growth-oriented industry since we started.”
Layoffs at big tech companies, though small in percentage terms, remain historic. Combined, Facebook’s parent companies Meta, Amazon, Microsoft and Google have lost at least 51,000 jobs in recent weeks.
“Analysts said Silicon Valley’s growth couldn’t last forever,” said Carolina Milanesi, a consumer technology analyst at research firm Creative Strategies. “Now it surprises a lot of people,” he said.
The cuts followed a period of rapid growth. While Amazon and Meta have doubled their headcount during the pandemic, other big tech companies have not scaled as aggressively. Microsoft and Google have increased their workforce numbers by more than 50% during an industry-wide hiring surge.
Apple has also grown, but is a much slower clip than the tech giant, ramping up its workforce by about 20% during the pandemic.
Big tech is not in trouble
Companies that cut labor costs today are among the most valuable companies in the world and boast eye-popping profits. These Silicon Valley giants also have piles of cash on their hands.
Take Microsoft for example. Last year, it tried to buy video game maker Activision Blizzard before federal regulators challenged the deal.What price did Microsoft offer?$69 billion in cash.
The company posted huge profits in its most recent quarter, surpassing $16 billion in the three months to December.
Meta said earnings plunged 52% last quarter But it still reaches $4.4 billion.
Also, Amazon pointed to a decline in its most recent quarter’s profit, which still means it made nearly $3 billion in revenue.
“None of these companies are clearly on the brink of extinction, but I think they are doing what they can to prepare for the future in the hope that some of their customers will refrain from spending,” Milanesi said. said.
Guidehouse Insights analyst Sam Abuelsamid said the tightening is intended to send a message to shareholders when technology companies’ stocks have plummeted.
“They’re saying, ‘We’re cautious. We want to get back on a growth trajectory. We don’t want to keep spending money unnecessarily,'” he said. “That said, it seems like a bit of a silly argument to say we’re spending money unnecessarily when we’re as profitable as these companies.”
Management cites fears of high inflation, lower corporate spending and a recession
Meta was the first to announce mass layoffs, And CEO Mark Zuckerberg’s messages about staff reductions have created a strategy of sorts. Citing overzealous hiring during the pandemic, it subscribes to broader economic conditions, including high inflation and fears of a recession, justifying laying off thousands.
“Not only has online commerce returned to its previous trends, but the macroeconomic downturn, increased competition, and loss of advertising signals have resulted in revenues well below expectations,” Zuckerberg wrote at the time. “I got this wrong and I take responsibility for it.”
Inflation has fallen from 9% last summer to 6.5% more recently, and although there are signs that inflation is starting to ease, it remains abnormally high. At the same time, many economists predict that the US could slip into recession this year.
This has led Big Tech executives to worry that customers will continue to cut spending, possibly leading to an even deeper recession.
Analyst Milanesi said it must find a way to navigate that potential.
“At the end of the day, you can’t cut R&D, but people are essential to some extent,” she said, referring to R&D. We need to pay attention to the next big event.”
Technology is a major driver of the economy and stock markets
According to the Computing Technology Industry Association, the technology industry employs about 9 million people in the US and adds a total of $1.8 trillion to the US economy.
Stock markets can also experience market-wide volatility depending on the performance of technology stocks, especially like the Nasdaq, where technology companies make up half of the index.
This means that when Big Tech takes a hit, local economies and people’s investments (including retirement plans) can take a hit.
With big tech’s huge balance sheets and hundreds of thousands of employees able to absorb most economic shocks in one fell swoop, many other industries are leading decision-makers around corporate spending, hiring, and other decisions. I’m paying attention to tech as.
“I don’t know if that means much for the mainstream economy,” said analyst Abu Elsamid.
So far, at least, the laid-off techs have pretty good job prospects
Anecdotal examples vary, but some early research shows that laid-off tech workers bounce back quickly.
According to a survey released in November by ZipRecruiter, 8 out of 10 engineers who lost their jobs found another job within three months of starting their job search.
Some are even luckier. Studies show that nearly 40% of people find a new tech job within a month of being laid off.
Demand for these worker skills exceeds big tech companies and traditional start-ups, helping layoffs transition to new opportunities, said Milanesi of research firm Creative Strategies. increase.
“Every company today is a technology company in some way,” Milanesi says. “And for coders, engineers, AI professionals, data professionals, these people can find a place in many other industries.”
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