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Google, Microsoft, Amazon: understand why Big Techs keep laying off people en masse

Google, Microsoft, Amazon: understand why Big Techs keep laying off people en masse

On Friday morning (20), Alphabet, parent company of Google, announced a cut of 12,000 jobs, or 6% of the workforce, to reduce costs. Microsoft, on Wednesday (18), also cut about 10,000 jobs to contain costs.

The announcements come on the heels of a series of other mass layoffs in the world’s largest technology companies – the so-called Big Techs -, which, in a three-month period, cut more than 62,000 jobs, as found by the CNN .

Over the year 2022, the sector-wide number reaches 150,000, according to the tracking website, and, according to the company Challenger, Gray & Christmas, represents a 649% increase in volume. of layoffs in the sector in 2021.

The account, in addition to Alphabet and Microsoft, includes Amazon, Meta (parent company of Facebook), Twitter and Salesforce. Although each one has its own reasons, the simultaneous mass layoffs raise the alarm for how macroeconomic conditions are affecting some of the largest and most well-established companies in the world.

For experts, big techs have experienced a favorable scenario in recent years, especially with the pandemic, due to social isolation, with companies seeking a greater digital presence.

Post-pandemic and war

After these boom years, the post-pandemic scenario is different. The rise in prices caused by the breakdown of global chains and the war in Ukraine, added to the increase in interest rates by central banks around the world, has impacted the technology sector. This explains Rafael Nobre, an international analyst at XP.

“Currency tightening ends up causing an economic slowdown. Many countries or regions today are even at risk of going into recession. This slowdown is directly reflected in the balance sheets of these companies, which end up suffering from a drop in revenue and, currently, still have the aggravating factor of inflation, which causes an increase in costs”.

“In one way or another, all these large technology companies benefited from the trend towards greater digitization caused by the pandemic,” explains Rafael Nobre, international analyst at XP Investimentos.

With the performance curve on the rise, the vast majority of companies engaged in a rhythm of mass hiring.

The Goal is emblematic in this sense: after “significantly increasing investments” at the company, in a wave of optimism caused by the good numbers in the pandemic, CEO Mark Zuckerberg even sent a message to employees saying that he “took responsibility” for the error of calculation that led to the layoff of 13% of the workforce – or more than 11,000 employees.

“Not only has online commerce returned to previous trends, but the macroeconomic downturn, increased competition and the loss of advertisements have meant that our revenue is much lower than I expected,” said the billionaire at the beginning of November of the year. past.

“The pandemic boom is over. Inflation has skyrocketed globally and, with tighter monetary policies in the United States and Europe, large companies are reflecting this economic slowdown,” explains Nobre.

The fact that Big Techs have headquarters in the United States also comes into play. According to Nobre, the consensus among market analysts is that there is around a 65% chance that the US economy will enter a recession in 2023. only to the tech giants.

“The current level of interest rates in the United States could push the largest economy in the world into a recession. We expect it to be mild, but until the rate peak is reached by the Federal Reserve System and the effects of it are felt in the economy, it is difficult to predict whether 2023 will also support a recovery.”

Looking specifically at Big Techs, the movement is to normalize the period of slowed economy, in which companies aim to reduce costs to maintain profitability and financial health during turmoil.

“Of the big ones, only Apple is missing, but everything indicates that it will be affected too”, he adds.

Arthur Igreja, a specialist in Technology and Innovation, recalls that Big Techs depend on software licenses or advertisers, areas that were impacted by the resumption of face-to-face activities and the relaxation of the announced restrictive measures.

“Above all, they are looking more and more like standard companies. Big techs had a giant dominance on the American stock exchange, especially throughout the years 2020 and 2021, and now they face the same issues as other companies. They were always treated as if they were an absolutely separate category and now reality has hit and they are having to make these adjustments”, summarizes Arthur Igreja.

Another “new normal”?

If 2022 was the year the good times ended for these tech companies, 2023 is already shaping up to be a year when people at these companies brace themselves for how much worse things could get.

Heading into 2023, fears of recession and economic uncertainty still weigh heavily on the minds of consumers and policymakers, and interest rate hikes are expected to continue.

What’s more, the rising number of layoffs may also give certain tech companies some cover to take tougher steps to cut costs now than they might otherwise have done.

In the view of Junior Borneli, CEO of StartSe, an international business school, the context can also be summarized by the maxim: “Never waste opportunities in a crisis”.

“All of them lost profitability in the last two quarters, it’s true. The layoffs are partly due to this readjustment to the global economic scenario, with the loss of profit margins, but we cannot rule out the growing use of artificial intelligence in these companies”, he says in an interview.

It is likely, according to him, that part of these movements — mainly at Microsoft and Google — are also driven by a replacement of the human workforce by highly efficient algorithms.

“There is always some substitution of some functions by Artificial Intelligence algorithms. We already see widespread use of AI-created chatbots, posts, images and advertising text… A lot of practical applications are actually happening now.”

Mass layoffs can create a new balance in the structures of large companies, as the downsizing and optimization of expenses can become a reality inscribed in an ironclad clause.

“Companies are looking for efficient structures, which favor profit margins and swim against that idea of ​​’growth at any cost’”, says Nobre. “From now on, this should be the main priority.”

The market, in response, appears to be reacting well to the “new normal”. Following the announcement of 6% workforce cuts, Alphabet shares were up 4.67% on the Nasdaq as of 2:40 pm (Brasília time).

“This is a sign that the market understands that Alphabet manages to cut costs, will probably become more operationally efficient and will grow”, summarizes Guilherme Zanin, an analyst at Avenue.

*With information from Catherine Thorbeckeda of CNN Business and Pedro Zanatta of CNN

Source: CNN Brasil