Over the past several months, the global tech sector has seen massive layoffs multiple times, all under the guise of business restructuring, cost-cutting, and a ‘bad economy’. However, is it really that bad for tech companies? The numbers suggest otherwise.
If we take a look at the tech giants leading the layoffs, such as Microsoft, Google, and Amazon, their revenues have been on an upward trend for quite some time now.
Microsoft laid off 1,900 workers just five days before reporting a 17.6% jump in revenue to $62.02 billion. Google laid off more than a thousand workers shortly before reporting a 13% increase in revenue to $86.31 billion. Amazon let go of a thousand employees despite a 14% increase in revenue to $169.96 billion. Meta laid off several dozen employees, despite a 25% jump in revenue to $40.11 billion.
Now, if we look at this in a broader context, all these economic uncertainties and market volatility began with the Russian invasion of Ukraine and the ensuing economic turmoil. Sanctions against Russia, skyrocketing oil prices, inflation, and a volatile market have all affected the revenues and profits of these tech companies, forcing them to enter emergency mode to cut costs and focus more on revenue-generating departments and segments.
It’s also important to note that, to keep up with the increasing demand for tech services and products during the coronavirus pandemic and lockdown period, several of these companies had mass recruitments. When lockdowns were lifted, a large number of people remained as surplus employees, not providing the same value to the company as they did during the lockdown period.
According to the New York Times, from the end of 2019 until the start of the major rounds of layoffs, the number of employees at Apple, Amazon, Meta, Microsoft, and Google increased by more than 900,000.
How it all started?
The effects of the Ukraine war and inflation started easing up on companies a few months ago, and revenue started flowing in and increasing. However, the latest moves by the companies show that despite any uptick in their financials or future prospects, they seem to be focused on trimming jobs and cutting costs in various divisions and segments.
At the start of 2024, nearly all major companies such as Amazon, Google, and Microsoft announced layoffs, signaling that these tech companies are continuing with their layoffs regardless of whether there is a financial uptick or not.
In their most recent fiscal year, the Big Five (Microsoft, Apple, Amazon, Google, and Meta) generated total revenues of $1.63 trillion, 81% more than five years earlier. Investors rewarded them accordingly, and the companies added $3.5 trillion to their total value.
In the last year and a half, due to the turnaround in the economic situation, the companies cut about 112,000 jobs. However, even today they employ 2.16 million people, 71% more than before the pandemic.
Rounds of layoffs were also recorded in smaller companies. Among others, Zoom laid off 150 employees (2% of its workforce); PayPal let go of 2,500 employees (9% of the workforce, despite a 9% increase in revenue to $8.03 billion); Discord laid off 170 employees (17%); TikTok laid off 60; SAP laid off 8,000 (7% of the workforce, despite a 5% increase in revenue to $8.47 billion); eBay laid off 1,000 (9%); and Snap, the parent company of Snapchat, fired 540 employees (10% of the company’s workforce, despite a 5% increase in revenue to $1.36 billion).
Why are companies still cutting jobs despite promising prospects?
According to Roger Lee, the founder of layoff.fyi, technology companies are still trying to shed the extra weight they gained during the pandemic. This is due to high interest rates and a prolonged negative trend in the technology sector.
Lee also pointed out that compared to 2023, the current rounds of layoffs are often smaller and more focused.
In the past two years, companies were laying off people in a general manner without much focus on any specific segments or sections. However, things have changed rapidly in the last few months. Companies are now very selective about who gets laid off and are more calculated in their approach.
Is AI playing a role in these layoffs?
As companies continue their layoffs despite positive financial indicators, there are debates and discussions about whether these layoffs are fueled by developments in AI. This trend emerges from what Meta CEO Mark Zuckerberg said in a conversation with analysts after the publication of the company’s quarterly report last week. According to him, Meta laid off workers in January to reduce costs and “so that we can invest in a long-term and ambitious vision around AI.” He added, “We operate better as a lean company.”
Companies are reportedly replacing employees with certain skills with employees with other talents. According to an analysis by CompTIA, the number of open jobs related to AI or requiring skills in the field increased from about 2,000 in December 2023 to 17,479 in January 2024. The number of vacancies in January increased by 18,000 compared to December, and the unemployment rate in the sector stands at 3.3%, compared to 3.7% in the U.S. job market.
So, it’s safe to say AI is playing a significant role in the current layoff spree.
What’s next for 2024?
If the current trend continues, we can expect more layoffs from tech companies in 2024 as they will be coming up with a business structure to avoid any kind of economic backlash in the future due to events such as the war in Ukraine or other crises in the Middle East or a possible crisis in the South China Sea. As expected, there will be significant downsizing in segments and departments that are not performing well within these companies.
As AI developments continue, we can also expect companies to move towards AI for more productivity and to reduce time wastage. While this might not actually reduce the number of jobs available in the economy, it will surely affect people who are not updated about the latest trends and skills in the tech industry.
