Tech companies cut staff amid recession fears

Hiring freezes and layoffs are hitting the tech sector as Silicon Valley braces for a predicted recession.

The impacts of hiring are hitting companies of all sizes in tech, from industry giants to nascent startups, signaling that industry growth is slowing amid rising interest rates and rising inflation.

Near-zero interest rates, a booming stock market and huge consumer demand allowed tech companies to aggressively expand their workforce at the start of the pandemic. But the recent economic crisis is forcing many companies to reverse course and cut costs to shore up their reserves.

“It’s the perfect storm for tech companies,” said Dan Ives, an analyst at Wedbush. “Because the ratings are so high, the hiring was unprecedented and over the course of six months it was a 180.”

Since May, tech startups have laid off nearly 27,000 workers, according to layoffs.fyi, which tracks publicly announced job cuts. This is roughly double the total number of layoffs recorded for the entire year 2021.

Tech companies, especially smaller ones, are “pulling back on what was likely overly aggressive hiring,” said Steven Weber, a professor at the Graduate School of Information at UC Berkeley.

“Even six months or a year ago at many of the smaller companies, of course, the view was, ‘Profits aren’t important, we just need to grow. We grow in profits.’ During recessions, and during valuation changes, as we’ve seen in the markets over the last couple of months, unprofitable growth companies are being killed off. Their share prices are collapsing,” Weber said.

The Federal Reserve is fighting the country’s highest inflation in four decades by raising interest rates, a move that will dampen consumer demand and likely lower prices.

But economists say rate hikes, which make it more difficult and expensive for companies to access capital, make the US more likely to slip into recession next year.

The economic downturn is pushing investors away from risky assets, including stocks of tech startups that rarely turn a profit. The Nasdaq high-tech composite is down about 30% last year, while the Big Five tech stocks are down 36% over the same period.

Last month, Uber told employees it would lay off 3,700 people, and Spotify said this month it is cutting hiring by 25%.

Tesla CEO Elon Musk said Tuesday that the electric car company will cut 10% of its workforce over the next three months. Musk, who is actively pursuing a bid to buy Twitter, last week warned the social media company’s employees of possible layoffs.

“It depends. The company needs to stay healthy. Right now, costs exceed revenue,” Musk said, according to a CNBC report.

Last week, real estate technology firms Redfin and Compass said they would lay off about 450 workers due to a slowdown in home-buying demand triggered by interest rate hikes. This comes after insurance tech startup Policygenius laid off 25% of its workforce earlier this month. Online car retailer Carvana laid off 12% of its workforce in May.

The biggest companies are not immune to challenges either. Tech giants grew up during the pandemic as the global population changed their personal and professional lives online. But as restrictions eased, that growth faltered. Now, they are bracing for a possible recession with changes in hiring.

Amazon executives told analysts in an April report that its warehouses were overstaffed.

“Today, as we are no longer looking for physical or personnel capacity, our teams are fully focused on improving productivity and cost efficiency across our entire service network,” said CEO Andy Jassy.

In an internal memo reported by Insider, Facebook’s parent company Meta acknowledged that as “more people are spending time offline” and returning to “pre-pandemic patterns”, growth has “facilitated”.

“While we are still going through our reprioritization, we know this will affect hiring for the rest of the year,” said Meta CFO David Wehner in the memo sent to employees in May.

Meta spokeswoman Andrea Beasley said the company regularly reassesss hiring based on business needs and is slowing growth based on guidance for the recent earnings period.

Google Cloud ended dozens of support functions in March, according to Insider. They were given 60 days to find new positions within the company. Those who did not would be entitled to compensation.

A team official who was not cut during the reorganization told The Hill that since the initial “vague” announcement, they still don’t have a clear picture of what triggered the decision and leadership’s vision for the future of the remaining team.

“The best assurance I could get is that this was planned in such a way that they would only have to do it once,” the official said.

“It’s pretty stressful. I mean, obviously, this job is how I pay my mortgage and where I get insurance. It’s a job I like to do. I enjoy working with my clients. I enjoyed working with the people who were laid off, they were good people,” the employee added.

A Google spokesperson told Insider in a March statement that the reorganization “will ensure we have the right people, partners and systems to meet our customers’ needs now and in the future.”

The Hill reached out to Google for comment.

Ives said the hiring and layoff freezes are ways for tech companies to “proactively anticipate” a possible recession.

“This and much more [about] companies preserving their margins, giving themselves flexibility, in what appears to be a potentially Category 5 hurricane on the horizon. Strategically, we’ve seen a noticeable shift in hiring plans even in the last month across Silicon Valley,” he said.

Still, some in the industry believe the technology will weather a potential economic downturn, as it did during previous recessions.

Tim Herbert, director of research at CompTIA, said that for every technology company that announces layoffs, there is another company either increasing hiring or continuing at the current pace, suggesting that the downturn is more company-specific than industry-specific.

“Companies that had a business model that wasn’t necessarily designed to generate cash flow profitability, but that were really looking for market share, these seem to be the companies that are going to have a lot more problems on the hiring side,” he said. .

A recent CompTIA analysis of labor data found that the tech industry added 22,800 net new workers in May, even as companies announced layoffs. Herbert noted that the market for developers, data scientists and other tech jobs remains strong as companies are choosing to keep these tech workers on staff even as they lay off other employees.

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