Big Tech is ringing in 2023 with thousands of layoffs—and there’s no end in sight

Tech giants Salesforce and Amazon delivered a double-whammy of bad news Wednesday, announcing significant layoffs designed to right-size their workforces following a pandemic-fueled hiring boom. 

Salesforce plans to cut about 10,000 jobs, or roughly 12% of its headcount, amid a slowdown in sales revenue growth. Amazon said it now expects to slash 18,000 jobs, up from an earlier estimate of 10,000 positions in November, with CEO Andy Jassy partially citing “the uncertain economy.” Amazon’s layoffs are expected to affect about 6% of the company’s corporate workforce.

The announcements certainly won’t be the last this quarter for major tech companies, who are forecasted to struggle with sagging demand, corporate enterprise belt-tightening, and the continuation of Federal Reserve interest rate increases. Private companies also added far more jobs in December than Wall Street expected, according to payroll processing firm ADP, a development that portends more interest rate hikes.

“The new reality is that demand is fading,” Jeffries analyst Brent Thill told Fortune’s Alena Botros last month. “And employee hirings have been so brisk that if we’re effectively headed into a recession, it’s only inevitable that we’re going to have more cuts.”

For now, attention will turn to companies that went on hiring sprees during the pandemic but haven’t significantly culled their workforces following last year’s slackening in sales growth. 

Apple and Alphabet haven’t instituted large-scale layoffs, choosing instead to freeze hiring and eliminate positions through attrition. However, the New York Times reported last week that Alphabet’s Google unit “has become a tinderbox of anxiety” over potential layoffs, citing interviews with 14 current and former employees.

Microsoft will face questions about the size of its workforce after trimming a tiny fraction of headcount last year. The tech giant’s shares fell 5% Wednesday following a rating downgrade from UBS and slipped another 3% in midday trading Thursday.

Same goes for Samsung, which is grappling with a stark slowdown in semiconductor sales and sluggish consumer electronics demand. CNBC reported Wednesday that analysts are expecting a sharp decline in the South Korean giant’s quarterly earnings guidance this week.

In the long run, however, it will be interesting to watch whether this pattern of rapid hiring followed by swift layoffs continues.

In some ways, the current environment mirrors the mid-2010s tech reshuffling, when some corporate giants hired like crazy coming out of the Great Recession, only to scale back amid a period of upheaval within the industry.

“I see this as another chapter in Silicon Valley’s boom and bust story,” Margaret O’Mara, a University of Washington history professor and author of The Code: Silicon Valley and the Remaking of America, told Yahoo Finance. “There’s something of a rhythm to it, and it’s been a long boom.”

Yet the sheer scope of the pandemic hiring spree was unprecedented, powered by a mostly unfounded belief that COVID would dramatically reshuffle our habits. For example, Microsoft added 58,000 employees between mid-2020 and mid-2022, compared to 34,000 during a two-year stretch at the height of the last boom.

Over and over, tech executives have cited their misguided optimism that global economic growth and tech product demand would power the industry to even greater post-pandemic heights. 

“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Salesforce CEO Marc Benioff wrote in a note to employees Wednesday.

While some employees and managers benefited from the hiring binge, the strategic approach led to a painful, destabilizing event for thousands of workers. Moving forward, one question is whether tech leaders modulate their hiring habits, opting for a slightly more conservative approach, when the next frothy cycle kicks into gear.

Want to send thoughts or suggestions to Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Cutting out China. Dell is taking steps to dramatically reduce the use of chips and other components manufactured in China in the company’s products, citing mounting tensions between the republic and the U.S., Nikkei Asia reported Thursday. Sources familiar with Dell’s plans said the Texas-based computer outfit aims to phase out its use of Chinese-made semiconductors by 2024. Dell officials are also asking component suppliers to shift production away from China in an effort to diversify supply chains.

Catching a little lightning. Ford sold about 61,600 electric vehicles in the U.S. in 2022, a 126% year-over-year increase that further solidifies its position as the auto industry’s second-leading domestic EV producer, Bloomberg reported Thursday. The Metro Detroit-based automaker benefited from rising sales of its Mustang Mach-E SUV and the debut of its F-150 Lightning pickup truck, which went on sale this past spring. Ford’s EV sales still lag well behind Tesla, which delivered 1.3 million electric cars globally in 2022, but exceeded General Motors’ EV sales of roughly 39,000 last year.

Opening up audiobooks. Apple’s Books section now features an A.I.-powered narration option on some titles, a sign of the tech titan’s ambitions for the fast-growing audiobooks market, TechCrunch reported Thursday. The iPhone maker said the program, which uses A.I. technology and recorded human voices to produce narration, will cut production costs and allow more authors to convert their texts into audiobooks. The feature is currently limited to some fiction books, though Apple is expected to expand availability.

Good news for gamers. Sony video game chief Jim Ryan said Wednesday that the company’s PlayStation 5 shortages are easing after two-plus years of manufacturing challenges, The Verge reported. Speaking at CES, Ryan said customers “should have a much easier time” buying PlayStation 5 consoles from retailers. Strong demand and supply chain issues made it difficult for gamers to buy the hardware, though Sony officials said they have sold about 30 million consoles to date.

FOOD FOR THOUGHT

No more noncompete? Tech behemoths got yet another reason Thursday to sneer at the Federal Trade Commission’s leadership. The Democrat-led FTC has proposed a nationwide ban on the use of noncompete clauses, which employers often use to stop workers from jumping to rival companies or forming their own startups, the Wall Street Journal reported. Some tech firms use noncompete clauses to protect their business interests and confidential data—though such provisions are not enforceable in California. FTC officials and labor researchers, however, argue that the prohibitions suppress wages, prevent entrepreneurship, and unfairly favor companies over the working class.

From the article: 

The FTC said noncompete clauses constitute an exploitative practice that undermines a 109-year-old law prohibiting unfair methods of competition. 

Noncompete clauses, which typically bar employees from joining a competitor for a period after they quit, affect nearly one in five American workers, according to the agency. Long associated with higher-paid managers, the clauses have also been imposed on lower-wage workers who lack access to trade secrets, strategic plans and other reasons that could be cited for hampering job switchers, the agency says.

IN CASE YOU MISSED IT

Here’s how VC funding is shaping up now, in 3 charts, by Jessica Mathews

Loyal Elon Musk fan Cathie Wood swims against prevailing currents to scoop up more Tesla shares for ARK Invest, by Christiaan Hetzner

Rogue fan files trademark for Tesla jets and boats in bid to ‘help’ Elon Musk, by Eleanor Pringle

Russian companies are banned from displaying their tech at CES: ‘A lot of people from around the world want to support Ukraine’, by the Associated Press

Social media platforms like Twitter and Facebook have been skating by on an obscure federal law for years. 2 experts see a huge change coming, by Robert Kozinets, Jon Pfeiffer, and The Conversation

The next era of work will be about skills–not pedigree. Here’s how employers are changing the way they judge potential, according to LinkedIn and Jobs for the Future, by Aneesh Raman and Cat Ward

Why enterprise tech is seen as a safe harbor in 2023, by Bobby Yazdani

BEFORE YOU GO

Getting the most from ChatGPT. After entering a few queries into OpenAI’s thrilling new chatbot, ChatGPT, I couldn’t help but feel a sense of intimidation. I’ve learned through years of self-training how to navigate Google Search, yet I didn’t know how to maximize the power of ChatGPT. As Fortune’s Alexandra Sternlicht reported Wednesday, there’s a growing group of TikTokers working to help bewildered ChatGPT users, offering tips and tricks to harnessing the technology. One TikTok personality has garnered hundreds of thousands of views on videos outlining the marketing potential of ChatGPT, while another went viral after showing how to use the chatbot to improve job applications. “I one thousand percent think that especially young people should be learning this technology, and spending their weekends testing out different business ideas,” ChatGPT fan and TikToker Rachel Woods said.