Why tech giants Amazon, Google, Meta, and Microsoft, fired 200,000 people

Big Silicon Valley tech companies Google, Microsoft, Amazon, and Meta have collectively laid off more than 100,000 employees in recent months, and many believe more layoffs are yet to come. But why are the world's biggest tech companies laying off employees, and how many more jobs will be affected?

According to Wedbush's Dan Ives, the tech sector is undergoing a major shift as Microsoft joins Amazon, Meta and Salesforce in announcing major layoffs.

Overhiring during COVID

The COVID-19 pandemic has caused tech companies to hire more people as product needs evolved overnight in a world that was in lockdown.

For example, during the pandemic, Google made rapid changes to its Google Meet video conferencing platform to accommodate more participants, and Meta made similar changes to WhatsApp's video conferencing product.

Meta told employees to prepare for a large-scale downsizing in November, cutting 11,000 employees. And Salesforce cut 10% of its employees earlier this month after the company's chief executive admitted the firm overhired.

Sundar Pichai pointed this out in the letter he sent to employees after announcing the layoffs of 12,000 people. He said, "Over the past two years, we've seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than the one we face today."

Pressure from Investor

Fund managers and early investors in big tech companies like Google, Meta, Amazon, Twitter, etc., pressurising company management to make quick decisions to counter slowing business growth.

The letter said, "Like many other companies in a zero-rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows, and technology changes."

Furthermore, Christopher Hohn, founder and CEO of TCI Fund Management, wrote to Sundar Pichai, calling for further downsizing at the company. The letter read, "I believe the management should aim to reduce headcount to around 150,000, which is in line with Alphabet's headcount at the end of 2021. This would require a total headcount reduction in the order of 20 per cent."

Maturity of the Technology Sector

The technology sector has increased over the last three decades, and experts believe the recent job cuts indicate the maturity of the technology sector after hypergrowth.

Dan Ives, MD of Wedbush Securities, said, "We're seeing at Amazon, Apple, Microsoft, and others that the clock struck midnight for hypergrowth and now they are making cuts across the board. This is a rationalisation of cost structure to brace for slower growth times."

Loss in New Investments

Several new investment initiatives by Silicon Valley tech titans are not profitable. Amazon's robotics division, Microsoft's metaverse and virtual reality division AltspaceVR, and Meta's Substack competitor called Bulletin are all verticals that are somewhat futuristic and require a lot of investment but burned a lot of money. Cash burning has also been one of the reasons companies are trying to cut costs.

Predicting a Recession

According to the management commentary, the top management of big tech companies anticipates a recession shortly.

In a note, Ives said Microsoft's layoffs amount to around 5% of its workforce and are not surprising after hiring around 75,000 since 2019 and spending money "like 1980's Rock Stars to keep pace with eye-popping demand."

But while Microsoft will continue to spend on the cloud, acquisitions and innovation, it will pull out of non-strategic areas like hardware, he said, keeping an upper rating on the stock and a $290 price target.

"We are seeing the clock strike midnight for the tech sector after a decade of hyper growth and now major layoffs are being seen at MSFT, Salesforce, Meta, Amazon, among many others across the Valley," Ives wrote. "This is a rip the band-aid off moment to preserve margins and cut costs in a softer macro, a strategy the Street will continue to applaud as management teams navigate this Category 5 near-term economic storm."

Will the layoffs increase? Experts believe that more layoffs are yet to come, especially in light of the economic downturn.Ives said, "Big Tech has been having fun up to this point, but clearly they are going to see significant cost cuts, head count cuts as well. I think over the next six to nine months as the recessions is at the doorstep, time will get tough. I think this dark storm will pass, but you cannot think of these tech companies as isolated from this. I think there'll be a massive rip in them as well."