It’s a tsunami of bad news coming from technology.
For two years, the covid-19 pandemic saw the tech sector see at least some growth as the rest of the world came to a standstill. People only interacted through the products and services of tech companies.
Today, the economy is slowing down and the game is changing for the tech sector, but not in a good way. The industry is being hit hard as central banks around the world battle inflation, which is at its highest level in 40 years.
After leaving interest rates near zero, the US Federal Reserve has been raising them since March to crush high prices for goods and services, which have weighed on consumers’ purchasing power.
Many economists and business leaders argue that this monetary policy is likely to cause a so-called economic hard landing, a recession. These fears are prompting businesses to delay investments, while households are postponing discretionary purchases, such as tech gadgets.
Higher Rates, Stronger Dollar
The higher rates have also helped the US dollar strengthen against other currencies, which consequently eats away at the revenue generated in international markets by tech companies when they convert foreign currencies into dollars.
The landscape for the tech sector is, to say the least, bleak. And the third quarter earnings season, which is drawing to a close, has confirmed this. Microsoft (MSFT) Alphabet (GOOGL) Amazon (AMZN) Meta platforms (META) and society have all warned of economic uncertainty.
In response, investors are liquidating tech stocks. Shares of Meta Platforms, parent company of Facebook, Instagram and WhatsApp, fell 36% in the fourth quarter. Over the same period, shares of Amazon were down 23%, Alphabet 15% and Microsoft 11%.
This bearish movement could well continue as the sector has just announced another round of bad news in the form of massive job cuts and hiring freezes.
Amazon, the e-commerce giant founded by Jeff Bezos, said Nov. 2 that it would “pause on additional new hires to our enterprise workforce.”
“We plan to maintain this pause over the next few months and will continue to monitor what we see in the economy and business to adapt as we see fit,” said Beth Galetti, senior vice president of the experience of people and technology. , wrote in a message to employees.
“We are facing an unusual macroeconomic environment and want to balance our hiring and investing while being mindful of this economy. This is not the first time we have faced uncertain and challenging economies in our past,” a- she explained.
Tech layoffs continue
The move is the latest wave of cost-cutting measures from the Seattle group in recent weeks. Amazon has already cut more than 10,000 job openings in its retail division and halted numerous projects. The company has ended its Treasure Truck program, a fleet of roving vans that offers daily discounts on a slew of items.
Just a day later, online payments giant Stripe announced it would cut 14% of its staff this week.
“At the start of the pandemic in 2020, the world shifted to e-commerce overnight. We have seen significantly higher growth rates during 2020 and 2021 compared to what we have seen before. “Stripe CEO Patrick Collison wrote to employees.
“The world is changing again. We face persistent inflation, energy shocks, higher interest rates, shrinking capital budgets and scarcer start-up funding,” he said. he continued. “We believe 2022 represents the start of a different economic climate.”
On the same day, ride-sharing company Lyft (LYFT) also announced a cost reduction plan, including the elimination of 13% of the workforce, or 683 employees.
“The announced force reduction is a proactive step to ensure the company is in place to accelerate execution and deliver strong business results in the fourth quarter of 2022 and into 2023,” Lyft said in a regulatory filing.
In a memo to employees, CEO Logan Green and Chairman John Zimmer said: “There are several challenges in the economy. We face a likely recession over the next year and rideshare insurance costs increase.”
Microsoft has announced two rounds of job cuts this year, while Meta will cut its workforce for the first time since it was founded in 2004.
As for Alphabet, the parent company of Google and Youtube, the company will slow down the pace of hiring considerably in the fourth quarter.
Same Apple (AAPL) whose iPhone demand exceeds supply, has decided to suspend hiring except in research and development.
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