For two years the covid-19 pandemic saw tech-sector saw at least some growth as the rest of the world ground to a halt. People interacted only through the tech companies’ products and services.
Now the economy is slowing, and the game for the tech sector is changing — but not in a good way. The industry is sharply hurt as the world’s central banks fight inflation, which is at its highest level for 40 years.
After leaving interest rates at almost zero, the U.S. Federal Reserve has been increasing them since March to crush the high prices of goods and services, which have whacked consumers’ purchasing power.
Many economists and business leaders say this monetary policy is likely to cause a so-called hard landing in the economy, a recession. These fears are prompting companies to delay investment, while households postpone discretionary purchases — such as tech gadgets.
Higher Rates, Stronger Dollar
The higher rates has also helped the U.S. dollar strengthen against other currencies, which consequently eats into the revenue generated in international markets by tech companies when they convert foreign currencies into dollars.
The tech-sector landscape is, to put it mildly, bleak. And third-quarter-earnings’ season, which is winding down, has confirmed this. Microsoft (MSFT) , Alphabet (GOOGL) , Amazon (AMZN) , Meta Platforms (META) and company have all warned of economic uncertainty.
In response, investors are liquidating tech stocks. Shares of Meta Platforms, parent of Facebook, Instagram and WhatsApp, have fallen 36% in the fourth quarter. Over the same period Amazon shares are down 23%, Alphabet is down 15% and Microsoft is off 11%.
This bearish movement may well continue as the sector has just delivered another round of bad news in the form of massive job cuts and hiring freezes.
Amazon, the e-commerce giant founded by Jeff Bezos, on Nov. 2 said it would “pause on new incremental hires in our corporate workforce.”
“We anticipate keeping this pause in place for the next few months, and will continue to monitor what we’re seeing in the economy and the business to adjust as we think makes sense,” Beth Galetti, senior vice president of people experience and technology, wrote in a message to employees.
“We’re facing an unusual macroeconomic environment, and want to balance our hiring and investments with being thoughtful about this economy. This is not the first time that we’ve faced uncertain and challenging economies in our past,” she explained.
Tech Layoffs Are Continuing
The move is the latest wave of cost-cutting measures from the Seattle group in recent weeks. Amazon has already removed more than 10,000 job offers in its retail division and has stopped many projects. The firm has shut down its Treasure Truck Program, a fleet of roving vans that offers daily discounts on a bunch of items.
Just a day later, online-payments giant Stripe said it would eliminate 14% of its staff this week.
“At the outset of the pandemic in 2020, the world rotated overnight towards e-commerce. We witnessed significantly higher growth rates over the course of 2020 and 2021 compared to what we had seen previously,” Stripe CEO Patrick Collison wrote to employees.
“The world is now shifting again. We are facing stubborn inflation, energy shocks, higher interest rates, reduced investment budgets, and sparser startup funding,” he continued. “We think that 2022 represents the beginning of a different economic climate.”
On the same day, ride-share company Lyft (LYFT) also announced a cost-reduction plan, including the elimination of 13% of the workforce, or 683 employees.
“The announced reduction in force is a proactive step to ensure the company is set up to accelerate execution and deliver strong business results in Q4 of 2022 and in 2023,” Lyft said in a regulatory filing.
In a memo to employees CEO Logan Green and President John Zimmer said: “There are several challenges playing out across the economy. We’re facing a probable recession sometime in the next year and ride-share insurance costs are going up.”
Microsoft has announced two rounds of job cuts this year, while Meta will reduce its workforce or the first time since it was founded in 2004.
As for Alphabet, parent of Google and Youtube, the company will sharply slow the pace of hiring in the fourth quarter.
Even Apple (AAPL) , whose demand for iPhones is greater than supply, has decided to pause hiring except in research and development.