Tech firms are shedding staff in the face of recession fears

Hiring freezes and layoffs hit tech sector as Silicon Valley braces for predicted recession.

The hiring impact is hitting companies of all sizes in tech, from industry giants to burgeoning startups, signaling that the industry’s growth is slowing amid rising interest rates and rising inflation.

Near-zero interest rates, a booming stock market, and massive consumer demand allowed tech companies to aggressively expand their workforces early in the pandemic. But the recent economic downturn 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 sky high, the hiring was unprecedented and over the course of six months it was a 180.”

Tech startups have laid off nearly 27,000 workers since May, according to Layoffs.fyi, which tracks the publicly announced job cuts. That’s roughly double the total number of layoffs recorded in all of 2021.

Tech companies, especially smaller ones, are “retreating from attitudes that are likely to be overly aggressive,” said Steven Weber, a professor in the Graduate School of Information at UC Berkeley.

“Just six months or a year ago, of course, in many smaller companies, the attitude was, ‘Profits are not important, we just have to grow. We grow into profits.’ During recessions and valuation shifts like the ones we’ve seen in markets over the past few months, unprofitable growth companies get killed. Your stock prices are collapsing,” Weber said.

The Federal Reserve is tackling 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 interest rate hikes, which make it harder and more expensive for companies to access capital, increase the likelihood of the US sliding into a recession next year.

The economic downturn is driving investors away from risky assets, including tech startup stocks that rarely yield profits. The tech-heavy Nasdaq Composite is down about 30 percent over the past year, while the big five tech stocks are down 36 percent over the same period.

Uber told employees last month it would lay off 3,700 employees, and Spotify said this month it is slowing hiring by 25 percent.

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

“It depends. The company needs to get healthy. Right now, costs are outstripping revenues,” Musk said, according to a CNBC report.

Last week, real estate tech firms Redfin and Compass said they would each lay off around 450 employees as demand for homes fell due to interest rate hikes. That comes after insurance tech startup Policygenius laid off 25 percent of its workforce earlier this month. Online-only car dealership Carvana laid off 12 percent of its workforce in May.

Even the largest companies are not immune to the challenges. Tech giants boomed during the pandemic as the world’s population shifted their personal and professional lives online. But when restrictions were eased, that growth stalled. Now they are preparing for a possible recession with attitude changes.

Amazon executives told analysts on a conference call in April that warehouses were overstaffed.

“No longer looking for physical or human capacity, our teams are now focused directly on improving productivity and cost efficiencies across our fulfillment network,” said CEO Andy Jassy.

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

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

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

Google Cloud canceled dozens of support roles in March, Insider first reported. You had 60 days to find a new job at the company. Those who didn’t were reportedly entitled to a severance package.

A member of the team, who was not cut during the reshuffle, 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 Has.

“The best confirmation I could get was that this was planned in such a way that they only had to do it once,” the staffer said.

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

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

The Hill reached out to Google for comment.

Ives said hiring freezes and layoffs are tech companies’ tools to “proactively anticipate” a possible recession.

“It’s a lot more [about] Businesses are preserving margins and gaining flexibility in a possible Category 5 hurricane on the horizon. Strategically, even in the last month, we’ve seen a noticeable shift in hiring plans across Silicon Valley,” he said.

Still, some in the industry believe the technology will weather a possible economic downturn, as it has in previous recessions.

Tim Herbert, CompTIA’s chief research officer, said that for every tech company that announces layoffs, there is another company that is increasing hiring or continuing at its current pace, suggesting the slowdown is company-specific rather than industry-wide.

“Companies that had a business model that wasn’t necessarily designed to generate cash flow profitability but were genuinely looking for market share seem to be the companies that will face far bigger problems on the hiring side,” he said.

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

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