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Tuesday, February 7, 2023

Why IT giants are massively laying off employees

Music service Spotify announced the cut of around 600 employees, or around 6% of the company’s workforce. Previously, Google announced the layoff of 12,000 people, and before it, Microsoft, Amazon and other IT giants took similar action. Their leaders explain staff decisions by posting memos in blogs on their own sites. External economic reasons are cited, such as the boss of Google and its parent company Alphabet, Sundar Pichai.

“The past two years,” he writes, “we have experienced a period of rapid growth. To help and contribute to this, we have hired new employees. But today’s economic reality is different.”

In just three weeks of 2023, IT companies and other businesses whose activities are largely related to information technology laid off nearly 50,000 people. Amazon leads with 18,000 layoffs. Granted, that’s about 1% of the state’s roughly 1.5 million employees. The already mentioned Google with its 12,000 cuts is followed by Microsoft with 10,000. Next – Salesforce, Goldman Sachs, Wayfair, Spotify and others. Some of them have been reduced to a tenth of the workers. Elon Musk fired half the state of Twitter last year. And Facebook cut 13% of jobs in 2022.

One of the few tech giants yet to announce layoffs is Apple. The only thing that has been cut from the company is CEO Tim Cook’s salary, he will receive $49 million in 2023 instead of $83 million.

IT giants are forced to save because their statements, in reality, appeared are inflated, – the CEO of Femida.us considers Dmitry Dubograev. “I think the market is getting rid of overheating,” he said in an interview with Russia‘s Voice of America service. “Therefore, I don’t see anything critical at this time.”

The overheating, which Dubograev talks about, happened at the IT giants from the money available. Before the inflation spike, with the Fed’s low policy rate – and therefore cheap loans – investors willingly invested in IT, including risky experimental projects in which there is absolutely no guarantee of profit, but if you’re lucky, the dividends will be huge. Certainly, sometimes in the distant future.

Professor of Economics at Seattle University Vladimir Dashkeev gives this example: “If you look at, say, Boeing, then it has factories, it has design offices, and everything happens here and now. And if you look at Microsoft, Amazon or Facebook, they are judged on their growth potential, on what their technologies can open up in the future.

The same Amazon almost doubled the number of employees during the pandemic. This was dictated by the gigantic demand for services due to the total quarantine and the low key rate of the Fed. But, if the Federal Reserve is heading for a steady rate hike, like in 2022, the investor understands: there will be no more cheap money. Investments become not only risky, but also expensive. Mortgage for the future becomes dangerous, to secure the present.

It is largely for this reason that the HASDAQ tech exchange as a whole sank in 2022 by around 50%. Quotes from a number of IT giants, in particular, also fell. Google – compared to last February – was down almost a third, Amazon’s stock almost halved, Microsoft lost around 20%.

“I wouldn’t say the bubble has burst right now,” Scentbird’s CTO told Voice of America. Andrei Rebrov. – There was a market correction. That is, companies began to cost more adequate money, their valuation, finally, became associated with their income, and not with a banal desire, as they say now, to “beat”.

But at the same time, tens of thousands of people find themselves out of work, which has left many untied to a particular country. This was especially true for Russian IT workers who fled abroad after the start of the war in Ukraine.

“I know a lot of guys from Russia, Ukraine, Belarus who came here at some point and still have an employer-related visa,” says Rebrov. “Now they are reduced. But the USCIS (US Citizenship and Immigration Services) is very respectful, which has increased the length of stay in the united states for those who have been reduced. They now have much more time to find a new employer.

You don’t have to look for it in a pure IT sector, economists suggest. According to them, there is a strong demand for information technology in the automotive and banking industry, energy, pharmaceuticals and other fields.

“I don’t think these people will go to work at Starbucks or sweep the streets,” says Dmitry Dubograev. And according to Vladimir Dashkeev, as soon as the interest rate starts to fall and economies grow, vacancies will begin to open up again in the IT sector. Granted, Dashkeev is making a reservation, that’s unlikely to happen this year.

Meanwhile, freed from 10,000 employees, Microsoft announced the acquisition of OpenAI, an artificial intelligence company, for several billion dollars. And the NASDAQ index, where stocks of high-tech companies are traded, added more than 2% on January 23. Certainly, the next day, he replayed a little.

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