Technology companies lay off thousands despite their huge profits.. Why?

In its last fiscal year, the five largest technology companies (Microsoft, Apple, Amazon, Google, and Meta) achieved revenues amounting to $1.63 trillion (social networking sites)

Technology giant Cisco has announced a restructuring move that will include laying off thousands of employees, and it is not the only one.

Since the beginning of the year, 141 technology companies have laid off 34,300 employees, despite the fact that most of these companies have shown excellent financial performance.

So why do workers continue to be fired, even when all the data suggests it's time to get back to work? This is what is covered in a report by the Hebrew website Calcalist.

The report states that technology giant Cisco is expected to announce this week a large-scale restructuring process that will include laying off thousands of employees.

It is not yet known whether this move is linked to weaker-than-expected performance, as the company's quarterly report will not be published until Wednesday. But what is known is that it is not the only one, and that in other cases prominent technology companies have recently made cuts to varying degrees, even at a time when their revenues and profits were rising.

According to data from the website “Layoffs.fyi”, which tracks the volume of layoffs in the technology sector, 141 technology companies have laid off 34,300 employees since the beginning of the year.

The list already includes layoffs as a result of the closure of some poorly performing companies, but it also included cuts in almost all technology giants, especially those that presented excellent financial performance in their last quarterly report.

Microsoft laid off 1,900 workers five days before announcing a 17.6% jump in revenue to $62.02 billion.

Google also laid off more than a thousand workers and was about to report a 13% increase in revenue to $86.31 billion. Amazon reduced nearly a thousand employees despite a 14% increase in revenue to reach $169.96 billion. Meta laid off dozens of employees despite a 25% jump in revenues to $40.11 billion.

Microsoft laid off 1,900 workers five days before announcing a jump in revenues (Reuters)

Rounds of layoffs have also been recorded at smaller companies. Among others, Zoom laid off 150 employees (2% of its workforce), PayPal 2,500 employees (9% of its workforce) despite a 9% increase in revenue to $8.03 billion, Discord 170 employees (17%), and Tech. Tok 60 employees.

As for SAP, it laid off 8,000 employees (7% of the workforce) despite a 5% increase in revenues to $8.47 billion. eBay laid off 1,000 employees (9%), and Snapchat, the parent company, laid off 540 employees (10% of the company’s workforce) despite... Revenue increased 5% to $1.36 billion.

Although these rounds are mostly not as large-scale as the large waves of layoffs in 2022 and 2023, they are still large and particularly noticeable against the backdrop of the difference in the current economic situation compared to last year.

According to the report, the global economy at that time faced an economic crisis and fear of rampant inflation, which led to significant damage to the financial performance of almost all technology companies. They also suffered from a high volume of expenses as a result of intensive recruitment against the backdrop of the surge witnessed during the Corona period.

But in the past year, companies have made big moves to become more efficient (in Meta Mark Zuckerberg defined 2023 as the “Year of Efficiency”), cut expenses, shed significant numbers of employees, and put both revenues and profits back on a growth path.

In its last fiscal year, the five largest companies (Microsoft, Apple, Amazon, Google, and Meta) achieved total revenues of $1.63 trillion; That is 81% more than the amount recorded five years ago.

These efforts have been rewarded by investors, allowing companies to add $3.5 trillion to their total value.

So why do layoffs continue even when all the data suggests it's time to return to hiring, or at least halt the cuts?

One reason is the remnants of the intensive hiring done by technology companies during the Corona period. According to the New York Times, from the end of 2019 until the start of large rounds of layoffs, the number of employees at Apple, Amazon, Meta, Microsoft, and Google increased by more than 900,000.

In the past year and a half, due to the transformation of the economic situation, companies have eliminated about 112,000 jobs. However, even today they employ 2.16 million people, 71% more than before coronavirus.

One of the reasons for the current layoffs is the intensive hiring carried out by technology companies during the (European) Corona period.

Roger Lee, founder of the website Layoffs.fy.com, told Bloomberg: “Technology companies are still trying to reduce the excess weight they acquired during the pandemic, given that high interest rates and the negative trend in the technology sector led to layoffs continuing for a longer period than expected.” . “However, current rounds of layoffs are often smaller in scale and more focused than those that occurred in 2023,” he added.

This means that if last year companies carried out a kind of panic layoffs, which were aimed at reducing expenses at all costs as well as cutting costs, now the move is taking place in a more systematic way, and is mainly directed at business units and departments that do not provide Good enough performance.

“We go through cycles like this: you see intense focus on innovation, and then the pendulum swings and the focus becomes on the bottom line,” says Tim Herbert, vice president of research at CompTIA, which tracks technology hiring trends by analyzing job postings.

The report stated that there is another reason for these operations, which is the change in the focus of many companies on developments based on artificial intelligence, or the transition to working using tools based on artificial intelligence.

In this context, it is possible that not every layoff will result in job reductions, and that companies will simply replace employees with certain skills with employees with other qualifications.

According to an analysis conducted by Comptia, the number of open jobs related to artificial intelligence or requiring skills in this field increased from about 2,000 jobs in December 2023 to 17,479 jobs in January 2024.

The number of job vacancies in January increased by 18,000 compared to December. The unemployment rate in the sector is 3.3%, compared to 3.7% in general in the American labor market.

There are also cases where jobs are cut due to the shift to using AI. Instead of hiring thousands of employees every quarter, companies prefer to invest in developing and implementing AI capabilities.

This trend is reinforced by what Meta CEO Mark Zuckerberg said in a conversation with analysts after the company’s quarterly report was published last week. Meta laid off workers in January to cut costs, and Zuckerberg said at the time that they took this step “so that we can... "Investing in a long-term, ambitious vision for artificial intelligence." “We work better when we are more agile as a company,” he added.

“I feel like most of the layoffs have already happened, and that companies will start to recover,” Brett Penn, CEO of recruitment firm Insight Global, told Bloomberg. He added: "But the situation is still very uncertain, and the market will remain like this for a while, until the Fed lowers interest rates again."

Source: Bloomberg + websites + New York Times