What is emerging in its place is an era of lowered expectations marked by job cuts and slowdowns in hiring, reduced growth projections and abandoned expansion plans. The malaise hurts employee morale, affects the industry’s ability to attract talent, and has far-reaching implications for economic growth and innovation in the United States.
Illustrations of an austere new business climate are surfacing daily against the backdrop of a prolonged economic downturn, bitter war in Europe, rising interest rates and inflation, and a pandemic. which is entering its third year. Over the past two weeks, a parade of big names has joined the crowds. On May 23, social media app Snap Inc. cut sales and profit forecasts and said it would slow hiring. The next day, Lyft Inc. said it would hire fewer people and seek further cost reductions. A few days later, Microsoft Corp. slowed hiring in several key divisions, and Instacart Inc. said it would recall hiring plans to cut costs ahead of an expected initial public offering.
The drumbeat continued yesterday as Tesla Inc. CEO Elon Musk told employees the electric vehicle maker must cut its payroll by 10% and suspend hiring worldwide. Cryptocurrency exchange Coinbase Global Inc. also said it would extend the hiring freeze and rescind a number of accepted job offers, citing market conditions.
Likewise, gloomy statements had already been leaking for weeks. Amazon.com Inc. has too many employees and too much warehouse space, and its business is suffering from rapidly rising inflationary costs. Facebook’s parent company, Meta Platforms Inc., is cutting hiring and cutting spending, and Twitter Inc. has instituted a hiring freeze and pulled some job postings ahead of a planned takeover by Musk. Apple Inc. warned in April that restrictions related to Covid-19 lockdowns in China will slash up to $8 billion in revenue in the current quarter.
The companies’ humble ambitions mean a change of mood for an industry that seemed invulnerable, once offering workers and investors protection from the instability of the economy as a whole.
“These are no longer safe bets,” DA Davidson technical analyst Tom Forte said of the tech industry giants. “These are not sure bets because there are a number of fundamental things that work against them.”
The Nasdaq composite index has lost a quarter of its value since Nov. 19, when it hit a record high. That’s even taking into account the index’s 5.8% rebound over the past two weeks.
The specter of job cuts has begun to haunt the psyche of Silicon Valley. On Blind, an app that employees can use to speak anonymously about their employer, discussions about the hiring freeze increased 13-fold between April 19 and May 19 compared to a year earlier. Talk of layoffs increased fivefold and talk of a recession increased 50x. Unfounded speculation that Meta was preparing for a round of layoffs spread on social media in May, leading to the creation of the hashtag #metalayoff, which started growing on LinkedIn. Dozens of recruiters and employers have started using the hashtag to advertise alternative jobs. A Meta spokesperson said the company currently has no staff reduction plans.
Yet what was once a growth engine for the US economy has lately crumbled. More than 126,000 tech workers have lost their jobs since the pandemic began, according to Layoffs.fyi. Netflix Inc. said last month it was laying off around 150 workers after reporting an unexpected loss of subscribers; shares of the streaming giant have fallen 71% since mid-November. At Meta, managers are slowing hiring for many mid-to-senior level positions across the company and in April reduced hiring of engineers with limited experience.
Twitter employees, meanwhile, are bracing for potential layoffs as the company awaits the arrival of new owner Musk, whose speech to bankers included cost cuts. CEO Parag Agrawal took the lead in early May, sending Twitter’s more than 7,500 employees a memo saying the social network would start with cuts to travel, marketing and event expenses, with executives told to “manage their budgets closely, prioritizing what matters most”.
Similarly, Uber’s Dara Khosrowshahi said in a memo to staff that the ride-sharing giant would “treat hiring as a privilege and be deliberate about when and where we add staff.” The sentiment is weighing on internal morale, said an Uber employee who asked not to be identified.
The shock is probably greatest at companies like Meta, Twitter and Uber, which were still in their infancy the last time the tech industry was hit, in the financial crisis of 2008. Things were even worse when the internet bubble burst at the turn of the century. The difference this time is that the pandemic has reinforced the importance and need for many of these tech products, giving them some protection from the initial economic ravages of the Covid-19 shutdowns.
“Everyone discovered that technology wasn’t just nice, it was essential,” said Russell Hancock, CEO of Joint Venture Silicon Valley, a nonprofit that studies Silicon Valley and its economy. What is happening now appears to be a market correction, Hancock added. he also fears that some of the brilliance and innovation of the tech industry will disappear as products such as streaming services and social networks become more utilitarian.
It’s possible “we’re going to start thinking [tech] kind of like the gas lines going into our homes or the electricity,” he said. “It’s kind of a novelty for Silicon Valley. It’s a kind of existence in Detroit where cars have become the backdrop, the furnishings of the area. “
As companies brace for a long season of business uncertainty, they must make tough choices about investments beyond hiring and marketing. Amazon, which in 2020 invested heavily in the staff and warehouse space it needed to meet a pandemic-related surge in delivery demand, now finds itself with too many warehouses and too many workers.
The Seattle-based company’s announcement that it has more space than needed has spooked hundreds of employees in its real estate division, according to a person familiar with the situation. Employees who previously juggled multiple construction projects suddenly have little to do and have been advised by their managers to use more time to focus on “learning and development”, which does not was not reassuring, the person said.
Mark Zuckerberg, CEO of Meta, said in February that the company was prioritizing certain product efforts such as competitor TikTok Reels, private messaging and the metaverse. “We are shifting most of the energy inside the company to these high priority areas,” Zuckerberg said in April. The company said it was cutting spending by $3 billion for 2022, the first signal that it is getting smarter with its investments.
The aura of invincibility may be fading, but Silicon Valley is far from dead. Unemployment in the California region is just 2% – the lowest since 1999, according to Joint Venture. Additional data from the Center for Continuing Study of the California Economy found Bay Area job growth of 5.8% over the past year, faster than national and state averages.
Any slowdown in hiring must be seen in the context of the meteoric rise in technology, says Stephen Levy, director and senior economist at the CCSCE. “Does the world want more of the goods and services produced by technology, and is this a growing industry over time?” Levy said. “The answer is yes.”
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