Many of the biggest technology companies are laying off staff as fears of a recession rises. But the job cuts come after a few years of rapid expansion.
On Wednesday, Microsoft announced it will eliminate 10,000 employees, reducing its workforce by 5%, and Amazon began conducting layoffs that will eventually slash 18,000 jobs.
Microsoft and Amazon are joining tech industry peers including Alphabet and Meta which have also cut staff in recent months.
While each company is slightly different, most companies going through layoffs are blaming macroeconomic conditions and the possibility of a future recession as the reason for their belt-tightening.
But an underappreciated factor is how rapidly tech companies ramped up hiring over the last two years.
In 2020, widespread Covid lockdowns made internet applications more important to people, supercharging business for many tech companies. As sales and profit continued to rise in 2021, they continued to add huge numbers of employees in the hopes that the success they were seeing would become a new baseline. It didn’t work out that way. Growth is slowing, and companies are now having to readjust.
Apple is a major exception: It did not appreciably increase its rate of hiring over the last two years, and also has not announced any layoffs.
A review of SEC filings shows how rapidly the other biggest tech companies grew during the pandemic.
Microsoft had 221,000 full time employees at the end of June 2022, the most recent official figure that’s available. That was a 40,000 employee jump from the same time in 2021, a 22% percent increase in staff. The year before that, Microsoft added 18,000 employees, an 11% increase.
In a note about Microsoft layoffs, Wedbush analyst Dan Ives said that the tech sector had to spend money during the pandemic to keep up with elevated demand.
“Redmond needed to aggressively hire along with the rest of the tech sector and spend money like 1980′s Rock Stars to keep pace with eye-popping demand,” Ives wrote in a Wednesday note.
Amazon is more complicated than Microsoft because it has a huge hourly workforce for its warehouses, as well as the corporate office employees seen in most tech companies.
Still, Amazon grew voraciously in 2021, adding 310,000 jobs. That followed an even bigger expansion in 2020, when it grew over 38% and added half a million employees.
Overall, Amazon reported 1.6 million employees as of the end of December 2021, of which about 300,000 have corporate jobs.
An Amazon executive said that its Covid-era expansion was one reason for cutbacks on Wednesday in a memo to employees.
“During Covid, our first priority was scaling to meet the needs of our customers while ensuring the safety of our employees. I’m incredibly proud of this team’s work during this period,” Amazon retail chief Doug Herrington said in a memo obtained by CNBC. “Although other companies might have balked at the short-term economics, we prioritized investing for customers and employees during these unprecedented times.”
Meta (formerly Facebook) has increased headcount by thousands of employees each year since going public in 2012, according to SEC filings.
In 2020, Meta added over 13,000 employees, a 30% increase, and the biggest year of hiring in the company’s history. In 2021, it added another 13,000 workers. By total worker numbers, it was the two biggest years of expansion in Facebook’s short history.
Alphabet, formerly Google, has not cut as many positions as other large-cap companies, but in recent weeks, it has cut 240 positions at Verily, its health sciences division, and laid off 40 at Intrinsic, a robotics division.
But while Alphabet’s recent cuts are much smaller than some other companies, its growth was similarly massive.
In 2021, Alphabet added over 21,000 employees, or a 15% increase during the year to a total of 156,500 workers. In 2020, it added over 16,000 employees, or a nearly 14% increase.
That growth predates the pandemic, however, as Alphabet has increased headcount at least 10% every year since 2013, and added over 20% new employees in 2018 and 2019 as well.
Apple grew much more slowly during the pandemic. In fact, Apple’s hiring over the past few years has followed the same general trend since 2016.
As of September 2022, Apple had 164,000 employees, which includes both corporate employees as well as retail staff for its stores. But that was only a rise of 6.5% from the same period in 2021, amounting to real growth of 10,000 employees. Apple also hired judiciously in 2020, adding less than 7,000 employees in the year before September 2021.Source: CNBC