From Seattle to Silicon Valley to Austin, a stark new reality is dawning in the tech landscape: A heady, decades-long era of rapid sales gains, boundless job growth and ever-rising stock prices is coming to an end.
What is replacing it is an era of diminished expectations, marked by job losses and staff slowdowns, sharper growth forecasts and shelved expansion plans. The slump is hurting employee morale, affecting the industry’s ability to attract talent, and has far-reaching implications for US economic growth and innovation.
Illustrations of a stern new business environment crop up daily against the backdrop of a protracted economic slowdown, a protracted war in Europe, rising interest rates and inflation, and a global pandemic entering its third year.
Over the past two weeks, a parade of big names has joined the crowd. Social media app Snap Inc. pruned its sales and profit forecasts on May 23, saying it will slow hiring.
The next day, Lyft Inc. that it will attract fewer people and look for other cost savings. Days later, Microsoft Corp. on the brakes on hiring several key divisions, and Instacart Inc. said it will roll back hiring plans to cut costs ahead of a planned IPO.
The drumming continued yesterday, as Tesla Inc. Chief Executive Officer Elon Musk told employees the electric vehicle maker must cut its salaried workforce by 10% and stop hiring globally.
Cryptocurrency exchange Coinbase Global Inc. also said it will extend the hiring freeze and withdraw some accepted vacancies, citing market conditions.
Key speakers at the Satellite 2020 conference:
Elon Musk, founder of SpaceX and chief executive officer of Tesla Inc., speaks during a discussion at the Satellite 2020 conference in Washington, DC, US, on Monday, March 9, 2020. The event covers important topics for both the satellite industry and the end users, and brings together a diverse group of thought leaders to share their knowledge.
The event covers key topics affecting both the satellite industry and end users, and brings together a diverse group of thought leaders to share their knowledge.
Likewise, gloomy statements had been dripping for weeks. Amazon.com Inc. has too many employees and too much warehouse space, and his business is suffering from rapidly rising inflation costs.
Facebook Mother Meta Platforms Inc. eases hiring and pairing costs, and Twitter Inc. has put in place a hiring freeze and withdrawn some job openings ahead of a planned acquisition by Musk.
Apple Inc. warned in April that restrictions related to Covid-19 lockdowns in China will shave as much as $8 billion in revenue in the current quarter.
The modest corporate ambitions mark a shift in the atmosphere of an industry that seemed invulnerable and once protected workers and investors from the instability of the larger economy.
“They are no longer sure of bets,” said Tom Forte, a tech analyst at DA Davidson, of the tech industry giants. “They’re not sure about bets because there are some fundamental things that work against them.”
The Nasdaq Composite Index has lost a quarter of its value since Nov. 19, when it hit an all-time high. That’s even taking into account the index’s 5.8% recovery over the past two weeks.
The specter of job losses has begun to haunt the Silicon Valley psyche.
On Blind, an app that allows employees to talk anonymously about their employer, discussions about the employee freeze between April 19 and May 19 have increased 13 times compared to a year earlier.
The discussions about layoffs are increasing fivefold and the talk of a recession is fifty times greater.
Unfounded speculation that Meta was gearing up for a round of layoffs that spread via social media in May, resulting in the creation of the hashtag #metalayoff, which started trending on LinkedIn.
Dozens of recruiters and employers started using the hashtag to offer alternative job opportunities. A Meta spokesperson says the company currently has no plans to cut staff.
But what was once a growth engine for the US economy has been sputtering recently. More than 126,000 tech workers have lost their jobs since the start of the pandemic, according to Layoffs.fyi.
Netflix Inc. said last month it will lay off about 150 employees after reporting an unexpected loss of subscribers; the streaming giant’s shares are down 71% since mid-November.
At Meta, managers are slowing hiring for many mid-to-senior positions across the company, and in April they cut back on adding engineers with limited experience.
Twitter employees, meanwhile, are bracing for potential layoffs as the company awaits the arrival of new owner Musk, whose pitch to bankers included cost-cutting.
CEO Parag Agrawal jumped ahead in early May and sent Twitter’s more than 7,500 employees a note explaining that the social network would begin cuts in travel, marketing and event costs, telling leaders to “go tight with your budgets and prioritize what matters most”.
Likewise, Uber’s Dara Khosrowshahi said in a memo to staff that the ride-announcing giant would “view hiring as a privilege and be deliberate about when and where we add staff.”
The sentiment is taking its toll internally, said an Uber employee who asked not to be identified.
Dara Khosrowshahi, chief executive officer of Uber Technologies Inc., speaks during a Bloomberg Technology television interview in San Francisco, California, U.S., on Tuesday, December 14, 2021. Khosrowshahi said the ride-hailing giant had its best week since last week. start of the pandemic.
The shock is likely to be greatest at companies like Meta, Twitter and Uber, which were relatively in their infancy when the tech industry was last hit during the financial crisis in 2008.
It was even worse when the dotcom bubble burst at the turn of the century.
The difference this time around is that the pandemic has reinforced how important and necessary many of these tech products are, providing some buffer against the initial economic devastation of the Covid-19 shutdowns.
“Everyone found that technology was not only fun, but indispensable,” said Russell Hancock, CEO of Joint Venture Silicon Valley, a nonprofit that studies Silicon Valley and its economy.
What’s happening now appears to be a market correction, Hancock added, though he also worries that some of the tech industry’s brilliance and innovation is fading as products like streaming services and social networks become more of a utility.
It’s possible that “we’re going to think about” [tech] kind of like the gas pipes that go to our homes, or electricity,” he said. “That’s something new for Silicon Valley. It’s kind of a Detroit existence where cars just became the decor, the furniture of the region.”
As companies prepare for a long season of uncertainty about their business, they must make tough choices about investments beyond hiring and marketing.
Amazon, which invested heavily in 2020 in the workforce and warehouse space it needed to meet a pandemic-related surge in supply demand, now has too many warehouses and too many employees.
The Seattle-based company’s announcement that it has more space than it needs has shocked hundreds of workers 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 spend extra time “learning and developing,” which is not reassuring, the person said.
Meta CEO Mark Zuckerberg said in February that the company was prioritizing some product efforts like its TikTok competitor Reels, private messaging and the metaverse.
“We’re shifting most of the energy within the company to those high-priority areas,” Zuckerberg said in April. The company said it was cutting costs by $3 billion by 2022, the first sign that it is becoming more judicious with its investments.
The aura of invincibility may be diminishing, but Silicon Valley is far from dead.
Unemployment in the California region is just 2% — the lowest since 1999, according to the Joint Venture. Additional data from the Center for Continuing Study of the California Economy found that job growth in the Bay Area had increased by 5.8% over the past year, faster than national and state averages.
Any delay in hiring must be framed in the context of the rapid rise of technology, said Stephen Levy, director and senior economist at CCSCE. “Does the world want more of the goods and services that tech produces, and is that a growth sector in the long run?” said Levi. “The answer is yes.”
–With help from Lucas Shaw, Jackie Davalos, Brody Ford, Matt Day, Spencer Soper, and Maxwell Adler.
(Except for the headline, this story has not been edited by DailyExpertNews staff and has been published from a syndicated feed.)