While the cuts aren’t a huge surprise and have been anticipated by employees and Wall Street, it’s the latest sign that likely none of the tech giants will be immune from the market downturn.
Microsoft, Salesforce, Amazon, and others have seen years of enormous growth and hired tens of thousands of new employees during the last three years. Now they seem to be hitting a wall, analysts said. As Salesforce, Microsoft, and other business-oriented tech companies see their customers cut IT budgets, they anticipate shrinking revenue, cost cutting, and perhaps another round of layoffs.
“We are seeing the clock strike midnight for the tech sector after a decade of hyper growth and now major layoffs are being seen at MSFT, Salesforce, Meta, Amazon, among many others across the Valley,” wrote Dan Ives, an analyst at Wedbush, in a note to clients. He called it a “rip the band-aid off moment to preserve margins and cut costs” in the face of inflation and rising interest rates.
It’s a strategy that will help these tech giants weather the ongoing downturn and come out on top, he added.
Microsoft’s strategy “reaffirms our view of a second-half margin bounce-back,” analysts at RBC wrote.
Microsoft: Keep Reading..
It will also help the company continue to invest in growth areas like “cloud, M&A (Activision), key innovation bets (ChatGPT), and stay in the left lane of innovation while trimming non-strategic areas (hardware, etc.),” Ives wrote.
Microsoft’s layoffs also bring attention to the fact that the only tech giants that have avoided significant layoffs this cycle are Google and Apple.Apple has also dodged layoffs, but there is a hiring freeze in place that could last until September. During Apple’s Q3 earnings call, CEO Tim Cook said the company will be “deliberate in doing so in recognition of the realities of the environment.”Google’s parent company Alphabet did have layoffs in Verily, its health sciences division, but Google itself hasn’t seen any major cuts.
However, employees are anticipating it may happen, given that CEO Sundar Pichai said it’s “tough to predict the future” when asked about layoffs at a December all-hands meeting, Insider previously reported.
While analysts are hopeful that these cost-cutting strategies will help in the long run, in the short term, they’re anticipating things will get worse before getting better.
In another note to clients, RBC analysts advised C-suite leaders to bring down their quarterly and yearly revenue estimates even more.
Microsoft: Keep Reading..
It’s not realistic to say that revenue estimates take into account all kinds of risk, “because no one knows what tomorrow holds,” the analysts wrote. “That said, now is not the time to be a hero, in our view.” They urge executives to “take a realistic view” of their sales pipelines and discount it accordingly. While the pain may increase in the short term, RBC analysts remain optimistic for tech companies’ long-term prospects.
“Despite a painful 2022 and what could be a challenging start to 2023, we remain bullish on the long-term opportunity for software,” RBC analysts wrote.