Reasons behind the mass layoffs in American Big Tech

Luz Parrondo
Director of the Finance, Accounting and Control Department at UPF Barcelona School of Management
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The layoffs of 75,000 people in US tech companies are likely due to a combination of factors:

• Over-sizing due to the COVID-19 pandemic
• The macro context as a result of the pandemic (interest rates, GDP, international trade, etc.)
• Changes in the technology industry
• Changes in the company’s priorities

The pandemic has led to a decline in demand for some products and services, and companies may be cutting costs by reducing their workforce.

New technologies are arriving in strength and that we must be able to adapt more quickly than we would like.

Tech companies may be restructuring their operations or shifting their focus to different sectors, leading to layoffs in certain areas.

1. Microsoft has changed its strategy to focus on cloud computing, with its Azure platform becoming a major player in the general cloud market. The company has also made acquisitions in sectors such as artificial intelligence and gaming, and is investing in new areas such as quantum computing.
2. Amazon has been expanding its business beyond its e-commerce roots, focusing on areas such as cloud computing (via Amazon Web Services), advertising, and media and entertainment. The company has also been investing in new technologies such as drones and automation, and has been expanding its physical presence with the opening of its own grocery stores and delivery centres.
3. Alphabet (Google) has focused on expanding its advertising business and growing its presence in areas such as cloud computing, smart home hardware and devices, and self-driving cars. The company has been investing in new technologies such as machine learning and artificial intelligence, and has also been expanding its presence in emerging markets.

If we look at Amazon’s latest quarterly report, from 30 September to 1 January, we see that the tech giant is once again a little below break-even. Although fixed costs have increased 3 percentage points, and this includes the excessive increase in staff during the pandemic, the main reason is a loss of $13,000 million in what they call “marketable securities”. Eighty-five per cent of that money came from an investment in Rivian Automotive, Inc., an electric-vehicle start-up that initially intended to develop a vehicle with Ford, but ultimately the companies ended up cancelling those plans.

It seems evident that new technologies are arriving in strength and that we must be able to adapt more quickly than we would like.