NEW DELHI: After years of rapid expansion, a trend of freeze in hiring and layoffs has been observed among startups and major tech companies. So far, around 150 US-based companies have laid off over 37,000 people in 2022. Most layoffs were reported in June with 75 US-based tech companies laying off its staffers.
This layoff has affected almost every tech company from startups like Robinhood, Gemini, On Deck and Hopin to the ‘big names’ like Apple, Google, Microsoft and Amazon. According to a report by Insider, Google Cloud sales leadership has threatened employees with an "overall examination of sales productivity and productivity in general" and that if next quarter results "don't look up, there will be blood on the streets."
According to Crunchbase, only 9% of tech-workers are feeling secure about their jobs in August.
Top 30 companies lose $4.3 trillion in 6 months
The market capitalisation of top 30 technology companies dropped $4.3 trillion in the 6 months period from January 1 to June 1, 2022.
These 30 companies make up lion's share of the overall tech market value.
The overall market loss of globally listed tech market amounted to at least $5-6 trillion. Out of this, the top 30 companies make up $4.3 trillion. In fact, Apple and Microsoft alone contribute around $1 trillion of this market value decline.
The market valuation of top 30 tech firms witnessed recovery worth $900 billion from June till August 18.
For China-based tech companies, the losses were estimated to be more than $2 trillion in value since the selloff began since late 2020 and early 2021 due to heavily regulated environment.
Market rout
High-growth and megacap companies have powered the US stock market for the past decade, but raising of interest rates by the US Federal Reserve to combat decades-high inflation as well as a recent sharp rally in the dollar have taken a toll on the stocks.
In April, tech stocks on Nasdaq 100 fell amid mounting risks from soaring Treasury yields and hawkish commentary from the Federal Reserve.
As a result, over $1 trillion in market value was erased from the tech-heavy benchmark in 5 trading sessions.
In January, a whopping $3 trillion was wiped out by the time the rout bottomed out, while February and March were relatively better, seeing selloffs of $1.7 trillion and $1.5 trillion, respectively. Companies in the index have a combined market value of $16.9 trillion, led by Apple, Microsoft and Amazon.
In this year, till May 2022, the tech-heavy S&P 500 has lost just under one-fifth of its value. Among the worst-hit have been Amazon.com (-36%), Tesla (-38%), Meta (-45%), Zoom (-44%), and Shopify (-76%). As a whole, venture-backed companies that have gone public during the pandemic are down 48%.
Microsoft started, others followed
Microsoft: Satya Nadella-owned Microsoft was the first Big Tech company to announce layoffs. According to reports, it affected nearly 1% of its 1,80,000-strong workforce across its offices and product divisions.
Netflix: Streaming giant Netflix let go of about 450 employees between May and June this year. With recurring loss in subscriber count, weakened share prices and massive drop in revenue, the company was forced to cut costs in order to tackle its mounting hurdles.
Tesla: In June, Tesla shut off its San Matteo office, laying off 229 of its employees from the “moderately low-skilled, low-wage” autopilot department. This incident occurred following reports claiming that Musk had a “super-bad feeling about the economy” and was determined to let go of atleast 10% of Tesla’s employees.
Apple: Few days back, the iPhone maker laid off nearly 100 of its contract-based recruiters s ‘part of a push to reduce its hiring and spending.’
Google: After 2 consecutive quarters of weaker-than-expected earnings, Google warned employees of “dire consequences” unless things started looking up in the next quarter. Having already extended its hiring freeze this month, and with the added pressure of top-executives at Google not denying the possibility of layoffs, employees are worried for their jobs.
Twitter: Amid the whole ‘Elon Musk saga’, Twitter laid off around 100 employees to cut excessive costs. It also laid off 30% of its talent acquisition team amid mounting challenges.
What is the situation of IT firms in India
More than 12,000 employees working at tech startups in India have lost their jobs in 2022.
In the past few months, edtech firms like Byju's, Unacademy have laid off workers.
While highest layoffs were reported by Unacademy (1,150), Byju's let go of 550 of its workers. Vedantu was was not far behind at 624.
Meanwhile, Ola laid off nearly 500 of its staff, MFine cut 600 jobs, and Cars24 reported 600 job cuts.
All layoffs were attributed to funds drying up following monetary policy tightening by global central banks and correction in equity markets.
Apart from layoffs, IT companies have also witnessed high attrition rates. This has resulted in increased employee costs such as salary hikes and paying a premium for hiring talent for all IT majors, thereby squeezing operating margins during the last quarter.
On an average, IT firms in India spent 57% of their revenues on employee wages, and some like Infosys even doled out single and double-digit wage hikes to high-performing employees in the first three months of FY23.
Infosys had reported attrition levels at 28.4%, for TCS it was 19.7% -- much higher than 17.4% in Q4 of FY22.
HCL Technologies attrition for the quarter was up at 23.8% from 21.9% in Q4FY22. Wipro is the only one that has managed to keep its attrition rates relatively flat as compared to its peers, with the April-June level down to 23.3% from 23.8% in the sequential period.
However, in order to compensate for these high attrition rates, IT companies in India have been on a hiring spree, and a majority of these recruits are freshers.
In Q1 of FY23, Wipro, TCS, and HCL Technologies added about 15,446; 14,136; and 10,966 employees, respectively, while Infosys recruited the most with a net addition of 21,171.
Why firms are opting for job cuts
* Economic downturn: High inflation, slowing economic activity and rising interest rates as a result of the ongoing Russia-Ukraine war has massively affected macroeconomic activities across the globe. With prices of key commodites rising, economies are feeling the pinch. Most are in a dilemma, whether to opt for growth or curb inflation.
* Cost reduction: As mentioned above, rising inflation and a possibility of recession powered by underperformance in the first quarter has pushed tech companies to look deep into their spendings and take necessary decisions to cut costs and reduce expenses. Most companies are reeling under the burden of high input costs as a result of supply chain disruptions owing to the Ukraine war.
* Acknowledging redundancies: Part of cutting cost has been recognising departments and positions that have started becoming redundant and providing recurring lower return – majorly includes HR, sales and recruitment.
* Increasing productivity: As seen in the case of Google, tech companies, having fallen short on their expectations in the Q1 results, have amped up the necessity to increase employee productivity in order to stay ahead of the ‘economy meltdown’ curve and to make up for the underwhelming results of the previous quarter.
* Crypto winter: Crypto companies have also taken a hit and have had to layoff their employees (Eg: Coinbase has laid off over 1,100 people in 2022). With massive uncertainty over the future of this sector, aided by the negative sentiment around digital currency (called ‘crypto winter’), crypto exchange companies have had to reimagine their growth plans and reduce major costs.
