The wave of layoffs at large US technology companies is unstoppable. After years of growth, companies are preparing for lean times – and evicting thousands of employees. But that doesn’t mean the hype is over. But on the contrary.
Amazon, Meta, Alphabet, Microsoft and most recently Spotify: In the past few weeks and months, several heavyweights in the US tech industry have announced layoffs. In total, the companies put around 50,000 of their employees on the streets.
The corporations hired large numbers of staff during the pandemic and greatly increased their workforce. Now it turns out that some companies have overshot the target and have to make significant corrections. It is striking: “The wave of layoffs in the tech industry mainly affects platforms that have been in particularly high demand during Corona in the past two years,” says Jens Förderer, Professor of Innovation and Digitization at the Technical University of Munich, in an interview with ntv.de .
But the times when money seemed cheap and demand seemed limitless have changed. The technology groups have come under increasing pressure due to the poor economic situation. Among other things, the loss of advertising revenue is forcing the tech giants from Silicon Valley to correct their course.
The wave of layoffs is a damper for the industry
But that doesn’t mean the hype is over. “Quite the opposite. The tech industry will continue to grow, but companies are taking a more cautious course,” says Förderer. The growth during the pandemic was simply unbridled. How the courses have developed in some cases was absolutely unrealistic.
“From an economic point of view, the job cuts are the right decision,” says Förderer. In economically challenging times, companies are forced to lay off employees, rescale and plan more conservatively to prevent major losses. “In the hype era, companies not only hired far too many employees, but also dared too many risky projects with cheap money.”
Concerns that the 50,000 laid-off employees will remain unemployed for a long time seem unfounded. Figures from recruiting companies suggest that around 80 percent of the employees who are now affected will find a new job in three months at the latest. “The laid-off employees fall relatively gently. There is also a shortage of skilled workers in the USA and it is undisputed that the IT market will continue to grow,” says Förderer.
Nonetheless, the wave of layoffs is a dampener for an industry that has been in a gold-rush mood for years. According to Förderer, the tech companies will not be able to avoid cleaning up their portfolios. You have to look much more closely to see which products are still worthwhile. The problem here: Products that are a bet on the future or pose a risk are more likely to be cashed in. “There is a risk of innovation falling by the wayside,” says Förderer.
Already reached the end of the flagpole?
And the wave of layoffs in the US tech industry has been rolling on for a long time. While the consumer-oriented platforms were hit first, companies that tend to sell their products to companies have long since been shedding their staff. The software group Salesforce has announced that it wants to get rid of around every tenth employee. The SAP rival also wants to close some locations. And the network equipment supplier Cisco has also imposed a restructuring program on itself, in the context of which five percent of the jobs are to be cut.
According to analyst Dan Ives from the investment firm Wedbush, the end of the road has not yet been reached. “We expect industry-wide job cuts of another five to ten percent. Because many companies spent money like rock stars of the 1980s.”
The downsizing of the tech companies has not yet had any impact on Germany. Only in the startup scene have some employees lost their jobs, for example at the online real estate service provider McMakler or the e-scooter and bicycle rental company Tier. But that’s not because the young companies launched a hiring offensive during the pandemic. Rather, their financing model is now their undoing. Because with rising interest rates, many lenders withdraw their money more quickly.