The Tech Industry's Historic Contraction: What's Behind the Wave of Layoffs in Silicon Valley
Updated: Mar 23
The tech sector has been on an explosive growth trajectory for the past decade, but now, the industry is facing one of its worst contractions in history. Major tech companies like Meta, Amazon, Microsoft, and Google have all announced mass layoffs over the span of a few months, with over 200,000 tech jobs lost since the start of last year, according to tech job tracker layoffs.fyi.
While the full extent of the pain remains to be seen, there are five key takeaways from what has happened so far:
1. The Cuts are Historic for the Tech Industry
Silicon Valley has been through major downturns before, such as the dot-com bust of the early 2000s or the economic fallout of the Great Recession. However, the tech industry has historically been a resilient one, riding out most economic challenges due to its size and ubiquity. But now, Big Tech's layoffs, though small in percentage terms, are still historic. Meta, Amazon, Microsoft, and Google have together eliminated at least 51,000 jobs in recent weeks, surprising many in the industry.
2. The Cuts Followed a Period of Rapid Growth
While Amazon and Meta doubled their headcount during the pandemic, other Big Tech companies increased their workforce by more than 50%, and Apple, though growing slower than its tech giant counterparts, bolstered its workforce by 20% during the pandemic. Apple is the only Big Tech company that has not announced layoffs.
3. Big Tech is Not in Trouble
The companies currently cutting payroll are among the world's most valuable firms and can boast about impressive profits. Microsoft, for example, reaped massive profits in its most recent quarter, with more than $16 billion earned during the three months ending in December. Meta, in its last quarter, said its profit plummeted 52% from a year earlier, but that still amounted to $4.4 billion. And Amazon pointed to a decline in profit in its most recent quarter, yet that nonetheless meant it brought in nearly $3 billion.
4. The Belt-Tightening is Meant to Send a Message to Shareholders
The belt-tightening is meant to send a message to shareholders at a time when tech companies have seen their stock prices plummet. Executives are being prudent and trying to get back on a growth path, avoiding unnecessary spending.
5. Executives Cite High Inflation, Pullback in Corporate Spending and Recession Fears
Meta CEO Mark Zuckerberg created something of a playbook for Big Tech executives when he cited overzealous recruiting during the pandemic and broader economic conditions, such as high inflation and worries about a recession, to justify the layoffs. Despite signs of cooling inflation, many economists are predicting the US could tip into a recession this year, leading Big Tech executives to worry that their customers will continue to pare back spending, potentially leading to a further slowdown.
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