Amazon Cuts Show Layoffs Will Continue This Year

Amazon (Nasdaq: AMZN) will lay off more than 18,000 people in an effort to cope with shifts in the macroeconomic climate. Salesforce (NYSE: CRM) plans to trim 10% of its workforce, about 7,000 workers, in an effort to reduce costs and match supply to demand. Meta Platforms (Nasdaq: META) is in the process of eliminating over 11,000 employees, or roughly 13% of its staff.

Sizeable tech layoffs are a trend gaining momentum, with more key enterprise vendors joining the ax-wielding weekly. And as with Amazon, some layoffs are expanding beyond initial estimates.

Overhiring to Blame

There are several reasons for this woeful adjustment. Foremost is the fact that many tech firms, particularly in the cloud space, enjoyed a surge in demand during the COVID lockdowns that was sizable enough to justify a swell in hiring and acquiring. Here’s how Meta CEO Zuckerberg put it in a November letter to employees:

“At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected…. I got this wrong, and I take responsibility for that.”

This week, Salesforce co-CEO Marc Benioff reportedly expressed similar regret in his own staff memo about the imminent layoffs:

“I’ve thought a lot about how we got to this moment. As our revenue accelerated from the pandemic, we hired too many employees, resulting in this economic downturn that we are now facing, and I take responsibility for that.”

The layoffs at Meta and Salesforce were cited by some observers as key to understanding the massive, nearly 50% staff cuts made by Elon Musk after his takeover of Twitter late last year. As Twitter co-founder and former CEO Jack Dorsey tweeted after news of the layoffs:

“I realize many are angry with me. I own the responsibility for why everyone is in this situation: I grew the company size too quickly. I apologize for that.”

IT Spending Pullback

There are other reasons for recent tech layoffs. Now that the initial wave of cloud spending that accompanied the shift to remote work during the pandemic has eased off, tech vendors are seeing a slowdown in growth. Higher interest rates and bad news on the macroeconomic front have exacerbated the reduction in spending by key enterprise IT buyers.

All this has tech vendors, particularly in the cloud space, eyeing restructuring as a way to grow margins and improve the bottom line. Heads are rolling as operational costs and capex dwindle. Instead of focusing on hiring and acquiring, vendors and service providers will be looking at cutting costs and addressing potential opportunities for growth that may surface from the shapeshifting.

So What’s Next?

The fears of recession will not only affect tech vendors but their customers as well. With smaller spending on technology, enterprises are likely to trim the ranks needed to steer the tech ship.

Yes, the outlook is bleak, but technology companies and their customers will readjust, opening some opportunities as changes are made to reorient digital infrastructure. Here are just a couple examples of tech areas that should stay strong this year:

Cybersecurity. This is an area where demand is high. And companies are seeing opportunity in unifying multiple security functions in their products and services. “You go in there and say, ’Listen, I can replace seven vendors for you. I can get you to a better security outcome. And I can do it at a lower cost,'” said Palo Alto Networks (Nasdaq: PANW) CEO Nikesh Arora in a CNBC interview in November. This trend will likely fuel ongoing security sales.

Artificial intelligence. As the key to automation, AI and machine learning (ML) are likely to continue as central to many mission-critical enterprise applications. AI is essential to managing data pipelines in crucial data management environments.

Infrastructure as Code. The movement toward virtually managing IT infrastructure has been growing as a means of reducing operating costs while streamlining development functions.

All of which signals that besides dismal announcements, the coming year should hold some surprising pivots and technology shifts.