Tech winter is coming, at least according to this quarter’s Big Tech earnings reports.
Companies from Alphabet to Amazon have largely reported plans that follow a similar pattern: Cut discretionary budgets, reduce headcount, slow hiring, minimize investments, and finally, increase productivity without increasing resources. The decisions come amid a treacherous mix of geopolitical uncertainty, recession fears, rising energy and material costs, softening consumer demand, and a decline in ad spending.
“We want to make sure we’re using all resources as effectively and efficiently as possible,” Ruth Porat, CFO of Alphabet, said on the earnings call, adding, “We’re trying to be smart about redeploying where we can, finding efficiencies where we can while still investing for long-term growth.”
Alphabet plans to slow hiring and investment, and it has already reduced funding for its Area 120 tech incubator, cutting about half of current projects. The company will also cut budgets for employee travel, swag, and entertainment. Last month, CEO Sundar Pichai began publicly pushing for the company to become 20% more “efficient” using the same amount of resources.
On Wednesday, the day after Alphabet reported earnings, its shares closed down 9%—the company’s worst day since March 2020, CNBC reported. The Google parent missed expectations for both YouTube ad revenue and advertising revenue.
Advertising revenue also took a hit at Meta, falling by 3.6% year over year to ~$27 billion in Q3, and CEO Mark Zuckerberg made the decision to cut headcount for the first time in company history last month. Meta will freeze hiring and potentially introduce layoffs, shrinking teams to prioritize three areas in particular: The AI engine powering Instagram Reels; ads and business messaging; and the metaverse. The company’s net income also plunged by 52% in the quarter, from more than $9 billion in Q3 2021 to $4.4 billion in 2022.
In Amazon’s earnings call Thursday, the company echoed plans to accomplish more with fewer resources and revisit forward-looking projects. In 2022, Amazon has initiated a hiring freeze for its stores business, third-party marketplace, and Amazon Prime, as well as decreased the budget for delivery robots and a “virtual travel experience.” CFO Brian Olsavsky cited inflation, energy costs, and economic pressures.
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“We’re…taking actions to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere,” Olsavsky said on the earnings call. “We aim to strike the right balance between investing for our customers for the long term while driving operational efficiency improvements and accomplishing more with less.”
In Q3, Microsoft reported its slowest revenue growth since 2017. Earlier in October, the company announced plans to lay off nearly 1,000 employees, and on last Tuesday’s earnings call, CFO Amy Hood touched on cutting operating expenses, slowing hiring, and increasing productivity. The news comes a few months after Microsoft restricted budgets for employee travel and training.
“While we continue to help our customers do more with less, we will do the same internally. And you should expect to see our operating expense growth moderate materially through the year. While we focus on growing productivity of the significant head-count investments we’ve made over the last year,” Hood said.
For their part, Samsung executives cited “geopolitical issues,” inflation, and a global economic slowdown on the company’s Thursday earnings call, alongside a 31% drop in profit for Q3. Other obstacles included higher material costs and slowing demand, though the company projected that demand could recover by late 2023. Demand for semiconductors—one of the company’s biggest products—is in decline.
Apple, meanwhile, was a comparative bright spot in tech earnings this quarter, beating analyst estimates for revenue and earnings per share, but the company still plans to cut costs amid economic uncertainty—namely by slowing hiring, CEO Tim Cook told CNBC.