Silicon Valley layoffs go from bad to worse

By Catherine Thorbecke, CNN

Shortly before Thanksgiving, Amazon CEO Andy Jassy confirmed rumors that layoffs had begun in multiple departments at the e-commerce giant and said it would review staffing needs into the new year.

On Wednesday, Jassy provided a sobering update on that review: Amazon is cutting more than 18,000 jobs, nearly double the 10,000 that had previously been reported and marking the highest absolute number of layoffs of any tech company in the recent downturn.

At Amazon and other tech companies, the second half of last year was marked by hiring freezes, layoffs and other cost-cutting measures at a number of household names in Silicon Valley. But if 2022 was the year the good times ended for these tech companies, 2023 is already shaping up to be a year when people at those companies brace for how much worse things can get.

On the same day Amazon announced layoffs, cloud-computing company Salesforce said it was axing about 10% of its staff — a figure that easily amounts to thousands of workers — and video-sharing outlet Vimeo said it was cutting 11% of its workforce. The following day, digital fashion platform Stitch Fix said it planned to cut 20% of its salaried staff, after having cut 15% of its salaried staff last year.

The continued fallout in the industry comes as tech firms grapple with a seemingly perfect storm of factors. After initially seeing a boom in demand for digital services amid the onset of the pandemic, many companies aggressively hired. Then came a whiplash in demand as Covid-19 restrictions receded and people returned to their offline lives. Rising interest rates also dried up the easy money tech companies relied on to fuel big bets on future innovations, and cut into their sky-high valuations.

Heading into 2023, recession fears and economic uncertainties are still weighing heavily on consumers and policymakers’ minds, and interest rate hikes are expected to continue. Beyond that, the growing number of layoffs may also give certain tech companies some cover to take more severe steps to trim costs now than they may have otherwise done.

While there have been some layoffs recently in the consumer goods sector and hints of more to come elsewhere, the situation in Silicon Valley remains in stark contrast to the economy as a whole.

The Labor Department’s latest employment report on Friday pointed to a year of extraordinary job growth in 2022, marking the second-best year for the labor market in records that go back to 1939. Meanwhile, a separate report from outplacement firm Challenger, Gray & Christmas found tech layoffs were up 649% in 2022 compared to the previous year, versus just a 13% uptick in job cuts in the overall economy during the same period.

In his note to employees this month, Jassy chalked up the need for significant cost cutting at Amazon to “the uncertain economy and that we’ve hired rapidly over the last several years.” Others across the industry have echoed those points, with varying degrees of atonement.

In a series of apologies that are beginning to sound the same, Silicon Valley business leaders from Meta’s Mark Zuckerberg to Salesforce’ Marc Benioff have blamed the wave of job cuts on their own misreading of how pandemic-fueled demand for tech products would play out.

Benioff began a memo to the employees of Salesforce last week by invoking, as he so often does, the Hawaiian word for family. “As one ‘Ohana,” he wrote, “we have never been more mission-critical to our customers.” But the economic environment was “challenging,” Benioff wrote. “With this in mind, we’ve made the very difficult decision to reduce our workforce by about 10 percent, mostly over the coming weeks.”

“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff went on to say. Like other tech leaders, however, it’s unclear if Benioff will face any repercussions to his title or compensation.

Patricia Campos-Medina, the executive director of the Worker Institute at Cornell University’s School of Industrial and Labor Relations, slammed this spate of mea culpas as “empty apologies” to the workers now paying for their miscalculations.

While there will be a lot of near-term uncertainty for these tech workers, as well “a big economic hit on their lives,” Campos-Medina added, “I do think that this is a very skilled workforce that will find a way to engage back in the economy.” She predicts many of the laid-off tech workers will likely be able to find jobs and “we will see more stability in the mid-to-long term.”

But the end may still not be in sight. Dan Ives, an analyst at Wedbush Securities said last week that the Salesforce and Amazon layoffs “add to the trend we expect to continue in 2023 as the tech sector adjusts to a softer demand environment.” The industry is now being forced to cut costs after “spending money like 1980’s Rock Stars to keep up with demand,” he added.

And despite the robust overall labor market, there are growing concerns that tech layoffs could spread elsewhere.

“I think we’re seeing an inflection point; the rate of jobs growth is slowing and a lot of these tech layoffs that we’re hearing about, I think are going to start materializing across the broader economy by the end of the first quarter,” John Leer, chief economist at Morning Consult told CNN’s Chief Business Correspondent Christine Romans in an interview Friday.

In that sense, at least, Silicon Valley may once again be ahead of the curve, but not in the way it wants.

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