Why Tech Companies Are Suddenly Laying Off Thousands Of Employees?

You may have recently seen many articles about tech companies laying off thousands of employees. More recently, Google was said to be laying off close to 12,000 employees.

Not only Google, Microsoft, Facebook, and Intel did the same in the past few weeks.

But why?

Why Tech Companies Are Suddenly Laying Off Thousands Of Employees?

Answer: It’s not one reason but multiple.

1. Pandemic Boom Passed

The change to online working and learning during COVID was good for technology companies. The assumption made by many businesses during this period was that the boom in demand for technology that occurred during COVID would continue later as a result of long-term changes in working practises.

But in many instances, this proved to be less accurate than they had anticipated, leading them to hire more employees than they could afford to pay their salaries, which they are now reducing to the proper number.

2. Future Economic Difficulties

The economy following COVID has acted in a very peculiar way, with concurrently high inflation, ongoing supply chain problems, wage growth, low unemployment, etc. It is anticipated that consumer spending will sharply decline, triggering a recession that will have a detrimental effect on most companies’ profits.

The technology sector has a history of responding to changing conditions more swiftly than other sectors since doing so gives it a competitive edge. As a result, many businesses are making decisions based on their predictions of impending economic difficulties. One strategy is to cut staff costs in an effort to maintain profitability in the face of potential revenue declines.

3. Poor Stock Performance

The post-COVID stock market has been particularly unfavourable to technology companies, with the NASDAQ, which is heavily weighted in the sector, down 22% over the past year as opposed to a 12% decline for the larger S&P500.

As an investment in a tech company has recently been poorer than an investment in a non-tech company, this obviously makes their investors dissatisfied. As a result, tech businesses are cutting costs in an effort to boost investor confidence, which will increase their short- and medium-term profitability.

4. Debt Is Getting Expensive

Historically, tech companies have used the equity market to raise capital and leveraged cheap debt to pay salaries. It is more crucial for tech companies to generate more “real” cashflow and profits when stocks decline and loan costs rise.

They must either increase sales or reduce costs as a result. Since they don’t require a lot of capital, labour is the primary cost factor.

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