Tech titans in trouble: what Microsoft’s job cuts highlight in the industry

Microsoft today (18^th January) announced an axing to thousands of its jobs. This further fuels the idea that tech companies are going one way and that is cost-cutting. The company is seeking to reduce its more than 220,000 people workforce by roughly 5%; which could total 11,000 jobs. But this latest mulling by the blue-chip company isn't a Lehman Brothers moment that spurs the sentiment. No, tech companies have since late last year already been downsizing, with more than 1,000 tech companies letting go 150,000 employees globally.  

What's fuelling the job cuts? 

A number of issues both externally and internally can affect a company and prompt action for it to start hiring or firing. But the fact that this sentiment is pervading much of the tech industry suggests that external factors are what is heavily at play here. 

Inflation is one of the key drivers. Costs of goods go up, meaning they have to spend more to source not only materials but talent, who want their wage to accurately keep up with this inflation. This in turn, however, prompts spending to go down, meaning fewer people are buying, and therefore revenue of many of these companies are being wretched from both ends. 

Interest rates have gone up, which means borrowing becomes more expensive. This affects companies' debt, as much of the Western world went from near 0% interest rates to up above 4% in the US (where many of these tech companies are based). This means that money previously allocated for things like R&D, staff and expansion could be diverted to help tackle the now increased debt that many chose to take on during the pandemic to keep themselves afloat.     

The semiconductor shortage for some of these companies will have equally dented their finances and projected earnings, meaning some companies may have borrowed more thinking they could easily pay it back. Apple iPhone's Chief Financial Officer Luca Maestri aired concerns that supply constraints related to Covid could hurt sales by between $4bn and $8bn, and Nokia CEO Pekka Lundmark claimed the company would have grown faster in the last quarter had it not been for supply chain issues. 

Hiring sprees with higher salaries started during the pandemic. Companies were faced with increased demand for digital products and services as tens of millions of people now relied on them to work from home, and so hired more to meet it. Yet the pandemic prompted a large-scale exiting of workers in what was dubbed 'The Great Resignation'. This further opened up vacancies in companies that were already seeking to hire more, and as a result of a desperate need to fill them, creating a red-hot job market that allowed job hunters to job hop and demand higher salaries and better packages from the jobs they picked. Before Meta CEO Mark Zuckerberg cut 11,000 jobs in November 2022, he sent an internal memo to employees apologising for the move and blamed his judgement that this need for staff would "be a permanent acceleration that would continue even after the pandemic ended". 

Tech industry's tenuous future  

With more than 23,000 employees at more than 80 global tech companies being laid off in January alone, it looks like the mass job cuts will continue. Many companies have also been forced to refocus on high-growth areas amid the downturn in order to bring up the balance sheet, and so, spending on things that generate less immediate revenue, like projects they have in the pipeline or general R&D and expansion may also decrease. 

And although the axing of staff doesn't seem like a sign of good things, it does show a bandage being applied to the bleeding, and these measures being employed by not only Microsoft but Tesla and Amazon, combined with other procedures, are likely enough to see them ride out the storm as it stands. But just as a deep cut to the body needs time to heal to the point of recovery, so too could this cut to the tech industry and its staff.