Big tech companies are preparing for a possible recession, raising concerns for other industries

Big tech companies are preparing for a possible recession, raising concerns for other industries

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Big tech companies are preparing for an economic recession and an uncertain future. This, in turn, raises even more economic anxiety.

The biggest tech companies, most of which are reporting quarterly earnings next week, have given recent hints that they are heading lower. News of layoffs and a hiring slowdown is becoming common throughout Silicon Valley. Startups say capital is drying up. Workers are notified that business is changing.

Meanwhile, the long-running bad romance on Twitter with Elon Musk is intertwined in court and the outcome is uncertain, a point the company made clear as it reported disappointing numbers on Friday. Amazon is facing a growing labor movement, and Facebook is facing a new advertising climate. Regulators both domestically and abroad threaten to crack down on the industry as a whole.

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Social media company Snap’s stock fell nearly 40 percent on Friday, the day after it reported worse-than-expected revenue growth and declined to give predictions for future earnings due to “uncertainties related to the operating environment.” This week, Netflix repeated factors such as “slowing economic growth” as it lost subscribers.

Analysts expect numbers from Amazon, Microsoft, Google, Facebook and Apple next week to be the strongest indication yet of how these companies will handle the coming months. This week, Bloomberg reported slowing hiring and spending at Apple — a measure of how much consumers actually want to spend — news that helped push major stock market indexes lower.

“The market looks at that, and the logic basically is, ‘What a crap, if they’re doing that, what about the ones that aren’t that strong?'” “And what do they see coming that others are not doing?” said Tom Isay, president of Sevens Report Research.

Meta spokesman Tracy Clayton said the company will continue to make changes to some parts of its business due to the larger economic environment. Apple and Amazon did not respond to requests for comment. Google, Twitter and Snap declined to comment. Amazon founder Jeff Bezos owns The Washington Post.

The tech hiring freeze and pessimistic forecasts stand in stark contrast to the traditional bulletproof companies’ reputation for unchecked growth, alarming some Wall Street economists and investors. Over the past decade, technology companies have skyrocketed, hiring tens of thousands of workers and amassing huge cash hoards through ever-increasing profits. The stock prices of companies such as Amazon, Microsoft, Apple and Google continued to rise, dominating the stock exchanges and making many investors rich.

As some of the most valuable companies in the world, it also exerts a significant influence on perceptions of the economy, in part due to the nature of its business, which relies on consumer clicks and spending. Any dip in demand for toilet paper sold by Amazon, Teslas or iPhones, plus fewer ads bought on Instagram or Google searches to try to sell people new shoes or headphones, is sure to create tension in other areas.

Technology has been signaling to investors for months that boom times are ending – Amazon was one of the first tech giants to warn earlier this year that it had hired too many warehouse workers and predicted a surge in customer demand that instead began to wane due to the virus. corona. Lockdowns have been lifted and habits shifted from epidemic patterns.

Google CEO says company will slow hiring amid economic conditions

Tesla reported better-than-expected earnings on Wednesday, but even during that call, analysts questioned CEO Elon Musk and other executives on the topic of a possible economic downturn. Musk said earlier this summer that he had a “very bad feeling” about the economy, and predicted the automaker would cut its paid workers by about 10 per cent.

“We need to be more entrepreneurial, work with more urgency, sharper focus, and more hunger than we showed on sunny days,” Sundar Pichai, CEO of Alphabet, the parent company of Google, said in a note to employees last week. He said the company would reduce its hectic pace of hiring and new hires would be focused on other engineering and technical roles. “Making the company more efficient is up to all of us.”

Earlier this year, Facebook for the first time reported a drop in daily users, which combined with increased competition, lower revenue expectations and advertising business hurdles, sent its stock prices down. The company’s stock is now down 50 percent for the year. Last week, Facebook asked its engineering managers to fire low-performing employees in the face of the economic downturn. “If the direct report is fast or underperforming, they aren’t who we need; the company’s chief engineering officer wrote in a note.

Bloomberg reports that Microsoft recently removed open job listings from the Internet.

Market experts say it could become a self-fulfilling prophecy, if other companies immediately respond to the decline of the big tech companies by tightening their own businesses. But the moves aren’t cut-and-dry — many feel technology is preparing for an economic downturn, not panicked by declining business metrics.

“You have some who take it positive because companies are becoming more disciplined,” said Christina Huber, chief global market strategist at Invesco.

Mixed messages about the economy raise questions about the risks of a recession

Big tech companies have also been more successful during the pandemic than many industries, giving them more room to fall.

“It hasn’t had that much work in the pandemic, so it hasn’t had the same shortage that is showing,” said Jason Furman, a professor of economics at Harvard University. “So, in some ways, it’s no surprise that the economy looks like it’s headed into a tougher patch that needs to be reset.”

Analysts said that despite the weak numbers widely expected next week, many companies have already cut expectations a lot, and earnings may not be as bad as feared.

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Small tech companies have sounded the alarm for months, with new venture capital investment slowing and many startups announcing layoffs during the spring and early summer.

Other economic indicators give a mixed picture of exactly which direction the economy is heading. Americans are pessimistic about price hikes, but they still spend their money. The pace of new hiring hasn’t been as fast as it was a few months ago, but it’s still far from fading out completely. Some economists and financial analysts still predict a recession later this year or in 2023, although that doesn’t mean it will be as painful as the one that followed the 2008 financial crisis.

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Some cutbacks in the tech industry have been coming for a long time, said Doug Clinton, managing partner at tech investment firm Loup, with new investment money freely available for so long that some companies have become bloated with resources they didn’t necessarily need. projects.

“When the world changes and capital gets tighter, everybody looks and says, ‘We might not need as big a crew as we thought,'” Clinton said.

Kelsey Cusade, a marketing worker in Columbus, Ohio, was laid off this month when health tech company Olive laid off hundreds of employees, after admitting that its “rapid growth and lack of focus” were causing work stress.

Cuzad immediately set up sensors to find a new job, and said it received a good response. “There are a lot of people out there who are swimming in the water, and they are looking to hire,” she added.

Across the entire economy, job vacancies are largely Hold steady, according to data from job posting site Indeed. But software development vacancies are down more than 12 percent in the past four weeks alone, according to an analysis from Economic Reality Ann Elizabeth Konkel. She said the overall job market is strong, but the demand for tech workers specifically is slowing slightly.

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Overall employment fell to its lowest rate since December 2021, LinkedIn economist Jay Berger wrote, “suggesting that tighter financial conditions and declining demand may finally hurt the US labor market.” He noted that technology has been hit hard.

Wedbush analyst Dan Ives said big tech companies have been “spending money like drunken sailors on hiring for the past few years”. “I consider it more than a correction, a tightening around the edges.”

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