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March 3, 2024

Mass Layoffs Shake Silicon Valley Despite Robust Economy

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Jan 31, 2024

Technology companies across Silicon Valley and beyond have announced tens of thousands of layoffs in recent weeks despite the otherwise strong economy, signaling an unexpected reversal of fortunes for the formerly high-flying sector.

As artificial intelligence and other innovations reshape industries, many tech firms are moving swiftly to reposition themselves for leaner times ahead even amid healthy demand, record profits, and soaring stock prices. Workforce cuts are hitting companies both large and small while spreading anxiety through the region’s tight-knit community.

Surge in Job Losses Defies Upbeat Assessments

The abrupt wave of redundancies comes even as policymakers offer reassurances about the broader economic picture. Federal Reserve Chair Jerome Powell said the U.S. labor market remains “extremely tight” despite “some softening.”

“I don’t see the economy contracting at all,” Treasury Secretary Janet Yellen told CNBC. “This is not an economy that’s in recession.”

Their sanguine words contrast sharply with the cold reality confronting tens of thousands of newly jobless workers. Since the start of 2024, technology and internet companies have unveiled plans to slash nearly 25,000 positions globally. That figure exceeds the 22,000 tech job cuts seen in all of 2022, according to consulting firm Challenger, Gray & Christmas. It does not even include this week’s 7,000-person reduction at Amazon or undisclosed numbers soon expected from other giants like Apple and Netflix.

Notable Tech Layoffs in 2024 So Far

Company Announced Job Cuts Date
Microsoft 10,000 1/18/2024
Google (Alphabet) 12,000 1/20/2024
Amazon 7,000 1/25/2024
Salesforce 8,000 1/4/2024
SAP 3,000 1/26/2024
IBM 3,900 1/26/2024
DoorDash 1,250 1/25/2024

Sources: Company filings, media reports

“It seems counterintuitive that tech companies would be cutting jobs so aggressively when the economy seems relatively healthy overall, but there are some industry-specific things going on here,” explained Jay Chen, a senior economist at UCLA.

Many firms gambled big on ventures like the metaverse that have yet to deliver hoped-for returns, Chen said. At the same time, rising interest rates to combat inflation have tightened access to the cheap capital that fueled the sector’s meteoric growth.

Above all, Chen said, the rapid advance of AI has panicked companies into “future-proofing” themselves before the technology matures.

“Decision-makers are thinking, ‘I know huge disruption is coming – I don’t totally understand it, but I need to prepare,’” he said. “That preparation means major downsizing.”

Turn of Fortune Stuns Silicon Valley

Silicon Valley is no stranger to economic cycles, including the historic dot-com crash that erased hundreds of billions in wealth over 2000-2002. But this moment still feels different to many.

“There’s this sense that, ‘Gosh, I thought tech was going to be immune from slowdowns and even recessions,’” said Silicon Valley historian Margaret O’Mara, a professor at the University of Washington. “The tech industry has been on this upslope, this upward trajectory, as the place where the jobs are, where the economy is vibrant.”

To see pillars like Amazon and Microsoft suddenly stumble is rattling the industry’s self-assurance.

“There’s a little bit of a sense this doesn’t compute,” O’Mara said. “There’s a questioning and unease happening because of that.”

One laid-off Amazon Web Services engineer described the atmosphere among co-workers as “quiet, somber confusion” about why the axe had fallen so indiscriminately.

“Morale dropped instantly,” said the engineer, who asked not to be named due to the sensitivity of the situation. “Amazon leadership tried to frame this with corporate speak about market conditions and ‘rightsizing,’ but no one is buying that explanation.”

Bracing for Lean Times Ahead

While the job losses have rattled rank-and-file technologists, analysts say management teams are steeling themselves for even harsher measures if conditions worsen.

Morgan Stanley warned clients last week to expect “significantly more layoffs” across the technology sector. Investment bank UBS similarly cautioned that “resizing the employee base to current needs” will remain a top focus for companies this earnings season.

Firms like Lyft and Stripe have already moved to curb costs by rescinding job offers to college graduates who have yet to start work – a practice virtually unheard of in years past.

With venture funding drying up and stock prices declining, the highly competitive industry may become even less hospitable to startups and risk-taking in favor of short-term profits.

“Balancing resources to ensure sustainability over the long-term does mean saying goodbye to some people who have made meaningful contributions,” admitted Bret Taylor, co-CEO of business software giant Salesforce, which recently laid off around 10 percent of its workforce weeks after moving into a lavish new global headquarters tower in San Francisco.

Glimmer of Hope Amid the Gloom

Still, some detect glimmers of light amid the gloom. Layoffs may well accelerate AI adoption while freeing up talent for promising new ventures focused on transport, climate, health, and other societal priorities.

“This is not necessarily bad in the medium term if it leads to more rational business models,” said economist Chen. “Companies will be leaner and more focused.”

Policymakers also retain tools to cushion blows to workers and counter gathering headwinds. Some, however, argue that tackling issues like housing affordability and immigration reform offer leaders the most potent options for supporting digital innovation over the long haul.

“Technology moves quickly, but progress depends on people feeling secure enough to take risks without fear of total disaster,” said Stanford public policy expert Myra Strober. “That’s the deeper challenge behind these layoff headlines – building resilience for individuals instead of just companies.”

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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