Seeking to shore up margins and calm investor concerns at a time of slowing sales growth, major U.S. technology companies are expected to trim their bloated workforces and cut costs over the next few months as they deal with surpluses from the time of the pandemic, say analysts.
However, each of the five largest US technology companies is expected to report a decline in earnings for the October-December period as it tries to readjust to the high interest rate environment. The biggest declines are expected to be reported by Meta Platforms Inc, the owner of Facebook, and Amazon.com Inc, Reuters said in an analysis.
Analysts cut their forecast for the combined revenue of the five companies – Meta, Amazon, Apple, Alphabet and Microsoft – by 5% to $561.4 billion in January from October.
Big technology companies are expected to be among the biggest movers down or up for the eleven S&P 500 sectors, with the information technology sector expected to post a 9.5% revenue decline, according to FactSet data.
“I don’t expect good news for a while … at least for the next three quarters. I expect more layoffs,” said Siddharth Singh, chief investment officer at investment firm Ironhold Capital.
Amazon, which is expected to report a 38% plunge in profit and revenue growth at the slowest pace in more than 22 years, began notifying employees on Wednesday whether they had been laid off as part of its decision to cut 18,000 jobs.
The workforce cuts come after the retailer over-hired as a result of demand during the pandemic, similar to Meta’s aggressive hiring to respond to a sharp increase in social media use by consumers who are stayed at home.
Meta, which in November decided to cut 11,000 jobs, could report a 42% drop in profit, its fifth straight quarter of decline. The company is also likely to report a 7% drop in revenue, its worst performance ever.
The five companies on average increased their headcount by 45% in 2020 and by 20.5% in 2021, with Apple hiring the most modestly.
“We’re projecting another 5 to 10 percent reduction in tech headcount because many of these companies were spending like rock stars in the 1980s,” Wedbush analyst Dan Ives said.
On Wednesday, Microsoft said it would eliminate 10,000 positions, affecting less than 5% of its workforce. Analysts expect the company to report 2.4% revenue growth, the slowest pace in about 24 quarters. Profit is expected to fall by 9%.
Apple’s revenue is expected to fall for the first time in 15 quarters as key supplier Foxconn faces major disruptions at China’s biggest iPhone factory due to worker unrest over COVID-19 restrictions.
Revenue growth at Alphabet, which is slowing hiring and making “course corrections” to cut costs, is expected to be the slowest in 10 quarters.
To support share prices, these companies may pour in cash for buybacks this year, analysts say. Their shares have fallen between 26% and more than 60% in the past year, compared with a nearly 20% drop in the broader market.
Concerns have cash and cash equivalents totalling more than $110 billion, with Amazon having the most at the end of the September quarter.