Tech giants are pivoting to a 'Year of Efficiency'

1 month ago 93

If this earnings season is teaching us anything, it’s that the tech giants are shifting focus from profligate spending and unrestrained expansion to streamlining operations and cutting costs wherever they can.

The past year’s market downturn has been especially hard on Silicon Valley’s behemoths, with the tech-heavy Nasdaq index down 15% since the beginning of 2022. The likes of Apple, Amazon, and Facebook parent Meta saw their valuations surge by billions throughout the 2010s, and their rapid growth was bookended in 2020 and 2021, when many tech companies became “pandemic darlings”—their product sales were boosted by stay-at-home orders, and several companies embarked on unprecedented hiring sprees.

But the real world has since come crashing down on tech giants, and there have been more than 200,000 layoffs in the sector since the beginning of 2022. As Google parent Alphabet CEO Sundar Pichai told employees last month as the company cut 12,000 jobs: “We hired for a different economic reality than the one we face today.”

In 2023, tech’s traditional big spenders are refocusing their priorities and staffing choices. Meta founder and CEO Mark Zuckerberg may have officially rang in the new era during his company’s earnings call on Wednesday, where he announced 2023 will be the company’s “year of efficiency.”

Meta’s decision to cut around 11,000 jobs last November was the “beginning of our focus on efficiency and not the end,” Zuckerbeg said during the call, adding that while Meta is planning to double down on some key areas including artificial intelligence, the company’s free-wheeling exploits may be a thing of the past. 

“We’re going to be more proactive about cutting projects that aren’t performing or may no longer be as crucial, but my main focus is on increasing the efficiency of how we execute our top priorities,” Zuckerberg said.

Zuckerberg and Meta aren’t the only giants to signal a paradigm change in the tech world this week, as 2023 promises to be a year of efficiency, cost-cutting, and consolidation for the entire sector, including fellow heavyweights Amazon and Google parent Alphabet. 

Amazon CEO Andy Jassy doubled down on efficiency talk during his earnings call on Thursday, as the company seeks to harness the potential of the massive transportation network it has been investing in for the past few years. Jassy said the network was “roughly the size of UPS” during the call, adding that a big priority over the next year is to “figure out how to be really efficient across all those links and have them be highly utilized and to get the flows in those facilities work in the right way.”

It all amounts to a tech sector that may be less exciting than it’s been in years past, but being boring may be necessary for traditional giants to stay competitive as their darling status wanes.

Time to cut back

In addition to layoffs, tech giants are trimming entire projects and reorganizing their spending in an effort to reduce expenses.

“We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet,” Pichai said in a statement Thursday accompanying Alphabet’s earnings announcement, which reported missed sales targets largely due to a drop in Google’s advertising profits, a crucial source of revenue for the company. 

Pichai said belt-tightening is well underway at Alphabet during the company’s earnings call, and the process will include a “careful focus on our hiring needs.” Alphabet CFO Ruth Porat later said the company will be “meaningfully slowing the pace of hiring in 2023,” adding that fewer hires would be the “starting point” for cutbacks, to be followed by more attentive product prioritization. Alphabet is also working to “optimize our real estate footprint,” Porat said, reducing office space expenses worldwide after shrinking the company’s headcount. 

Like Alphabet, Meta’s financials this week revealed significant downsizing plans. The company reported racking up $4.2 billion in restructuring charges during the last quarter of 2022 as it handed out severance paychecks, canceled office space leases, and redesigned its data centers in a push to optimize its A.I. capabilities.

Amazon, possibly the biggest pandemic-era darling on the back of an online shopping boom in 2020 and 2021, joined the cutback club when it reported earnings. “We’re working really hard to streamline our costs,” Amazon’s Jassy said during the company’s earnings call. Amazon announced layoff plans last month involving around 18,000 workers.

Amazon’s earnings on Thursday revealed ongoing slowdowns in its main revenue arms: E-commerce and cloud business. The company closed down several bookstores and other physical locations last year in an effort to cut costs, and delayed or abandoned plans to develop several new warehouses.

Shift to efficiency

While tech giants reported losses and significant cutbacks this week, the other driving story was how companies are angling to stay competitive in their biggest priority areas.

With OpenAI’s wildly popular ChatGPT becoming a resounding success late last year, and Microsoft announcing a $10 billion investment that effectively puts it in charge of the artificial intelligence startup for the foreseeable future, A.I. is one area competitors don’t intend to cut back on, with Alphabet’s Pichai calling it a key “long-term investment” for the company in his statement.

Meta has also signaled a prioritization of A.I. to boost some of its features, while Amazon seeks to consolidate its huge transportation and infrastructure network. But in the name of efficiency and streamlining, further cutbacks and potentially even more layoffs are likely still on the table for tech companies this year.

Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.

Read Entire Article