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Big Tech braces for dismal profits, more job cuts

Keen to buttress margins and appease investor concerns at a time of slowing sales growth, big U.S. technology firms are expected to whittle away at their bloated workforce and costs through the next few months, reversing pandemic-era excesses, analysts said.

January 19, 2023
By Nivedita Balu and Yuvraj Malik
19 January 2023

By Nivedita Balu and Yuvraj Malik

Jan 18 (Reuters) – Keen to buttress margins and appease
investor concerns at a time of slowing sales growth, big U.S.
technology firms are expected to whittle away at their bloated
workforce and costs through the next few months, reversing
pandemic-era excesses, analysts said.

Each of America’s five largest tech companies, though, are
expected to report a fall in profits for the October-December
period, as they try to recalibrate in a high-interest
environment. Facebook-owner Meta Platforms Inc and
Amazon.com Inc are expected to report the biggest
declines.

Analysts have cut their total revenue projection for the
five companies – Meta, Amazon, Apple Inc, Alphabet Inc
and Microsoft Corp – by 5% to $561.4 billion
as of January from October.

Big tech companies are expected to be among the biggest
drags to S&P 500’s eleven sectors, with the information
technology sector projected to report an earnings decline of
9.5%, according to FactSet data.

“I would not expect good news for a while … at least for
the next three quarters. I would expect more layoffs,” said
Siddharth Singhai, chief investment officer at investment firm
Ironhold Capital.

Amazon, which is expected to report that earnings slumped
38% and revenue grew at the slowest pace in over 22 years,
started communicating to staff on Wednesday whether they were
laid off as part of its decision to cut 18,000 jobs.

The reduction in workforce came after the retailer overhired
based on pandemic demand, echoing Meta’s aggressive hiring to
meet a surge in social media usage by stuck-at-home consumers.

Meta, which decided in November to chop 11,000 jobs, could
see a 42% plunge in profit, its fifth straight quarter of
decline. The company is also likely to see a 7% fall in revenue
– its worst showing ever.

The five companies on an average increased their employee
base by 45% in 2020 and 20.5% in 2021, with Apple hiring the
most modestly.

“We are forecasting another 5% to 10% headcount cut across
the tech sector as many of these companies were spending money
like 1980s rockstars,” said Wedbush analyst Dan Ives.

Microsoft said on Wednesday it would eliminate 10,000 roles,
affecting less than 5% of its employees. Analysts expect the
company to report a 2.4% rise in revenue, the slowest pace in
about 24 quarters. Profit is expected to fall 9%.

Apple’s revenue is expected to fall for the first time in 15
quarters as its major supplier Foxconn faced major
disruption at the biggest iPhone factory in China due to worker
unrest related to COVID curbs.

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 shore up stock prices, analysts said these companies
could pour money into buybacks this year. Their shares fell
between 26% and over 60% last year versus the broader market’s
nearly 20% decline.

They together have cash and cash equivalents of over $110
billion, with Amazon having the most and Meta having the least
at the end of the September quarter.

(Reporting by Nivedita Balu and Yuvraj Malik in Bengaluru;
Editing by Maju Samuel)

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