IT sheds weight to get healthy

Layoffs announced by giant technology companies -Alphabet, Meta, Amazon and Microsoft – since the previous quarter have crossed 50,000 and investors are greeting the plans with higher market valuation of Big Tech. The planned rightsizing is, however, unlikely to make up for the deep correction in 2022 of technology companies’ stock prices. Earnings estimates for the last quarter of 2022 are grim and Big Tech may have to go in for more job cuts to keep market capitalisation aloft. This could be a theme for the industry in 2023. Companies have been slow to rightsize because work from home affected employee appraisal. The announcements this year may be a signal that remote work has reached the end of the line.

The job losses will also affect moonshot technologies as companies hunker down to pursuing profitable businesses. This could slow down innovation but is healthy for an industry that had become accustomed to stratospheric valuations leading to a decade of runaway hiring. US technology companies are still hiring more employees than they are laying off, sharpening the focus on profit. Most technology workers in the US who have lost jobs are expected to find new ones in three months. But these workers are mostly in the US on work visas that set out a two-month deadline for reemployment. The human cost is higher than what tightness in the technology job market would suggest.

The overall job market in the US will weaken as higher borrowing costs filter through. This is beginning to show in the layoff plans of Microsoft. The maker of office productivity software and cloud solutions for enterprises has typically had a cushion from changes in consumer behaviour that have affected Amazon and Meta and lockdown plays like Netflix. Some of the slack in enterprise demand is showing up in declining attrition levels of Indian IT service providers as well. This has a spillover on hiring by local startups.