Lay-offs sweep through Silicon Valley as tech firms battle inflation, weak growth

Over the last three months, the Silicon Valley has witnessed a torrent of layoffs amid fears of a looming recession, primarily triggered by the Russian invasion of Ukraine and inflation.

Bloodbath and freeze on hiring

According to data compiled by Crunchbase, tech companies in the US have sacked more than 37,000 employees in mass job cuts until early August.

Reports on Tuesday said that Apple Inc. has laid off around 100 contract-based recruiters (responsible for hiring new talent), days after Google warned employees of “blood on the streets,” hinting at imminent layoffs if the business does not pick up in the next quarter.

Companies like Netflix, Shopify, and Coinbase have become leaner by sacking employees, citing the debilitating impact of the COVID-19 pandemic and overhiring during periods of rapid growth. Others who have opted for smaller staff count are Robinhood, Glossier and Better.

Netflix sacked 150 employees besides contractors and part-time workers in May this year.

Rental start-up Sonder laid off a fifth of its corporate employees.

Also read: Oracle begins lay-offs in Bay Area; job cuts also likely in India, Canada

Cryptocurrency exchange platform Coinbase, sacked 1,100 people, which is 18 per cent of its workforce, blaming it on an impending recession in the US and an upcoming “crypto winter.”

Online personal shopping and styling service Stitch Fix laid off 330 employees, which is 15 per cent of its workforce, citing slowdown of the growth of e-commerce across the retail sector.

Similarly, e-commerce platform, Shopify, sacked more than 1,000, employees, mostly in what company CEO Tobi Luke said in the “over-specialised” roles in the recruiting, support and sales department, in July.

A chunk of the lay-offs have been effected in the HR departments.

According to the Wall Street Journal, Twitter laid off 30 per cent of its talent acquisition team, reportedly due to “increasing business pressures” and because it was re-forming its talent acquisition team in tandem with revised business needs.

Similarly, IT giant Microsoft trimmed its 1,80,000-strong workforce by laying off one per cent of it, while TikTok, which has begun sacking employees says it plans to lay off 100 more as part of its restructuring plans.

This apart, companies such as Meta, Twitter, Lyft, Intel, and Uber, hit by a slump in shares, thanks to wary investors, have frozen recruitments in a bid to cut costs.

What triggered the layoffs?

Rising inflation, high interest rates, shift in consumer behaviour, and the need to cut cost amid a looming recession are among the key reasons behind the massive layoffs, say experts.

They say the demand for technology has slumped as people are not as much dependent on it as they were during the initial days of the pandemic. Take Peloton, an at-home fitness company, for instance. With people hitting gyms and outdoors after the pandemic, the need for home-based fitness apps saw a slump – Peloton lost 90 per cent of its value, from US$47 billion in 2021 to US$4 billion till May 2022. The major repercussion of this came when the company sacked 2,800 staff in February 2022.

Experts say a staggering rise in interest rates since March this year has also contributed to the job cuts. Even though 2021 saw companies grow and expand, banking on low interest rates, a rise in inflation rate (8-9 per cent) this year, and a subsequent spike in interest rates, rang the alarm bells for these firms.

Also Read: Microsoft cuts 1% workforce amid recession fears; Google goes slow

The US Federal Reserve in June this year announced the highest interest rate hike in 28 years, hiking it from 1.00 per cent in May to 1.75 per cent. This impaired fundraising prospects for tech companies.

What does it mean for IT employees?

Experts say while the current scenario shows the lack of planning and foresight by tech companies in a post-COVID world, as they overestimated their growth and hiring capacity, everything is not over for tech workers as they can still find prospects in the broader market where there is a shortage of talent.

“The labour market is still quite tight,” San Francisco’s chief economist Ted Egan told The Times recently.

“In San Francisco, even in the tech industry, where a lot of layoffs are concentrated, there are three open job listings for every hire, so a lot of jobs are still going unfilled,” he said.

Besides this, companies like Microsoft, Alphabet and Amazon have said that they would increase the salaries of their staff.

While experts advise employees to consider working from office over working from home, as employers are more prone to sacking the latter, they say now is not the time to look for a new job, especially when the job market is tight.