Recession looming: Tech giants freezing hiring

The current economic climate is quite worrisome. Recession fears mounting and inflation, the war in Ukraine and the lingering pandemic taking a toll and many tech companies are rethinking their staffing needs, with some of them instituting hiring freezes, rescinding offers and even starting layoffs.

The damage from the COVID-19 pandemic, the Russian invasion of Ukraine has magnified the slowdown in the global economy, which is entering a long term of feeble growth and elevated inflation. Stocks have tumbled across Europe, as soaring inflation puts pressure on central bankers to raise interest rates even more aggressively. With the US dollar in demand, the pound has sunk below $1.18 for the first time since March 2020, early in the pandemic.

As per Forbes, the Inflation stocks - which predominantly includes companies from the banking, insurance, consumer staples, oil and gas sectors - has declined by about 8% over the last month, marginally underperforming the broader S&P 500.

Finance Minister Nirmala Sitharaman, including the US, said that global tech companies are in panic due to fear of an economic slowdown in developed countries. After putting brakes on job cuts and hiring by tech-social media companies like Microsoft, Google, Facebook (meta), Oracle, and Twitter, Apple has now joined the list of these companies.

While the U.S. Federal Reserve took some time to respond to inflation, starting with a 0.25% rate hike in March 2022, it is getting more aggressive with its monetary policy tightening, after inflation numbers for May came in higher than expected. The central bank raised rates by 0.75% in June, its largest hike since 1994.

Let's look into how the global tech companies are pulling back.

Alphabet Inc. has decelerated their recruiting efforts. According to an internal memo, Chief Executive Officer Sundar Pichai told employees that- although the business added 10,000 Googlers in the second quarter- it will be slowing the pace of hiring for the rest of the year and prioritizing engineering and technical talent.

Amazon.com Inc. said in April that it was overstaffed after ramping up during the pandemic and needed to cut back. "As the variant subsided in the second half of the quarter and employees returned from leave, we quickly transitioned from being understaffed to being overstaffed, resulting in lower productivity," Chief Financial Officer Brian Olsavsky said

Apple has decided to slow down hiring for the year 2022-23, after putting brakes on job cuts and hiring by tech-social media companies.

Coinbase Global Inc., a cryptocurrency exchange, told employees it was cutting 18% of staff in June to prepare for an economic downturn. It also rescinded job offers. "We appear to be entering a recession after a 10+ year economic boom," CEO Brian Armstrong said in a blog post.

Meta Platforms Inc., the parent of Facebook, slashed plans to hire engineers by at least 30%. CEO Mark Zuckerberg told employees that he's anticipating one of the worst downturns in recent history.

Microsoft Corp. told workers in May that it was slowing down hiring in the Windows, Office and Teams groups as it braces for economic volatility.

Salesforce Inc. has been slowing hiring and reducing travel expenses, as per the source.

Tesla Inc. cut 200 autopilot workers as it closed a facility in San Mateo, California, in June. CEO Elon Musk said earlier that layoffs would be necessary in an increasingly shaky economic environment.

The reason could be IT businesses spend two-thirds of their revenue on salaries and benefits. In the fiscal year 2021-22, IT businesses spent 62% of their entire income on staff salaries. During this time, IT firms earned a total of Rs 5.5 lakh crore, of which around Rs 3 lakh crore was spent on salaries. This is why the net profit margins of IT firms remained steady over this era.