‘It was not sustainable or real’: Tech layoffs approach Great Recession levels

 The number of tech layoffs this year is nearing annual levels seen during the Great Recession but is far from the dot-com-bust territory.

As technology companies deal with declining stock prices, inflation, rising interest rates and a possible recession, they have announced more than 60,000 job cuts this year, with indications — such as from Amazon.com Inc. AMZN, -1.63% Chief Executive Andy Jassy; HP Inc. HPQ, -1.13% announcing cuts over the next three years; and a report that Google GOOG, -0.84% GOOGL, -0.90% is considering thousands of layoffs — that there will be more to come.

By comparison, about 65,000 tech jobs were lost each year in 2008 and 2009 during the recession, according to Challenger, Gray & Christmas. Whether all the slashing will approach levels only previously seen during the dot-com bust, when almost 300,000 tech jobs were lost over two years, remains to be seen.

Some longtime Silicon Valley observers and experts say this downturn is not like the dot-com bust of 2001 and 2002, because many of the companies that failed back then weren’t “real” companies. And though their estimates of how long this bust will last vary, they mostly agree that the impact will be significant and affect workers and others who power the industry.

This time around, the companies making cuts may have grown too quickly or added too many employees during the pandemic and may need to reset or go back to normal, experts say. But they offer real goods or services, and they have revenue coming in.

“The dot-com bust was primarily, if not exclusively, companies that had no customers and no revenues,” said Stephen Levy, director, and senior economist of the Center for Continuing Study of the California Economy. “The companies that are laying off, like Amazon, or freezing hiring, like Google or Apple AAPL, -2.11%, have millions and millions of customers and are profitable,” he added.

This tech downturn is not a surprise to others like Levy, who have lived through previous ones. Their forecasts range from cautious optimism to calamitous.

“Silicon Valley has cycles,” said Russell Hancock, CEO of Joint Venture Silicon Valley. “We go up, we go down. It happens with regularity about every 10 years.” Hancock, who said he thought it was too early to say “the sky is falling,” added that he thought the beginning of the pandemic would spark the downturn. Instead, he said, “the pandemic turned out to be a bonanza for tech… but it just turned out to be a spike and didn’t lead us to a new plateau. Now, demand is tapering.”

But Tom Siebel, a billionaire serial entrepreneur whose latest title is CEO of C3.ai AI, -1.05%, is more pessimistic. “This is just starting,” he told MarketWatch. “Before this is over, everyone will feel the sting, large companies and small. It will be hard, but the industry will be healthy once we get through it.”

“All this weird, entitled behavior is coming to an end. No more people working in pajamas at home, being paid in bitcoin. This era will be a zinger, unfortunately,” he said. The downturn, he cautioned, will last at least two years and “look like something out of the 1970s. This recession took 15 years to happen. Companies were literally printing billions of dollars a month. It was not sustainable or real.”

To further put the numbers in perspective:

  • Today’s tech job cuts are also approaching the number of jobs lost in the industry when the COVID-19 pandemic upended everything. In 2020, 83,000 people in the tech industry lost their jobs, according to Challenger, Gray & Christmas.
  • The 60,000-plus jobs lost this year is getting close to the equivalent of the number of U.S. tech jobs added by Silicon Valley’s biggest tech companies from 2020 to 2021, which was 68,558, according to an analysis of hiring data by the Silicon Valley Institute for Regional Studies.

Some companies making job cuts have their own reasons and circumstances — but most of them have been affected by declining stock prices this year. The dramatic slashing of the staff of Twitter has everything to do with Elon Musk taking the helm, but before he bought the company its stock had traded as much as 73% lower than the $54.20 he paid per share. The slowdown in real estate activity is affecting related, fairly young companies. Yet other companies, such as ride-hailing giant Lyft Inc. LYFT, +0.56%, have been under pressure to prove they can turn a profit.

“These are scary times: A lot of tech companies have not been through a downturn,” Scott Russell, an SAP SAP, -1.00% executive board member, told MarketWatch. “The mantra for nearly all of them the next few years is risk mitigation, controlled costs, and operational efficiency,” he added. Some companies already started doing those things at the beginning of the pandemic. Others, such as Facebook parent Meta Platforms Inc. META, +0.63%, almost doubled their size in the past couple of years, and CEO Mark Zuckerberg blamed himself in his email to staff about the layoffs.

Tech employees of all stripes — those with different levels of experience, or those with H-1B visas and needing employer sponsorship to stay in this country — are losing their jobs, according to layoff lists seen by MarketWatch.

Some will fare better than others: Data from ZipRecruiter shows that there remains a healthy number of job openings for more senior positions: for example, for engineer 2 instead of engineer 1.

And some industries within tech are less affected than others, at least so far. A recruiter for semiconductor companies told MarketWatch that she sees few signs of a slowdown. Even Intel Corp. INTC, +0.61%, which has announced it wants to trim costs, continues to hire except for in certain locations, she said.

Venture capitalists are urging caution: “If you’re a growth-stage investor, it’s probably not the best time to be in that stage of investing, partly because companies were overcapitalized and with valuations that were unsustainable,” said Barmak Mehta, founding partner at Ballistic Ventures in Silicon Valley.

All of this is going to affect not just highly paid tech employees but also the other workers who are part of tech’s giant ecosystem.

A laid-off art-services provider for tech companies told MarketWatch he has become disillusioned with the industry. “I’ve now experienced a couple of times where companies do a hard turn, a pivot,” he said. “Tech feels like there’s this cult, like ‘we’re innovators and we’re gonna decide this is the next big thing,'” no matter how it affects a company and its employees, he said.

A former Twitter employee who was laid off in early November after Musk took over the company and immediately slashed its workforce in half has already fielded calls from potential employers, he told MarketWatch. That’s because he has plenty of technical and management experience.

Does he think the downturn will help unions make inroads into tech? “I wish,” he said. “Getting these kinds of workers to organize is even more difficult than in other industries, and it’s not easy anywhere.”

But Maria Noel Fernandez, campaign director for Silicon Valley Rising, an alliance of labor groups and community leaders, is hopeful that this time presents an “opportunity to build a worker movement within the tech industry and the Bay Area.”

As for lower-wage workers, they were among the first to feel the pain. The biggest cuts in janitors and bus drivers in the San Francisco Bay Area since the pandemic happened at Meta right before the mass tech-worker layoffs.

Luis Fuentes, division director for SEIU-United Service Workers West, said unionized service workers in Silicon Valley have made “substantial gains,” but that a majority of them make less than $50,000 a year. He’s worried about a possible erosion in the progress they have made if the tech industry cuts go deeper or are prolonged.

“For somebody being laid off from Meta, it might mean they delay a vacation — they have more wiggle room,” Fuentes said. “For service workers, it’s going to come down to whether they can pay rent or put food on the table.”

MarketWatch senior reporter Jon Swartz, reporter Zoe Han and columnist Therese Poletti contributed to this article.

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