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Thursday September 28, 2023

Amazon layoff signals more pain for tech sector as recession fears mount

By News Desk
January 06, 2023

Bengaluru: The massive job cuts by Amazon.com Inc, one of the biggest private employers in the United States, show the wave of layoff sweeping through the tech sector could stretch into 2023 as companies rush to cut costs, analysts said on Thursday.

As a demand boom during the pandemic rapidly turns into bust, tech companies shed more than 150,000 workers in 2022, according to tracking site Layoffs.fyi, a number that is growing as growth in the world's biggest economies start to slow.

"More layoffs are certainly possible ... given the scale of investment we saw in 2020-21, we would probably think that some degree of caution is probably appropriate," said Russ Mould, investment director at AJ Bell.

Coming out of a global pandemic, job cuts in 2022 surged 649 percent from 2021, led by for technology companies, according to executive coaching firm Challenger, Gray & Christmas, Inc.

The drop in demand amid a steep rise in borrowing costs has led several executives from the sector to admit they hired in excess during the Covid-19 crisis.

Meta Platforms Inc axed 11,000 jobs last year, with Chief Executive Mark Zuckerberg saying he had wrongly expected that the pandemic boom would keep on going.

Tech giants Microsoft and Google-parent Alphabet have already hinted at cost-cuts, including layoffs.

Salesforce Inc top boss Marc Benioff said on Wednesday the enterprise software company had hired "too many people" as he announced plans to cut 10 percent of the jobs.

For Amazon, growth in its cloud unit that brings most of its profit has slowed as businesses cut back spending, while its online retail unit is reeling from strained consumer budgets due to rising prices.

The growing crisis has brought back memories of the dot-com bubble at the start of the century and the 2008 financial crisis when tens of thousands lost jobs.

"Some of us will remember 2000 to 2003 after a massive bubble fed by cheap money, high investor expectations and plentiful cash," said Mould. "Whether we see a repetition or not will be very interesting as there is a danger of that."

Meanwhile, Chief Executive Andy Jassysaid Amazon layoffs will now increase to more than 18,000 roles as part of a workforce reduction it previously disclosed.

The layoff decisions will largely impact the company's e-commerce and human resources organizations, he said.

The cuts amount to 6 percent of Amazon's roughly 300,000-person corporate workforce and represent a swift turn for a retailer that recently doubled its base pay ceiling to compete more aggressively for talent.

Amazon has more than 1.5 million workers including warehouse staff, making it America's second-largest private employer after Walmart Inc.

A spokesperson for London-based trade union GMB said it was aware of the job cuts, but that its members will not be affected by the plans.

Members belonging to the union who work at the Amazon warehouse in Coventry, central England, are planning to stage a walkout on Jan. 25 over a pay row with the e-commerce giant.

Laurent Degoussee of the SUD union in France also said the plans would not affect the company's Amazon Logistique France unit.

Douglas Harper, a spokesperson for Spain's largest trade union CCOO, criticized what he said was a total lack of information from the company.

"We don't know how this will affect us in Spain," Harper told Reuters. "We can assume that this is the first step preceding layoffs in the rest of operations, not just the corporate workforce, but we don't have any official data."

Jassy said in the note that annual planning "has been more difficult given the uncertain economy and that we've hired rapidly over the last several years".

Amazon has braced for likely slower growth as soaring inflation encouraged businesses and consumers to cut back spending, and its share price has halved in the past year. The company began letting staff go in November from its devices division, with a source telling Reuters at the time it was targeting around 10,000 cuts.

The reversal of Amazon's fortunes has been stark. It changed from a business deemed essential during the pandemic for delivering goods to locked-down homes, to a company that overbuilt for demand.

Jassy's note followed a report in the Wall Street Journal that the reduction would be more than 17,000 jobs. He said Amazon chose to disclose the news before informing affected staff because of a leak.

Amazon still must file certain legal notices about mass layoffs, and it plans to pay severance.

Jassy said: "Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so."