Many tech groups have begun a cure of austerity in anticipation of a recession.
For many months now, tech companies have been preparing for the economic downturn to worsen.
The CEOs of various tech flagships have thus warned against what Facebook’s Chief Executive Mark Zuckerberg called the “one of the worst downturns that we’ve seen in recent history.”
They took drastic cost-cutting measures. For the first time since its creation in 2004, Facebook, now known as Meta Platforms (META) – Get Meta Platforms Inc. Report, will downsize.
“I had hoped the economy would have more clearly stabilized by now,” Zuckerberg told employees on September 29 . “But from what we’re seeing, it doesn’t yet seem like it has, so we want to plan somewhat conservatively.”
The boss added that Meta will be “somewhat smaller” by the end of 2023.
Big Tech Cut Costs
Alphabet (GOOGL) – Get Alphabet Inc. Report, Google’s parent company, is slowing down hiring. It has also cut several employee perks, travel and entertainment budgets.
Amazon (AMZN) – Get Amazon.com Inc. Report froze corporate hiring in its retail division which includes online and physical stores, its marketplace for third-party sellers and Amazon Prime, its subscription service, and withdrew more than 10,000 job offers.
The e-commerce giant founded by Jeff Bezos, and now led by CEO Andy Jassy, has decided to end various projects as we previously reported. Two robotics projects – Canvas and Orca – have been terminated.
Amazon is also ending Aqua (Advanced Query Accelerator), a service linked to its AWS cloud computing division. The firm has shut down Amazon Explore, a platform which allowed everyone to enjoy virtual experiences from the comfort of their home.
The cancellation of these projects, which is part of a vast cost reduction plan, should result in job cuts.
“Yep, the probabilities in this economy tell you to batten down the hatches,” Bezos warned on October 18.
In other words, he says people must prepare for a crisis that seems on the horizon.
Tesla Plows Ahead
Microsoft (MSFT) – Get Microsoft Corporation Report has once again cut jobs: “Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly. We will continue to invest in our business and hire in key growth areas in the year ahead,” a spokesperson told TheStreet.
All of these companies fear that the Federal Reserve’s (Fed) aggressive hike in interest rates to fight inflation, which is at its highest in 40 years, will cause a so-called hard landing for the economy aka a recession.
Many top economists, like Harvard’s Larry Summers, say the economy is likely to enter a recession this year or next.
Jamie Dimon, the CEO of JPMorgan Chase, warned on October 10 that the U.S. economy would likely enter “in some kind of recession six to nine months from now.”
The economy shrank 1.6% in the first quarter of 2022 and 0.6% in the second.
Tesla doesn’t seem preoccupied with any fears. The group will continue to plow ahead, its CEO Elon Musk said on October 19.
“To be frank, we’re very pedal to the metal come rain or shine,” the billionaire told analysts during the company’s third quarter earnings’ call. “So, we are not reducing our production in any meaningful way, recession or not recession.”
The serial entrepreneur estimates that electric vehicles currently represent only 1% of the global car fleet. And that there is no reason to slow down their production, when consumer interest has never been so strong. The same consumers are further affected by the current energy crisis.
“I think the public, at large, realizes that the world is moving toward electric vehicles and that it’s foolish to actually buy a new gasoline car at this point because the residual value of that gasoline car is going to be very low,” Musk explained.
“So, I think we have to be in a very good spot. But I wouldn’t say it’s recession proof, but it’s certainly risk — recession resilient because basically, it has — people both have large part made the decision to move away from gasoline cars to electric cars.”
‘Real Opportunity’
The Chief Financial Officer Zachary Kirkhorn adopted the same optimistic and reassuring tone.
“I think where our cash balance is, what our forecasted cash generation is, where our margins are as a company, I mean, we can withstand quite a lot of downside before we would have to dig into our capital plans, Supercharger expansion, product lineup,” Kirkhorn said.
He said the business “has done quite well over the last handful of quarters.”
He sees the current environment as “a real opportunity.”
“I think, for the company to press forward, I mean, most aggressively, as Elon has mentioned.”
“Let’s say, 2023 is a brutal recession year. Even then, we generate meaningful cash,” Musk added.
