Companies adapting for the AI revolution
“These companies, in general, are downsizing the number of employees associated with unsuccessful product lines or divisions to reposition themselves for AI,” said Art Zeile, CEO of DHI group, which owns the tech recruiting platform Dice. Zeile emphasized that this January’s job cuts are significantly lower than those of the previous year, indicating that it is not as alarming as before. While company executives use various terminologies to convey their downsizing message to employees and investors, the underlying theme remains the same – they are striving for greater focus.
Microsoft Gaming CEO Phil Spencer stated that their layoffs were part of a larger “execution plan” aimed at minimizing “areas of overlap.” These actions took place just over three months after Microsoft’s acquisition of Activision Blizzard. SAP expressed that their restructuring efforts are intended to enhance their “focus on key strategic growth areas, particularly Business AI.”
Alphabet CEO Sundar Pichai informed employees in a memo titled “2024 priorities and the year ahead” that the company has ambitious goals and will be investing in its major priorities this year. He acknowledged that “tough choices” must be made to create the necessary capacity for these investments. Similarly, Bob Carrigan, CEO of Amazon’s Audible unit, stressed the need for the company to become leaner and more efficient in order to thrive in the foreseeable future.
Nigel Vaz, CEO of consulting firm Publicis Sapient, highlighted how some companies are likely taking cues from the successes that Meta and Salesforce achieved through substantial cost-cutting measures last year. Salesforce downsized its workforce by about 10% in January 2023, resulting in its stock nearly doubling for the year its best performance since 2009. Following Meta’s announcement of cuts, the company’s shares experienced their most successful year since Facebook’s debut on the Nasdaq in 2012. Vaz commented, “I view Meta and Salesforce as just two examples of companies that needed a catalyst, and as soon as they had that catalyst, they demonstrated what happens when you act decisively on things you probably knew needed to be done.”
Paramount, a prominent media brand, recently announced its own job cuts, with CEO Bob Bakish stating that the company needs to operate more leanly and reduce expenses. Job cuts are not exclusive to the tech sector, as a range of companies – both big and small, spanning consumer and enterprise markets – are eliminating positions. Large publicly traded companies are particularly focused on profitability, margins, and cost reduction, according to Tim Herbert, Chief Research Officer at CompTIA, a tech sector trends tracking organization.
However, Herbert noted that there is a vast base of small and mid-sized tech companies across the United States, and in some cases, contractors, freelancers, and overseas workers are bearing the brunt of these cuts. Nevertheless, he, like Zeile, advised against overinterpreting the January activity due to the complexity and subtleties of the data. “We need to exercise caution and not place excessive emphasis on just one or two months of data,” Herbert cautioned.
While investors await the tech earnings announcements next week, which will provide a clearer picture of the near-term outlook for business and consumer spending, recent macroeconomic reports offer some grounds for optimism. The Commerce Department’s report on Thursday revealed that the economy grew faster than anticipated in the fourth quarter, while inflation decreased during the same period. Gross domestic product (GDP) increased at an annualized rate of 3.3% in the quarter, surpassing the Wall Street consensus estimate of 2%. Meanwhile, consumer prices rose 2.7% on an annual basis, a decline from the 5.9% rise recorded a year ago. Investors have viewed these positive numbers as potentially leading to Federal Reserve rate cuts in 2024, following the central bank’s 11 rate hikes over the past two years to combat inflation.
Nigel Vaz expressed the optimism shared by many corporate leaders, who foresee a meaningful reduction in inflation concurrent with a resurgence in spending across numerous sectors.