On July 18, it was reported that Apple plans to slow hiring plans and budget spending for some of its divisions in 2023 in response to a potential global recession. Shares of Apple and some other US technology stocks plunged on the news.
Microsoft has just announced that some jobs will be eliminated as part of a "corporate strategy change," Oracle is considering a $1 billion cost-cutting plan that will include thousands of job cuts, And Twitter is shedding a third of its recruiting team and cancelling a back-office contract at its Silicon Valley headquarters. Alphabet, Amazon, Snap and others have all announced some measures to rein in budgets in the past few weeks, including reducing hiring, while Microsoft, Tesla and Meta have already taken job cuts.
The spread of layoffs from LOss-making US tech startups to giant tech companies with solid profits illustrates the challenges facing US tech companies in multiple cycles. First, the Nasdaq index, a proxy for trends in technology stocks, rose from 1577 in 2009 to 16,212 at the end of last year. While that more than 10-fold gain was underpinned by earnings, it was largely driven by excess liquidity unleashed by multiple rounds of quantitative easing after the subprime crisis, and the market was willing to give them higher valuations. Now, capital is going from "free" to "expensive," as the Fed enters a rapid rate hike cycle that will lead to a massive exodus of capital from already frothy tech stocks.
Second, America's economy currently in serious trouble, if after the subprime crisis and the United States out of quantitative easing fluctuations caused by the two can use monetary policy to solve, the United States in response to the outbreak of infinite intense inflation easing and combination, are driving the fed raising interest rates, radical stagflation may be produced or the risk of a hard landing. Unlike previous v-shaped recoveries, which could be stimulated by monetary easing, this time the US is facing the consequences of long-term easing, which is difficult to be fixed by monetary policy in the short term. Instead, there will be a long-term structural downturn. Therefore, the macroeconomic cycle of certainty facing tech companies is over.
Third, Internet-based American technology companies have generally entered the bottleneck period of innovation and development. Whether in terms of global market penetration, business depth, and technological innovation, American technology companies have long reached a plateau. Working from home during the global pandemic has created a huge business boost for the Internet sector, driving stock prices up sharply. As the US enters the post-COVID-19 era, normal social production activities resume and telecommuting demand decreases, while liquidity tightening and cycle changes are also taking place. As a result, the NASDAQ index has dropped about 27% this year.
American technology companies have had to change their growth models in response to fundamental changes in the economic environment. For too long, these tech companies have had easy access to financing and made huge profits, leading them to become accustomed to spending whatever the cost to gain dominance in certain areas. In particular, some large companies will invest in technology in a variety of areas to find new sources of growth. These diversified investments may be supported when the parent company is growing rapidly, but if profits slow down, these loss-making businesses will become a huge burden. As a result, loss-making companies are resorting to cost-saving measures to survive. Large, profitable companies also need to cut costs to offset profit pressures from slowing revenues and deal with uncertainty about the future.
Some companies in China's Internet industry have followed a similar pattern to Silicon Valley companies, investing heavily and diversifying their businesses. As early as 2016, the industry began to realize that the Internet has entered the second half, the main business growth space is getting smaller and smaller, they continue to explore new models and businesses. However, the slowdown in the growth of Internet advertising business due to the epidemic makes it difficult to support the investment and expansion of money burning, so it is an option for these companies to cut those unprofitable and unsustainable departments.
Although China and the United States have different monetary policies and domestic economic environments, Internet companies in the two countries face similar industrial cycles and are constrained and influenced by capital to some extent. As a result, some companies begin to save costs and shrink business in various ways.