Tech companies hold back as slowdown looms
Tech giants that have often navigated above the turbulent economy cannot escape the pain of the current downturn, as this week’s earnings reports from leading companies in the sector illustrated.
why is it important: Even though other industries have struggled during the pandemic, the technology has thrived because much of the economy has moved online. Now they are preparing to take a direct hit.
Driving the news:
- Google, Snap, Twitter and Facebook’s parent company Meta have all warned in various ways of a sharper-than-expected slowdown in online advertising.
- PC chip giant Intel released disappointing numbers on Thursday, though its problems are exacerbated by its own execution issues beyond a slowdown in PC sales.
- Amazon, which also reported results on Thursday, saw sales growth flatten, with online sales actually down year-on-year.
Apple, meanwhile, fared a bit better in the results released yesterday.
- The company, which in April had forecast component shortages and production issues to cut quarterly revenue by $4 billion to $8 billion, saw a somewhat lighter impact and iPhone sales remained strong.
Yes, but: Even Apple has taken a few hits from the broader economic downturn, including an impact on wearables and services revenue.
- Apple said it sees growth in its services business continuing to slow, although it expects the company’s overall revenue to grow faster in the current quarter.
The big picture: Tech companies are holding back, especially when it comes to hiring. Just a few months ago, their biggest challenge was finding enough qualified people to fill vacancies.
- While most major companies halted before a full hiring freeze, nearly all said they expected slower workforce growth.
- Even Apple plans to slow down its hiring pace. CEO Tim Cook told analysts Apple would continue to hire in key areas, but noted, “We’re more deliberate in doing so.”
- Many startups, meanwhile, are considering or implementing layoffs in anticipation of a funding drought.
Between the lines: Businesses face a long list of challenges, from persistent supply chain bottlenecks to inflation to currency costs.
be smart: Simply planning for a possible economic downturn can trigger the downturn.
- As companies cut their own advertising budgets and try to do more with less, the rest of the economy is feeling the effects.
Our thought bubble: No one is happy in this kind of business climate, but markets seem relieved that most tech giants have avoided big negative surprises.
- Additionally, downturns tend to be good for large companies in the long run, as they are able to use their huge cash reserves to continue investing in new products and growth while others struggle. for their life.
- Generally, these are also good times to make acquisitions, although this may prove more difficult for large tech companies under increased antitrust scrutiny.