So Much For Human Capital? As Sales, Profits Grow, Tech Lays Off To Invest In AI

Tech still needs human capital, but they need a different set of skills. AI is the future both in growth and profits, so legacy skills are less valuable - in fact, considered a drag on profitability - so the big tech companies are making cuts where they can in order to bolster their future growth. 

A problem, for the moment, is that there are simply not enough people with the requisite training and experience, so some of those personnel savings are also going into more technology. But this is yet another of those tech boom and bust employment cycles. Humans still have a future. For now. JL

Tripp Mickle reports in the New York Times:

Tech layoffs continue even as sales and profits jumped and share prices spiked. That is reflective of an industry coming to terms with work force expansion during the pandemic while also making an aggressive move into building AI. Instead of hiring thousands of people every quarter, the companies are spending billions to build A.I. they believe could be worth trillions. Apple, Amazon, Meta, Microsoft and Google employ 2.16 million people, 71% more than before the pandemic. They generated $1.63 trillion in sales in their most recent fiscal years, 81% more than five years earlier. They have gained $3.5 trillion in market value.

After a year of big layoffs, job cuts at the tech industry’s largest companies trickled into the first month of 2024.

Google started the year with layoffs of several hundred employees and a promise of more cuts to come. Amazon followed by trimming hundreds of jobs in its Prime Video department. Meta quietly thinned out middle management. Microsoft also cut 1.900 jobs in its video game division.

The layoffs continued even as sales and profits jumped and share prices spiked. That disconnect, tech insiders and analysts say, is reflective of an industry facing two big challenges: coming to terms with frenetic work force expansion during the pandemic while also making an aggressive move into building artificial intelligence.

Now, instead of hiring thousands of people every quarter, the companies are spending billions to build A.I. technology that they believe could one day be worth trillions.

Mark Zuckerberg, the chief executive of Meta, said in a call with analysts last week that his company had to lay off employees and control costs “so we can invest in these long-term, ambitious visions around A.I.” He added that he had come to realize that “we operate better as a leaner company.”

From the end of 2019 to 2023, tech companies scrambled to keep up with an explosion of consumer demand, as people stuck at home splurged on new computers and spent much more time online. Apple, Amazon, Meta, Microsoft and Alphabet, Google’s parent company, added a total of more than 900,000 jobs.

When that boom ended, they were forced to adjust. Meta, Amazon, Microsoft, Google and Apple cut about 112,000 jobs from their respective peaks in 2021 and 2022. But they were still much bigger and more profitable than before the pandemic began.

Today, the five companies employ 2.16 million people, 71 percent more than they had before the pandemic. Combined, they generated $1.63 trillion in sales in their most recent fiscal years, about 81 percent more revenue than five years earlier.

Wall Street has rewarded them. Over the past year, Meta, Amazon, Microsoft, Google and Apple have gained nearly $3.5 trillion in market value.

Employment in the broader tech industry, despite notable cuts at a number of other companies, is still positioned for a rebound. In January, tech delivered its second month of job growth, adding 18,000 workers, according to CompTIA, a technology education and research organization. Its unemployment rate of 3.3 percent is below the national average of 3.7 percent.

“We go through these cycles where you see this intense focus on innovation and then the pendulum swings and there’s an intense focus on the bottom line,” said Tim Herbert, CompTIA’s chief research officer. “But when I read that Amazon is cutting back on Alexa workers or Google is cutting staff on its Pixel phone, it tells me there is a focus on margins. They’re trimming where they can and redeploying resources.”

Generative artificial intelligence has altered everyone’s business priorities. The technology, which can answer questions, create images and write code, became an overnight sensation after OpenAI’s chatbot, ChatGPT, exploded in popularity.

Tech’s biggest companies are rushing to hire engineers to build A.I. systems. Last year, there were 180,000 job postings in the United States related to A.I., including roles in software development, semiconductor engineering and cloud computing, according to CompTIA. The number of A.I. job openings has expanded this year.

Those employees are helping Microsoft, Google, Amazon and Meta improve chatbots and build other A.I. systems. Apple is hiring for A.I. engineers, as the company develops its own A.I. offering to release later this year.

“Our M.O., if you will, has always been to do work and then talk about work and not to get out in front of ourselves,” Tim Cook, the chief executive of Apple, said on a call with analysts last week. “But we’ve got some things that we’re incredibly excited about.”

The companies are spending billions of dollars on the expensive chips and supercomputers necessary to train and build A.I. systems. By the end of the year, Meta expects to have purchased 350,000 of specialized chips from the chip maker Nvidia, which cost an estimated $30,000 each.

The push into generative A.I. has coincided with cuts elsewhere. Google’s layoffs reduced the number of people working on augmented reality technology. Meta, which laid off nearly 20,000 people last year, has been cutting some of its program managers, who oversee different projects and are responsible for keeping teams on schedule.

Over two years, 2020 and 2021, Amazon doubled its work force to 1.6 million employees as it tried to keep up with a surge of e-commerce orders. The hiring included increasing the number of corporate jobs to 380,000 from 200,000. It has since cut about 30,000 corporate jobs and about 50,000 other jobs, according to a person with knowledge of the changes, and its leadership has made clear that those jobs won’t return any time soon.

“We’re looking to hold the line on head count,” Brian Olsavsky, the chief financial officer of Amazon, said during a media call last week.

After laying off more than a thousand employees in January, Google warned employees that rolling layoffs could continue through the year. The exception would be bringing aboard top engineers, Ruth Porat, chief financial officer of Alphabet, Google’s parent company, said during a call with analysts last week.

In contrast with its peers, Apple showed restraint with hiring during the pandemic. But last year, as sales of iPhones, iPads and Macs dropped, the company began to shrink its work force. For the first time in at least 15 years, it reported that its total number of employees declined, even as it avoided making major layoffs.

The 3,000 fewer jobs that Apple reported at the end of its most recent fiscal year were eliminated largely through attrition, and by encouraging some managers to give tougher annual reviews, according to three people with knowledge of the company’s strategy.

An Apple spokesman declined to comment.

Microsoft is the only tech company that didn’t report a reduction in its total number of employees. The company employed 221,000 people at the end of its 2023 fiscal year, equal to its post-pandemic peak.Investors have rewarded Microsoft’s stability. Last month, it dethroned Apple as the world’s most valuable company. Its market value is now more than $3 trillion.