Are layoffs at Twitter and Alphabet a sign of a bursting bubble?
Twitter on Thursday became the latest major tech company to face a wave of layoff announcements as a sector that for years had been considered a safe haven for employment continues to spit out workers.
Though the company managed to beat earnings estimates and posted an 8 percent annual jump in revenue during July, August and September, its net profits ultimately sagged over the year. In a note to shareholders accompanying the financial data, Twitter confirmed rumors that it would undergo a "restructuring and reduction" effort that could slash up to 9 percent of its payroll. The company currently employs more than 3,800 workers.
The layoffs will focus "primarily on reorganizing our sales, partnerships and marketing efforts," and the restructuring effort as a whole is expected to cost between $10 million and $20 million. It's unclear exactly how many engineers and tech folks will be in the crosshairs, but it's clear that Twitter's advertising unit will see at least some of its employees axed.
But Twitter's layoffs are hardly an isolated incident. Just this week, Alphabet announced its Google Fiber project would "pause [its] operations" and that the company would be "reducing [its] employee base." More than 100 employees are expected to be let go. Senior Vice President Craig Barratt, who headed the division responsible for the Fiber project, also announced he'd be stepping down to an advisory role.
Earlier this month, HP Inc. announced plans to slash between 3,000 and 4,000 workers from its payroll over the course of the next three years. Cisco in August announced it would cut more than 5,500 positions. Microsoft in July said in an earnings filing that it would eliminate 2,850 positions after announcing plans to drop a separate 1,850 workers in May. Intel in April said it would get rid of 12,000 workers. Dell reported in December that it had cut 10,000 jobs in its most recent fiscal year.
All told, outsourcing and consulting company Challenger, Gray & Christmas in September estimated the "computer industry" had announced plans to slash nearly 60,000 positions over the course of the year – which is second in layoffs only to the energy industry.
Such companies have announced plans to hire less than 30,000 new employees so far this year. And separate data from employment hub Indeed shows that job postings for positions that included references to "technology" were down roughly 5 percent over the year.
To be fair, computer industry layoffs from January to September were up only 1.4 percent over the year, and the number of hiring plans recorded by Challenger, Gray & Christmas were still second only to the retail and transportation industries – showing steady demand for computer industry workers.
But it's hard to ignore tens of thousands of layoffs in a sector that weathered the Great Recession relatively well and had been considered a safe bet for employment. Unemployment in computer and mathematical occupations has ticked up slightly to 3 percent over the year from 2.8 percent in September 2015, according to the Bureau of Labor Statistics. And high-profile investors and business executives like Mark Cuban and Donald Trump have in recent months floated the idea that America's tech industry is currently in a bubble.
Meanwhile, Trip Chowdhry, managing director of equity research at Global Equities Research, predicted in a research note earlier this year that the sky would fall on the tech industry in 2016 and that major companies would slash 330,000 positions. He has since revised that estimate to nearly 370,000.
"When you see the large companies laying off, that is an indication that the customer base is struggling," Chowdhry said earlier this month, according to the Institute of Electrical and Electronics Engineers. "The only thing protecting them now is that they have funding that takes them to the end of this year or the middle of next year, but by March or April it's going to get very bloody."
But Trump and Cuban have been lambasted by those in Silicon Valley for their predictions, and Chowdhry infamously predicted in 2014 that Apple would "disappear" and "become a zombie" if the company continued to delay its smartwatch launch. The Apple Watch ended up launching more than a year later, and the company is still going strong.
It's also worth noting that, outside of a few companies like Twitter and Dell, tech outfits like Apple and Alphabet aren't exactly having a hard time turning a profit. Chasing earnings is a motivation for some of these layoffs, but Challenger's September report notes that nearly 154,000 job cut announcements this year have been motivated by the desire to restructure. That was far and away the most common reason employers gave for shedding payrolls.
Alphabet's recently announced layoffs are believed to be limited to the Google Fiber project, and even Twitter's latest discharges appear to be motivated by a desire to streamline its sales and marketing efforts.
It's also not terribly unusual to see layoffs in any industry toward the end of the year as companies look to where they can cut costs to improve over the next 12 months.
"It is not unusual to see a decreased job-cut activity in the third quarter, as many employers postpone major workforce decisions during the summer months," John Challenger, the company's CEO, said in a statement accompanying the report. "We could see a resurgence in cuts to close out the year."
And even in Silicon Valley and California's Bay Area – widely considered to be the heart of the American tech industry – recent layoffs aren't nearly at levels that would typically sound alarm. According to mandatory plant closing and mass layoff filings compiled by California's Employment Development Department, 4,180 employees in Silicon Valley and the Bay Area received a notice of layoff in July, August and September. That's compared to nearly 4,500 such notices that were filed over the same period last year.
Meanwhile, initial unemployment claims in the California counties of Alameda, Santa Clara, San Mateo and San Francisco clocked in at 152,730 between January and August this year – down from more than 159,000 over the same window in 2015.
All told, even if there's shakeup at the company level, there's a general consensus among labor market experts that tech workers won't have a difficult time finding another job after a potential layoff. Employment in the data processing, hosting and related services industry – which includes professions like computer programmers, support specialists, systems analysts and software developers – in September hit its highest level since 2002, according to the Bureau of Labor Statistics. Such employees' average hourly earnings were up more than 4.3 percent over the year in August, compared to just a 2.4 percent gain among all private sector employees.
And even though computer and mathematical workers have seen their unemployment rate tick up slightly over the year, 3 percent is still well below the 5 percent unemployment rate seen nationally.
"It's a candidate market right now, especially within the tech industry," says Ross Dzurko, senior manager of sourcing operations at Seven Step RPO. "Candidates with a tech background will have the upper hand when seeking new opportunities at this point, layoff or not."
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