Tech giants like Apple, IBM, Cisco, Dell, and Intel were among the 48 companies that announced a whopping 26,024 job cuts. Over 400 tech companies have made similar announcements, affecting more than 130,000 workers so far in 2024, with January having the highest count of job cuts at 34,107.
The layoffs peaked in August, the highest monthly total since January. This trend reflects a broader shift as tech companies seek to become more efficient in an evolving market.
Changing Tides
The tech sector really took off during the COVID-19 pandemic, with companies hiring aggressively to keep up with the surge in demand for digital products and services. But now, the tides are changing.
Industry leaders are tightening their budgets to focus on AI initiatives. A recent report from AlixPartners points out that tech companies across North America, Europe, the Middle East, and Africa have been cutting back on their workforce over the last year.
But these big investments come with some trade-offs. To fund their AI push, tech firms are pulling back on other strategic projects, especially as they deal with high interest rates and a slowing market.
For companies that laid off more than 5% of their staff this year, the main reasons were rising operational costs and the need to "right-size" after all that pandemic-era hiring. This trend isn’t going anywhere soon; about a quarter of tech executives in North America expect layoffs in the coming year, and 37% are unsure about potential cuts, indicating that companies are being careful as they steer these changes.
Recently, Apple made waves by cutting around 100 jobs in its digital services group, signaling a shift in focus for that division. Some engineering roles were impacted, particularly in the teams behind the Apple Books app and the Apple Bookstore. Cisco also announced layoffs last month, affecting 7% of its global workforce to redirect resources toward key growth areas like AI and improve operational efficiency.
AI Distorting Traditional Markets
The private market is buzzing with high-value AI startups, some of which are even being called generational companies. But here’s the catch, venture firms looking for exits are going to be in for a wait when it comes to AI.
Unlike past tech booms, venture capitalists (VC) aren't leading the charge this time around. Instead, big players like Microsoft, Amazon, Alphabet, and Nvidia are pouring billions into capital-heavy companies like OpenAI, Anthropic, Scale AI, and CoreWeave. These well-funded giants are driving the generative AI trend, which means the usual pressure to go public just isn’t there for these startups. And even if there were, many of them don’t have the profitability metrics to draw in public investors.
These tech giants are sweetening the deal with perks like cloud credits and business partnerships—things that VCs just can’t compete with. This has really shaken up the market, leaving venture investors trying to find their way through some murky waters.
According to a PitchBook report from August 29, the projected exit value for U.S. VCs this year is set to hit $98 billion, which is a whopping 86% drop from 2021, and venture-backed IPOs are on track to be the lowest since 2016.
Looking ahead to 2024, investors have already put $26.8 billion into 498 generative AI deals, keeping up the momentum from 2023 when generative AI companies raised $25.9 billion—an impressive 200% increase from 2022. Forge Global data shows that AI’s share of total fundraising jumped from 12% in 2023 to 27% this year. The average funding round for AI companies is 140% larger compared to last year, while non-AI companies saw only a 10% bump.
Recent Crunchbase data reveals that just in the first half of 2024, over $35.5 billion was invested in AI startups worldwide. Five of six venture rounds exceeding $1 billion in that same timeframe went to AI companies. Since June, another 10 mega-deals have raised over $3 billion, with $1 billion of that going to a new venture started by OpenAI’s co-founder, Ilya Sutskever.
Reasons Behind the Tech Layoff Surge
A mix of factors has sparked the current wave of layoffs in the tech industry, creating quite a perfect storm:
Pivots to AI
AI is shaking up the tech world, bringing both opportunities and challenges. While AI can create new jobs and boost productivity, it also threatens those who don’t adapt. A recent example is IBM cutting 3,900 jobs in marketing because of roles that could be taken over by AI. Companies are now rethinking their workforce strategies in light of this shift.
Inflation and Higher Interest Rates
The US Federal Reserve has been raising interest rates aggressively to tackle inflation, which is now at its highest in 40 years. While these moves are helping to bring inflation down, they’ve also made borrowing money a lot more expensive. This has forced companies, especially in tech, to pull back on growth investments and hiring as they redirect funds to cover their debt. Many tech firms that borrowed heavily during a decade of low rates are now feeling the pinch, leading to serious cost cuts and layoffs.
Pandemic Over-Staffing
During the pandemic, many tech companies went on a hiring spree, believing the surge in digital demand would last. After facing challenges like the Great Resignation and Quiet Quitting, they rushed to fill positions, offering amazing perks and flexible work options. Firms like Meta nearly doubled their staff, only to realize they were overstaffed as things returned to normal. Now, they’re trying to correct that with layoffs.
Offshore Competitors
The Great Resignation and Quiet Quitting may have weakened the American workforce's position, especially with all the office return drama. In response, companies are looking to hire talent from places like Latin America, Eastern Europe, the Middle East, Africa, and Southeast Asia, where they can find highly educated workers at a lower cost. The competition isn't just from AI; it's also from a global workforce that's ready to work hard and adapt without the same complexities.
Economic Downturn and Recession Fears
The U.S. economy is still on shaky ground, especially with a presidential election on the horizon. Concerns about government debt, geopolitical tensions, and the pandemic's lingering effects are making companies more cautious. In tech, where profitability per employee is key, layoffs are a necessary step to save costs as firms brace for uncertainty.
What’s in it for the Future?
These ongoing layoffs highlight a growing trend in tech: the push for efficiency and a shift in resources toward AI initiatives. While this shift could lead to exciting innovations, it also raises questions about the future of the tech workforce as companies adjust their priorities. Do you think companies will keep pouring money into AI while sidelining human workers?
Comments