Alphabet cuts 12,000 jobs after pandemic hiring spree, refocuses on AI

Jan 20 (Reuters) – Google parent Alphabet Inc ( GOOGL.O ) is cutting about 12,000 jobs as it faces “a different economic reality”, a staff memo said, doubling down on artificial intelligence (AI) and laying off staff which supports experimental projects.

The layoffs affect 6% of the workforce and follow thousands of layoffs at tech giants including Amazon.com Inc ( AMZN.O ), Microsoft Corp ( MSFT.O ) and Meta Platforms Inc ( META.O ) which are downsizing after a pandemic-led hiring spree made them slack in a weak economy.

Shares in Mountain View, Calif.-based Alphabet, which is growing its workforce by nearly a third through 2020 and 2021, rose 4% on Friday. They had fallen 30% over the past 12 months, mirroring a 24% decline in the broader technology industry (.IXIC).

Sundar Pichai, Alphabet’s chief executive since 2019, said in the memo Friday that he took “full responsibility” for the decisions that led to the layoffs.

Pichai, whose pay was recently tied more closely to performance, said this was a moment to “sharpen our focus, reconstruct our cost base and direct talent and capital to our highest priorities,” as Alphabet looked to imbue its products with more AI. which echoes comments from Microsoft announcing cutbacks on Wednesday.

Alphabet, long a leader in AI, is facing competition from Microsoft, which is reportedly looking to increase its stake in ChatGPT – a promising chatbot that answers questions with human-like answers.

Advertising dollars, Alphabet’s main source of revenue, meanwhile, are feeling the pressure from companies cutting budgets as consumers pull back on spending.

“It’s clear that Alphabet is not immune to the tough economic backdrop, with concerns about a US recession rising,” said Susannah Streeter, analyst at Hargreaves Lansdown.

“Ad growth has come off the boil … Competition is also heating up, with Alphabet facing a powerful rival in TikTok and Instagram also fighting for its important YouTube viewers,” Streeter said, noting that Alphabet has also raised billions in regulations fines.

Evercore ISIS analyst Mark Mahaney said Alphabet’s record headcount had created major margin risk into fiscal 2023, and Bernstein analyst Mark Shmulik said the job cuts could save Alphabet $2.5 billion to $3 billion in costs.

BIG JOB CUTTER

With Alphabet’s downsizing, layoffs at four of the largest U.S. technology companies have totaled 51,000 jobs in recent months. They have raised fears of a recession even as the US labor market remains tight.

“The technology sector is a bit like the proverbial canary in the coal mine,” said Stuart Cole, an economist at Equiti Capital, who believes the tech layoffs signal that the outlook for job security is finally turning more negative.

Apple ( AAPL.O ), which has been hiring more cautiously throughout the pandemic, has held off on cuts so far. However, on Friday, the website AppleInsider reported, citing sources, that the iPhone maker had begun laying off non-seasonal employees in its retail channel at places such as Best Buy ( BBY.N ) stores.

Apple was not immediately available for comment on the report.

‘A LITTLE COMFORT’

Alphabet has been working on a major AI launch, two people familiar with the matter told Reuters. One of the sources said it would take place in the spring. The New York Times also reported that Google planned to unveil more than 20 new products and a search engine including chatbot capabilities.

Among those losing their jobs are recruiters, corporate employees and people who work on engineering and product teams, Pichai said. Google has cut most jobs at Area 120, its internal incubator for new projects, a company spokesperson told Reuters.

The Alphabet Workers Union said in a statement that the company’s management taking “full responsibility” was of “little consolation”.

“It is appalling that our jobs are on the chopping block so that shareholders may see a few more points in a chart next quarter,” the union said.

In the US, where Alphabet has already emailed affected employees, employees will receive severance pay and six months of health care as well as immigration support.

Abroad, layoff notices will take longer due to local labor laws and practices, Pichai said in the note. Employees in Asia will learn from February if the reduction affects them.

Reporting by Jeffrey Dastin in Davos, Switzerland, Akash Sriram, Deep Vakil, Chavi Mehta, Tiyashi Dutta, Nivedita Balu and Yuvraj Malik in Bengaluru; Editing by Elaine Hardcastle, Alexander Smith, Nick Zieminski, Sayantani Ghosh

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