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

2/2 © Reuters. Small figurines are seen in front of displayed Alphabet logo in this illustration taken February 11, 2022. REUTERS/Dado Ruvic/Ilustration 2/2

By Jeffrey Dastin

(Reuters) - Google's parent Alphabet (NASDAQ:GOOGL) Inc is cutting about 12,000 jobs as it faces "a different economic reality", it said in a staff memo, doubling down on artificial intelligence (AI) and axing staff who support experimental projects.

The job cuts affect 6% of its workforce, and follows thousands of layoffs at tech giants including Amazon.com Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and Meta Platforms Inc (NASDAQ:META) who are downsizing after a pandemic-led hiring spree left them flabby in a weak economy.

Shares in Mountain View, California-based Alphabet, which boosted its workforce by nearly a third through 2020 and 2021, rose 4% on Friday. They had fallen 30% in the past 12 months, echoing a 24% slump in the broader tech industry.

Sundar Pichai, Alphabet's boss since 2019, said in the memo on 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, reengineer our cost base and direct our talent and capital to our highest priorities," as Alphabet looked to get imbue its products with more AI, echoing comments from Microsoft that announced job cuts on Wednesday.

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

Advertising dollars, Alphabet's mainstay revenue source, meanwhile, is feeling the squeeze from businesses chopping budgets as consumers pull back spending.

"It is clear that Alphabet is not immune from the tough economic backdrop, with worries about a U.S. recession growing," said Susannah Streeter, an 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 vying for its important YouTube viewers," Streeter said, noting that Alphabet has also racked up billions in regulatory fines.

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

Graphic 1: Big Tech leads layoffs Big Tech leads layoffs, https://www.reuters.com/graphics/ALPHABET-LAYOFFS/zgpobrlqgvd/chart.png

BIG JOB CUTS

With Alphabet's staff cuts, layoffs at four of the biggest U.S. tech companies total 51,000 jobs in the past few months. They have fanned fears of a recession even as the U.S. job market remains tight.

"The tech sector is bit like the proverbial canary in the coal mine," said Stuart Cole, an economist at Equiti Capital, who believes the tech layoffs portend that the outlook for job security is finally beginning to turn more negative.

Apple (NASDAQ:AAPL), which hired more prudently through the pandemic, has held off on cuts so far. On Friday, though, website AppleInsider reported citing sources that the iPhone maker had started to lay off non-seasonal employees in its retail channel in places such as Best Buy stores.

Apple was not immediately available for a comment on the report.

Graphic 2: U.S. tech companies cut thousands of jobs, https://www.reuters.com/graphics/USA-TECH/USA-TECH/zjpqjegnevx/graphic.jpg

'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 features.

Among those losing their jobs are recruiters, corporate staff and people working on engineering and product teams, Pichai said. Google has cut most jobs at Area 120, its in-house incubator for new projects, a company spokesperson told Reuters.

The Alphabet Workers Union said in a statement that the company's leadership taking "full responsibility" was "little comfort."

"It's appalling that our jobs are first on the chopping block so shareholders can see a few more points in a chart next quarter," the union said.

In the United States, where Alphabet has already emailed affected employees, staff would receive severance and six months of healthcare as well as immigration support.

Overseas, layoff notifications will take longer due to local employment laws and practices, Pichai said in the memo. Employees in Asia will learn starting in February if the reduction impacts them.