Tech giants are set to report quarterly earnings, starting on Tuesday with Alphabet and Microsoft. Wall Street is expecting good news, including more progress on artificial intelligence.
But the industry has also relied on another strategy to improve financials: layoffs. The cuts aren’t as widespread as last year, when hundreds of thousands of jobs were eliminated. But they’re a reminder that the tech sector is still trying to find its footing after a boom in hiring during the coronavirus pandemic and finding ways to preserve dizzying stock gains.
About 100 companies have cut 25,000 positions this year, according to Layoffs.fyi. By comparison, more than 1,000 companies eliminated about 260,000 last year.
So far this month: Microsoft announced 1,900 cuts in its video game division, including at its recently acquired Activision Blizzard; Google laid off hundreds of employees, including in its engineering ranks and its hardware division; and Amazon said it was laying off hundreds, including 35 percent of the work force at its Twitch unit.
Not all layoffs are the same, The Times notes:
For big tech companies, job cuts have been a way to reduce spending on noncore operations and extract the kind of cost savings that Wall Street loves. Now, those cuts are more targeted: In the case of Meta, that means reducing the number of middle managers at Instagram.
For smaller tech businesses, it’s more a matter of survival. Start-ups have been finding it harder to raise capital as risk-averse venture capitalists keep their wallets closed. In the words of Nabeel Hyatt, a general partner at Spark Capital, these fledgling companies “are just trying to gain runway to survive.”
The cuts will probably continue so long as investors love them. Wall Street has rewarded tech companies that laid off thousands with higher stock prices. Meta’s shares have soared since it embarked on a self-described “year of efficiency” last year that has made it a third slimmer employee-wise. Those cost savings, coupled with a redoubled bet on A.I., has helped push the tech giant’s market value to over $1 trillion.
And venture capitalists have told DealBook that they’re ready to invest in start-ups — but that it helps if those companies have made themselves leaner. That, the investors say, will enable them to operate better in potentially difficult times.
In other layoff news: Some tech workers are filming their layoffs and posting them on social media, in the name of catharsis and transparency.
HERE’S WHAT’S HAPPENING
Boeing withdraws efforts to expedite safety approval for a version of its 737 Max jet. The aircraft manufacturer revoked an application it made last year seeking an exemption from a safety standard for a version of its 737 Max 7. Separately, Boeing received some good news amid its latest crisis: The European airline Ryanair, one of its biggest customers, said it would buy more planes if U.S. carriers dropped their orders.
Amazon scraps its deal to buy the maker of Roomba vacuums. The move to abandon the $1.7 billion acquisition of iRobot came days after F.T.C. officials told Amazon’s lawyers that the agency was likely to sue to block the transaction. In November, European antitrust authorities warned that they were also weighing opposing the acquisition.
Elon Musk said Neuralink had implanted its first device into a human brain. Musk said the product, Telepathy, would allow a person to control a phone or computer “just by thinking” and initially be for “those who have lost the use of their limbs.” He said that initial results were encouraging.
Reed Hastings donates $1.1 billion in Netflix shares to charity. The streaming giant’s co-founder gave about 40 percent of his stake to the Silicon Valley Community Foundation, a California-based nonprofit group popular with tech founders. The group offers donor-advised funds, a philanthropic vehicle that can give benefactors both privacy and significant tax breaks.
Wall Street awaits JetBlue’s exit plan
JetBlue just reported earnings, forecasting higher costs and flat sales. But there’s a bigger issue looming over the airline: what its plans are for its $3.8 billion deal to buy Spirit Airlines.
A federal judge blocked the agreement, meant to create one of the nation’s biggest carriers, two weeks ago. Now JetBlue has said that it may try to back out, potentially setting up the kind of messy deal divorce drama that rivets investors.
Wall Street thinks JetBlue is better off without Spirit. The blocking of the deal meant that JetBlue had “dodged a bullet,” according to analysts at JPMorgan Chase. Spirit has struggled with weak performance and an onerous debt load.
Shares in JetBlue are up double digits since the judge’s decision, as investors hope that the airline can focus on its own business at a trying time for its industry.
But getting out may not be easy. The deal has a “drop-dead” date of July, until which JetBlue must use its best-faith efforts to close the transaction, including appealing the judge’s ruling.
That’s unless Spirit breaches the contract, an argument for which JetBlue appears to be laying the groundwork: In a regulatory filing on Friday, the bigger airline said that Spirit hadn’t met “certain conditions to closing” required by the deal. It isn’t clear what terms Spirit has potentially violated (or if JetBlue is simply trying to apply pressure to negotiate an exit). For its part, Spirit says it believes that “there is no basis for terminating” the deal.
Delays will be costly. To beat Frontier Airlines in a bidding war for Spirit, JetBlue offered to include a $470 million breakup payment that includes a 10-cent-per-share monthly ticking fee that it has paid since January 2023.
“It’s paying large fees every second that this thing drags on,” Ann Lipton, a professor of corporate governance at Tulane University, told DealBook. “The advantage of terminating now is it can stop paying those ticking fees.”
All eyes are back on the Fed
The Fed is holding its latest two-day meeting, and it is expected to keep interest rates unchanged. But investors will be looking for clues from Jay Powell, the Fed chair, at his news conference on Wednesday about when the central bank may start cutting.
The strong economy is complicating the Fed’s decision. Growth is chugging along even though rates are at their highest level in more than two decades. Investors put the odds of a cut after the Fed meets in March at about 50-50, although many economists say late spring or early summer is more likely.
One worry: cutting rates could stoke inflation, which has come down but not yet hit the Fed’s 2 percent target. “Overall, we view this meeting as one where the committee will buy time to discern if inflation is indeed on a sustainable path back to 2 percent,” economists at Wells Fargo wrote in a research note.
Inflation-adjusted rates are weighing on the Fed’s thinking, writes The Times’s Jeanna Smialek. Many experts think that this is what really matters to the economy, especially as investors and lenders take into account the future purchasing power of the interest that they will earn when making decisions.
The Fed is expected to proceed carefully. Last month, Powell signaled that three cuts were on the cards in 2024, before officials walked back the comments. If a March move is likely, many observers expect that he will deliver a strong hint.
But officials don’t want to cut too early. “Premature rate cuts could unleash a surge in demand that could initiate upward pressure on prices,” Raphael Bostic, the president of the Atlanta Fed, said this month.
“The ship has sailed on full return to the office for most companies. They’re not going to go from three days a week to five days a week by making their space nicer.”
— Rob Sadow, C.E.O. of Scoop Technologies, a software company that developed an index that tracks workplace strategies, on why many employers have given up on compelling workers to be at the office five days a week.
Why markets aren’t panicking about the Middle East (yet)
President Biden is weighing how to respond after three American soldiers were killed in Jordan in what his administration said was a drone attack by an Iran-backed militia. (Iran has denied ordering it.)
Yet markets have largely shrugged off worries that turmoil in the Middle East could expand. Why?
John Authers, a Bloomberg opinion columnist, suggests that several factors are at play, including investor desensitization to bad news and a belief that there won’t be a full-on war in an election year.
Most important when it comes to assessing the Middle East, Authers writes, is oil:
Another reason for calm in Wall Street is that its traders subcontract the job of risk assessment to the oil market. If the oil price doesn’t spike, then the risk can’t be that great, so it’s safe to stay on the stocks bandwagon. …
Oil swiftly fell once trading resumed after the weekend’s news, reassuring traders in other markets that the risks weren’t severe. They are also, arguably, skewed against disaster. If Biden’s response isn’t strong enough, then the U.S. will look bad but the oil will keep flowing.
Jean Ergas, chief economist of Tigress Financial Partners in New York, points out that oil is almost a binary market, and that the biggest supertankers don’t go through the Red Sea and the Suez Canal in any case. “Either the oil is there or it isn’t. As it is, it’s dangerous, it’s risky, but it’s on its way.”
THE SPEED READ
The French carmaker Renault dropped plans to spin off its electric vehicle business, Ampere, citing poor I.P.O. market conditions. (Reuters)
In job moves: Jim Esposito, a veteran Goldman Sachs executive who is a leader of its global banking and markets division, is retiring; and Tom Nides, a longtime banker and diplomat, will join Blackstone as vice chairman. (WSJ)
A former I.R.S. contractor accused of leaking the tax documents of Donald Trump and others was sentenced to five years in prison. (NYT)
Lawmakers in Congress have threatened hearings over President Biden’s plan to pause approvals of exports of liquefied natural gas over concerns about climate and energy security. (Axios)
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