Jan 18 (Reuters) – Anxious to boost margins and ease investor concerns at a time of slowing sales growth, major U.S. tech companies are set to cut staff and inflated costs over the coming months, reversing the excesses of the pandemic era, analysts said.
However, each of the five largest U.S. tech companies is expected to report declining earnings for the October-December period as they attempt to recalibrate in a high interest rate environment. Meta Platforms Inc (META.O), owner of Facebook, and Amazon.com Inc (AMZN.O) are expected to see the biggest declines.
Analysts cut their total revenue forecasts for the five companies – Meta, Amazon, Apple Inc (AAPL.O), Alphabet Inc (GOOGL.O) and Microsoft Corp (MSFT.O) – by 5% to 561.4 billion dollars in January compared to October.
Big tech companies are expected to be among the biggest drags on the eleven S&P 500 sectors, with the information technology sector expected to see a 9.5% decline in earnings, according to FactSet data.
“I wouldn’t expect good news for a while…at least for the next three quarters. I would expect more layoffs,” said Siddharth Singhai, chief investment officer at investment firm Ironhold Capital. .
Amazon, which is expected to report profits have fallen 38% and revenue has grown at the slowest rate in more than 22 years, began communicating to staff on Wednesday whether he had been fired as part of his decision to cut 18,000 jobs.
The downsizing came after the retailer overstaffed due to pandemic demand, echoing Meta’s aggressive hiring to respond to a surge in social media use by stuck-at-home consumers.
Meta, which decided in November to cut 11,000 jobs, could see its profits fall by 42%, its fifth consecutive quarter of decline. The company is also expected to see a 7% drop in revenue – its worst performance yet.
The five companies grew their employee base by an average of 45% in 2020 and 20.5% in 2021, with Apple hiring the smallest.
“We expect a further 5-10% downsizing in the technology sector as many of these companies were spending money like 1980s rockstars,” said Wedbush analyst Dan Ives.
Microsoft announced on Wednesday that it would cut 10,000 positions, affecting less than 5% of its employees. Analysts expect the company to post a 2.4% increase in revenue, the slowest pace in about 24 quarters. Earnings are expected to fall 9%.
Apple’s revenue is set to fall for the first time in 15 quarters as its main supplier Foxconn (2317.TW) faced major disruptions at China’s biggest iPhone factory due to worker unrest related to COVID restrictions.
Alphabet’s revenue growth, which is slowing hiring and making “course corrections” to cut costs, is expected to be the slowest in 10 quarters.
To support stock prices, analysts said these companies may invest in buyouts this year. Their shares have fallen between 26% and more than 60% in the past year, compared to a decline of nearly 20% in the broader market.
Together, they have more than $110 billion in cash and cash equivalents, with Amazon having the most and Meta having the least at the end of the September quarter.
Reporting by Nivedita Balu and Yuvraj Malik in Bengaluru; Editing by Maju Samuel
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