Google’s parent company, Alphabet Inc is cutting around 12,000 jobs because it faces “a different economic reality,” it said in a memo to staff, doubling down on artificial intelligence (AI) and eliminating staff supporting experimental projects.
The job cuts affect 6% of its workforce and follow thousands of layoffs at tech giants like Amazon.com Inc Microsoft Corp and Meta Platforms Inc that are downsizing after a pandemic-spurred hiring spree left them limp in a weak economy.
Shares of Mountain View, California-based Alphabet, which has increased its workforce by nearly a third through 2020 and 2021, rose 4% on Friday. They had fallen 30% in the past 12 months, reflecting a 24% drop in the tech industry overall.
Sundar Pichai, Alphabet’s chief since 2019, said in Friday’s memo that he took “full responsibility” for the decisions that led to the layoffs.
Pichai, whose pay has recently been tied more closely to performance, said this was a time to “sharpen our focus, redesign our cost base and direct our talent and capital to our highest priorities” as Alphabet sought to imbue its products with more artificial intelligence, echoing comments from Microsoft which announced job cuts on Wednesday.
Alphabet, a longtime leader in AIis facing competition from Microsoft, which is reportedly looking to increase its stake in ChatGPT, an up-and-coming chatbot that answers queries with human-like responses.
Meanwhile, ad dollars, Alphabet’s main source of revenue, are feeling the pressure from companies cutting budgets as consumers cut back on spending.
“It is clear that Alphabet is not immune to the difficult economic environment, with growing concerns about a recession in the United States,” said Susannah Streeter, an analyst at Hargreaves Lansdown.
“Ad growth has stopped boiling… Competition is heating up too, with Alphabet facing a powerful rival in TikTok, and Instagram also vying for its significant YouTube viewers,” Streeter said, noting that Alphabet has also racked up billions in fines.
Evercore ISIS analyst Mark Mahaney said Alphabet’s record number of employees had created significant margin risk for fiscal 2023 and Bernstein analyst Mark Shmulik said the job cuts could save the company Alphabet between $2.5 billion and $3 billion in costs.
With Alphabet’s job cuts, layoffs at four of the biggest US tech companies total 51,000 jobs in recent months. They have stoked fears of a recession even as the US job market remains tight.
“The tech 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 herald that job security prospects are finally starting to turn more negative.
Apple, which hired more prudently during the pandemic, has so far delayed the cuts. However, on Friday, the AppleInsider website reported, citing sources, that the iPhone maker had begun laying off non-temporary employees in its retail channel at places like Best Buy (BBY.N) stores.
Apple was not immediately available to comment on the report.
Alphabet has been working on a major AI release, two people familiar with the matter told Reuters. One of the sources said that it would take place in the northern spring.
The New York Times also reported that Google planned to introduce more than 20 new products and a search engine that includes chatbot features.
Among those losing their jobs are recruiters, corporate staff and people who work on engineering and product teams, Pichai said. Google has cut most jobs in Area 120, its internal incubator for new projects, a company spokesman told Reuters.
The Alphabet Workers Union said in a statement that the fact that company leaders took “full responsibility” was “little consolation.” “It’s terrible that our jobs are first on the chopping block so shareholders can see a few more points on a chart next quarter,” the union said.
In the United States, where Alphabet has already emailed affected employees, staff would receive severance pay and six months of medical care, as well as immigration support.
Abroad, layoff notices will take longer due to local labor laws and practices, Pichai said in the memo. Employees in Asia will know 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 for Reuters.