The tech giants will release their quarterly results, starting Tuesday with Alphabet and Microsoft. Wall Street is hoping for good news, including more advances in artificial intelligence.
But the industry has also turned to another strategy to improve finances: layoffs. The cuts are not as widespread as last year, when hundreds of thousands of jobs were eliminated. But they are a reminder that the technology sector is still trying to find its footing after a hiring boom during the coronavirus pandemic and find ways to preserve soaring stock gains.
Some 100 companies have cut 25,000 jobs 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 the 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 workforce 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 non-essential operations and extract the kind of cost savings that Wall Street loves. Now, those cuts are more specific: In Meta's case, that means reducing the number of middle managers at Instagram.
For smaller tech companies, it's more a matter of survival. Startups have found it harder to raise capital risk averse venture capitalists keep their wallets closed. In the words of Nabeel Hyatt, general partner at Spark Capital, these startups are “just trying to gain traction to survive.”
The cuts will likely continue as long as investors love them. Wall Street has rewarded tech companies that laid off thousands of people with higher stock prices. Meta's stock has soared since it embarked on a self-described “year of efficiency” last year that has made it the third-leanest company in terms of employees. Those cost savings, along with a redoubled bet on AI, have helped boost the tech giant's market value to more than $1 trillion.
And venture capitalists have told DealBook that they are ready to invest in startups, but that it helps if those companies have become more efficient. That, investors say, will allow them to operate better in potentially difficult times.
In other layoff news: Some tech workers are filming their dismissals and post them on social media, in the name of catharsis and transparency.
THIS IS WHAT'S HAPPENING
Boeing is withdrawing efforts to speed up safety approval for a version of its 737 Max plane. The plane maker revoked an application it submitted last year request an exemption from a safety standard for a version of its 737 Max 7. On the other hand, Boeing received good news in the midst of its latest crisis: the European airline Ryanairone of its largest customers, said it would buy more planes if U.S. airlines withdrew their orders.
Amazon cancels its agreement to buy vacuum cleaner maker Roomba. the step to abandon $1.7 billion iRobot acquisition It came days after FTC officials told Amazon lawyers that the agency was likely to file a lawsuit to block the transaction. In November, European antitrust authorities warned that they were also considering opposing the acquisition.
Elon Musk claimed that Neuralink had implanted its first device in a human brain. Musk said that the product, Telepathy, would allow a person to control a phone or a computer “just by thinking” and would initially be for “those who have lost the use of their limbs.” He said the initial results were encouraging.
Reed Hastings donates $1.1 billion in Netflix stock to charity. The co-founder of the streaming giant gave about 40 percent of your share 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 provide benefactors with privacy and significant tax breaks.
Wall Street awaits JetBlue exit plan
JetBlue just reported earnings, predicting 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 deal, intended to create one of the country's largest airlines, two weeks ago. Now JetBlue has said it can try backing outpotentially creating the kind of messy divorce drama that captivates investors.
Wall Street believes JetBlue is better off without Spirit. Blocking the deal meant JetBlue had “dodged a bullet,” according to analysts at JPMorgan Chase. Spirit has struggled with weak performance and a burdensome debt load.
JetBlue shares have risen double digits since the judge's decision, as investors hope the airline can focus on its own business at a difficult time for its industry.
But getting out may not be easy. The deal has a July deadline, by which time JetBlue must use its best 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 larger airline said Spirit had not met “certain closing conditions” required by the deal. It's unclear what terms Spirit has potentially violated (or whether JetBlue is simply trying to apply pressure to negotiate an exit). For its part, Spirit says it believes there is “no basis to terminate” the agreement.
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 monthly listing fee of 10 cents per share that it has paid since January 2023.
“Heavy fees are being paid every second that this drags on,” Ann Lipton, a professor of corporate governance at Tulane University, told DealBook. “The advantage of terminating now is that you can stop paying those fees.”
All eyes are back on the Federal Reserve
The Federal Reserve is holding its final two-day meeting and is expected to keep interest rates unchanged. But investors will look for clues Jay Powellthe chairman of the Federal Reserve, in his Wednesday press conference on when the central bank could begin to cut.
The strength of the economy is complicating the Federal Reserve's decision. Growth is advancing even though rates are at their highest level in more than two decades. Investors put the odds of a cut after the Federal Reserve meeting in March at around 50-50, although many economists say late spring or early summer is more likely.
One concern: Cutting rates could stoke inflation, which has fallen but has not yet reached the Federal Reserve's 2 percent target. “Overall, we believe this meeting will allow the committee to buy time to discern whether inflation is indeed on a sustainable path back to 2 percent,” Wells Fargo economists wrote in a research note.
Inflation-adjusted rates are weighing on the Fed's thinking, writes the Times' Jeanna Smialek. Many experts think this is what really matters to the economy, especially because investors and lenders take into account the future purchasing power of the interest they will earn when making decisions.
The Federal Reserve is expected to act cautiously. Last month, Powell noted that three cuts were on the cards in 2024, before officials retracted the comments. If a move is likely in March, many observers hope it will give a strong clue.
But officials don't want to cut back too soon. “Premature rate cuts could trigger a surge in demand that could initiate upward pressure on prices,” Raphael Bostic, president of the Atlanta Federal Reserve, said this month.
“The ship has sailed in the midst of returning to the office for most companies. “They’re not going to go from three days a week to five days a week making their space nicer.”
— Rob Sadow, CEO of Scoop Technologies, a software company that developed an index that tracks workplace strategies, on why many employers have He gave up forcing workers to be in 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 U.S. soldiers were killed in Jordan in what his administration said was a drone attack by an Iranian-backed militia. (Iran has denied ordering it.)
However, markets have largely ignored concerns that the turmoil in the Middle East could spread. Because?
John AuthersBloomberg opinion columnist, suggests that several factors are at play, including investors' desensitization to bad news and the belief that there will not be an all-out war in an election year.
The most important thing when evaluating the Middle East, Authers writes, is oil:
Another reason for calm on Wall Street is that its traders outsource risk assessment work to the oil market. If the price of oil does not increase, then the risk cannot be that great, so it is safe to stay on the stock train. …
Oil fell quickly once trading resumed following the weekend news, reassuring traders in other markets that the risks were not serious. Arguably they are also biased against disaster. If Biden's response is not strong enough, the United States will look bad, but the oil will continue to flow.
Jean Ergas, chief economist at Tigress Financial Partners in New York, points out that oil is almost a binary market and that the largest supertankers do not pass through the Red Sea and the Suez Canal in any case. “Either the oil is there or it is not. “As things stand, it's dangerous, it's risky, but it's on its way.”
French car manufacturer Renault abandoned plans to spin off its electric vehicle business, Ampere, citing poor IPO market conditions. (Reuters)
In work movements: Jim Esposito, a veteran Goldman Sachs executive who is the leader of its global banking and markets division, is retiring; and Tom Nides, a long-time banker and diplomat, will join Blackstone as vice president. (WSJ)
A former IRS contractor accused of filter tax documents of Donald Trump and others was sentenced to five years in prison. (NY)
Lawmakers in Congress have threatened audiences on President Biden's plan to suspend approvals for liquefied natural gas exports over concerns about climate and energy security. (Axios)
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