Tech companies hit the brakes as a slowdown looms

Tech companies hit the brakes as a slowdown looms

Technology giants, which have often sailed above economic turmoil, cannot escape the pain of the current downturn, this week’s earnings reports from the sector’s top companies showed.

Why it matters: Even as other industries struggled during the pandemic, technology thrived because much of the economy shifted online. Now they are preparing for a direct hit.

Driving the news:

  • Google, Snap, Twitter and Facebook parent Meta all issued various warnings of a stronger-than-expected slowdown in online advertising.
  • PC chip giant Intel released disappointing numbers on Thursday, although its woes are compounded by its own execution issues beyond a slowdown in PC sales.
  • Amazon, which also released results on Thursday, saw sales growth flattening out, with online sales actually declining year over year.

Apple, on the other hand, performed slightly better in the results published yesterday.

  • The company, which in April had forecast that component shortages and manufacturing issues would hurt quarterly sales by $4 billion to $8 billion, saw a slightly milder impact, and iPhone sales remained strong.

Yes but: Even Apple has been hurt by the broader economic slowdown, including impacts on wearables and services revenue.

  • Apple said it sees growth in its services business continue to slow, although it forecasts the company’s overall revenue to grow faster in the current quarter.

The big picture: Tech companies are hitting the brakes, especially when it comes to hiring. Just a few months ago, their biggest challenge was finding enough qualified employees to fill vacancies.

  • While most large companies have stalled before a full hiring freeze, nearly all have said they expect slower headcount growth.
  • Even Apple plans to slow its hiring pace. CEO Tim Cook told analysts Apple will continue to hire in key areas, but noted, “We’re taking a more deliberate approach to doing so.”
  • Many startups, meanwhile, are considering or executing layoffs in anticipation of a funding crunch.

Between the lines: Businesses face a long list of challenges, from persistent supply chain shortages to inflation and exchange rate costs.

Be smart: Even planning for a possible economic slowdown can bring about the slowdown.

  • As companies cut their own advertising budgets and try to do more with less, the rest of the economy is feeling the bite.

Our thought bubble: No one is happy in such a business climate, but markets seem relieved that most tech giants have avoided big downside surprises.

  • Plus, long-term downturns are good for big companies because they can use their vast cash reserves to keep investing in new products and growth while others struggle for their lives.
  • Typically, these are also good times to make acquisitions, although that could prove more difficult for the big tech companies in the face of increased antitrust scrutiny.

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