After a recruiting binge, Alphabet drops 12,000 positions and refocuses on AI

In response to "a different economic reality," Google parent Alphabet Inc (GOOGL.O) announced in a staff message that it is eliminating around 12,000 jobs, doubling focus on artificial intelligence (AI), and firing employees who support experimental initiatives.

The layoffs at IT behemoths including Amazon, Microsoft, and Meta, who are shrinking after a pandemic-driven hiring binge left them flabby in a poor economy, affect 6% of their staff.

Alphabet stock increased 4% after the California-based company announced a roughly third increase in personnel through 2020 and 2021. They had decreased by 30% over the previous year, mirroring a 24% decline in the larger technology industry (.IXIC).

Alphabet's current CEO, Sundar Pichai, stated in the memo released on Friday that he accepted "full responsibility" for the actions that resulted in the layoffs.

As Alphabet sought to infuse its products with more AI, Pichai, whose pay was recently more closely correlated with performance, said that this was an opportunity to "sharpen focus, reengineer cost base and direct talent and capital to the highest priorities," echoing remarks from Microsoft that also announced job cuts.

Microsoft is apparently trying to increase its stake in ChatGPT, a promising chatbot that provides responses that are human-like, putting pressure on Alphabet, a longtime leader in AI.

Meanwhile, businesses are cutting expenditures for advertising, Alphabet's primary source of income, while consumers reduce their spending.

According to Susannah Streeter, an analyst at Hargreaves Lansdown, it is evident that Alphabet is not exempt from the difficult economic background, with fears of a U.S. recession mounting.

As mentioned by Streeter, the expansion of advertising has stopped. Competition is also escalating, with Instagram competing for vital YouTube subscribers and Alphabet confronting a formidable opponent in TikTok. Alphabet has also accrued enormous fines from regulatory agencies.

Alphabet's record-high workforce, according to Evercore ISIS analyst Mark Mahaney, has posed significant margin risk moving into fiscal 2023, and according to Bernstein analyst Mark Shmulik, employee cutbacks may save the business $2.5 billion to $3 billion in expenses.

Major layoffs

With Alphabet's staff reductions, the recent employment losses at four of the largest U.S. internet corporations have reached 51,000. Even while the U.S. employment market is still tight, they have increased worries of a recession.

According to Stuart Cole, an economist at Equiti Capital, the IT industry is something like the classic canary in the coal mine since layoffs there signal that the prognosis for job security is actually starting to become more unfavorable.

Apple (AAPL.O), which recruited more cautiously throughout the pandemic, has so far refrained from making any cutbacks. However, the AppleInsider website reported that the iPhone manufacturer had begun to fire non-seasonal staff members from its retail channel, including Best Buy (BBY.N) locations.  Apple was unavailable to comment on the report right away.

"Little comfort"

According to people familiar with the situation, Alphabet has been working on a significant AI launch. It would happen in the spring, according to one of the sources. The New York Times also noted that Google intended to introduce more than 20 new products, including a chatbot-enabled search engine.

According to Pichai, employees working on engineering and product teams, corporate workers, and recruiters are among those losing their employment. The majority of positions at Google's internal incubator for new initiatives, Area 120, have been eliminated, a corporate official told Reuters.

The company's leadership accepting "full responsibility," according to the Alphabet Workers Union, was of "little comfort."

The union added, "It's appalling that our jobs are first on the chopping block so shareholders can see a few more points in a chart next quarter."

Workers in the US who are affected would receive severance, six months of healthcare, as well as assistance with immigration (Alphabet has already notified affected employees).

Layoff notices will take longer abroad owing to regional employment rules and customs, according to Pichai's message.