The massive layoffs seen in the tech space this year have raised questions about the health of the sector going forward. Kim Parlee speaks with Vitali Mossounov, Global Technology Analyst at TD Asset Management, about what the job cuts are signaling and the implications for investors.
* So what does this mean? What kind of landscape does this set out for the next little while for investors? We're back with Vitali Mossounov, Global Technology Analyst at TD Asset Management. It's a big list, some big numbers, in terms of the number of layoffs.
* You know, it's always negative. And not to make light of anything that people are going through-- because it's very hard-- but often, we see companies bounce up, of course, on news that they're doing some work on cost control. What is this telling you right now about just the space in general?
* Yeah, staying on the human capital topic, but away from AI, it is sad to see such a high number of layoffs all happening at one time, and right around the New Year, of course. The blame is squarely with the companies. They saw such good trends heading through COVID.
* I mean, they're all in different industries, the companies you mentioned, but the generalized times were good, consumers flush with cash, and enterprises flush with cash-- spending on their services and goods. And they overhired. The overhired. They extrapolated the trends that they were seeing in their business for a little too long.
* And perhaps best illustrated with an example-- Microsoft, in one year, went from 180,000 to 220,000 employees. That's about a 20% increase. It's 40,000 people. And so it should not shock us that, as the economy slows down, they make a decision to let 10,000 go, right? That still puts them growing, headcount, well into the double-digit range. But it's a necessary calibration, unfortunately, due to the mistakes that management made at many of these companies.
* Let's dig into each company and just get your outlook, because they all have some very different dynamics. Microsoft, which, of course, has been a bit of a darling lately because of the ChatGPT and their announcement around Bing, but putting that aside or maybe incorporating, what do you see for them?
* Yeah, Microsoft or anyone else that we talk about-- we've spoken in the past about the playbook for Q4 really being about getting the revenues OK. People know the economy's slowing. You're not going to beat. But just put in a decent number for sales, and then announce that you're going to protect shareholders by controlling costs. And that's the playbook Microsoft executed very well.
* Their growth is slowing, as the cloud does see some weakness here, but they made some big promises on how they're going to manage costs, just low single-digit growth. And of course, then, ChatGPT is another tailwind to the narrative, if you will, for the stock. So all in all, they're in a pretty enviable position among big tech.
* Yeah. It'll have to see if that narrative actually translates into anything we actually see, in terms of on the revenue side, but we'll see.
* We'll see.
* The complete opposite, in a sense. Of course, on the receiving end of the controversy from Microsoft-- and we spoke about the stocks going in different directions. But going back to the quarter-- weaker trends in advertising, and so they grew in the low single-digit range. And I'd say the problem for them was a lukewarm commitment to controlling costs.
* Google always talks about the long term, and they spoke towards re-engineering the business at a lower cost structure. And investors just said, it's not enough. I want concrete promises, as some of your peers are making. So the stock is floundering here. It's a show-me story. And with this overhang, it'll take a bit of time for them to prove what they can do.
* I guess another show-me story is Meta, which took a huge haircut, and of course it's-- but it has been coming back.
* They're showing.
* (LAUGHING) Yeah. So what are you seeing with them?
* Well, they, I guess, got the message from investors. And you always have to be careful when investors are telling the CEO what to do. But it seems to be one of these cases that, so far, investors are celebrating. But they're spending everything they had on the metaverse, among other things, and stock price fell an awful lot. And so founder-run company does a 180 and says, hold on a second. It's the year of efficiency.
* So in the conference call, they kept saying, year of efficiency? Well, three, six months ago, was it a different person here? Or what happened? And so people-- that efficiency narrative is playing out there. Again, weak advertising trends are hitting them as well.
* But so far, they're running with the efficiency. But longer term, for investors, there's still bigger questions about their capital allocation to answer. It's more of a near-term phenomenon. That's why the stock is being rewarded.
* Yeah. Amazon.
* Another controversial name, and starting with the cloud camp, AWS, seeing far more headwinds than Azure, the Microsoft cloud-- not surprising, because of the types of customers that they have. And so if you think about any digital-native business really, say cryptocurrency exchange, chances are they were in the AWS, as opposed to Microsoft, which serves your more traditional enterprise type.
* So far more deceleration there. Margins are falling. And they're offsetting that by, finally, after that big overbuild during COVID, rightsizing the footprint for their retail business. And so it's a tug-of-war, but a little bit on the losing end, I'd say, to investor sentiment.
* And last one-- Apple. I heard someone comparing Apple, thinking not even so much as a tech stock, but as a staple stock-- consumer staple. Just because you got to have it, right? People's lives are on their phones.
* You've got to have it. Because even if you have to get ChatGPT, it's still going to be on your phone. So hardware narrative kind of flipped on its head, whereas 10 years ago, it said, this is a phone, anybody can make a phone. Today, nobody can make a phone like Apple, and likely won't happen for some time.
* So they've had headwinds. They've had supply chain issues. Their factories were shut down in China. They couldn't ship enough phones. The cycle-- they've pretty much missed the cycle, and so the phone's demand has kind of evaporated.
* But there's always the next cycle, next September. And Apple never really collapses under the pressure of-- the pressure of the world. And so we'll see, but they're kind of in between somewhere. But people believe.