Tech’s new business model: ‘Do more with less’

It’s been a week since the big-cap tech earnings season ended, with Apple reported last Thursday. One theme investors have heard from top executives across Silicon Valley and beyond is that it’s time to “do more for less.”

The cost cuts that went into effect at the end of 2022 accelerated in the first quarter and are continuing into the second quarter. Microsoft CEO Satya Nadella told staff on Wednesday there will be no salary increase for full-time employees, after the company announced 10,000 job cuts earlier this year.

Even as the industry giants are enjoying a share price recovery after a brutal 2022, they’ve made it clear that customers will be cautious with their spending for at least the foreseeable future and the future. The excess of technology has passed behind us.

Alphabet CEO Sundar Pichaiwho took it? debris from its workforce for receiving a stock award worth more than $200 million while the company downsized, has focused on efficiency. During the company’s earnings call in late April, chief business officer Philipp Schindler described a “macro environment that does more with less”.

That phrase has popped up on a number of recent tech earnings calls. Jeff Green, CEO of a company that buys digital ads Trading desksays content owners are facing a challenging market to try and grow profitably, “so that means people need to do more for less” as they search How to get better value from your ads.

Throughout the earnings season, executives cited macroeconomic pressures, foreign exchange headwinds and cautious consumer and customer spending. For many technology leaders, the path forward has been planned to continue to reallocate headcount and spend on revenue drivers, while also looking at how to reduce long-term costs for the company. computing, supply chain, and inventory.

Among America’s Most Valuable Tech Companies – Microsoft, Apple, meta, Amazon and Alphabet — the two big areas in need of increased investment are cloud infrastructure and AI initiatives. In their earnings reports, the company’s executives tried to remind investors of the importance of spending in those areas while maintaining due diligence with cutting. cost reduction more widely.

Google’s parent company Alphabet has spent the past few months dealing with the kinds of cuts the company hasn’t experienced in the first quarter of a century. It has conducted mass layoffs; slow recruitment; cut travel and entertainment budgets; construction pause at least one office campus; and reduce investment in more experimental projects, such as the Area 120 technology incubator.

All came after Pichai announced the plan last year to “make the company 20% more efficient”.

During Alphabet’s first-quarter earnings call, executives discussed efforts to allocate resources to key areas like cloud, AI, hardware, YouTube, and search. Schindler highlighted “Search’s ability to meet demand and deliver measurable ROI in an environment of uncertainty,” ahead of the company’s announcement Wednesday that it will Bring AI to Google Search.

In addition to the January layoffs, which affected about 12,000 employees, or 6% of Google’s workforce, Pichai mentioned more structural changes during the call, including bringing in new employees. AI-focused group is Google Brain and DeepMind under one umbrella with “comprehensive computing resources”.

“Starting in Q2 2023, costs associated with groups and activities transferred from Google Research will move from Google Services to Google DeepMind within the scope of Alphabet’s unallocated corporate expenses,” Pichai said. .

Alphabet also plans to look at ways to reduce the likelihood real estate portfolio and save on computing costs, in part through efforts to improve training efficiency for AI models and by using data centers more fully, Pichai said. The company will also move to better manage supplier and supplier costs, and use AI and automation to “improve productivity across Alphabet,” said Ruth Porat, chief financial officer. .

During Microsoft’s earnings call on April 25, executives said the group would continue to narrow its focus, prioritizing the cloud business, which is seeing an increase in sales. increase in short-term customer contracts. There’s loads of talk about AI, besides the company Committed 13 billion USD to OpenAI.

“As we move toward a future where chat becomes a new way for people to find information, consumers have real choice in business models and methods with Azure-powered chat entry points. offered on Bing, Edge, Windows and OpenAI’s ChatGPT,” Nadella said. “We look forward to continuing this journey in generational change in the largest category of software: search.”

In March, Microsoft announced it would cut 10,000 jobs, or nearly 5% of the company’s workforce, following comments by management in late 2022 about the importance of cutting costs and increase productivity.

“We’ve been through almost a year where Satya talked about that pivot — from when we started having loads of new workloads and we’ll call it pandemic time, to the post that moved next — and we’re really coming, celebrating that beginning,” CFO Amy Hood said on the latest earnings call. “We’re continuing to set up optimizations, but at some point the workload can’t be optimized any more.”

by Amazon first quarter earnings report followed a period of unprecedented cuts for the e-retailer.

Chief Financial Officer Brian Olsavsky said the nasty inflationary environment and economic uncertainty are prompting clients to try and “stretching their budgets further”, adding that it is “similar to what you’ve see us at Amazon.”

In recent months, the company has reduce its workforce by 27,000 people, including cuts at Amazon Web Services, Twitch, the device business and ad unit, as well as human resources and elsewhere. Amazon also made hiring cuts or freezes for areas like retail and Amazon Prime, and cut budgets for more experimental projects like delivery robots.

CEO Andy Jassy said: “We took a close look at the company as a whole and wondered if we were confident in the long-term potential of each initiative to deliver sufficient revenue, operating income, and revenue. , free cash flow and return on invested capital”.

That, Jassy said, has led the company to close physical bookstores, four-star stores, and businesses like Amazon Fabric and Amazon Care, “where we don’t see a path to meaningful profits.” He added that Amazon has also changed some of its programs, such as removing free shipping for grocery orders over $35.

Meanwhile, Amazon is focusing on big language models amid the AI ​​boom, as well as investing in cloud infrastructure, chips, regional fulfillment centers, and ultimately a business for allows enterprise customers to customize Amazon AI models for their own purposes.

“Each of our businesses inside Amazon [is] build on vast language models to reinvent our customer experience, and you’ll see it in each of our businesses, stores, ads, devices [and] entertainment,” Jassy said.

Apple started earnings calls with reporters after reporting Revenue better than expected, but still recorded a 3% drop from a year earlier. The company said macroeconomic challenges and foreign exchange obstacles have led to some revenue setbacks for iPads and Macs.

Executives said economic conditions affected advertising and mobile games, and they reiterated the company’s decision to direct spending on revenue drivers.

“We are closely managing our spending by continuing to focus on long-term growth with continued investment in innovation and product development,” Chief Financial Officer Luca Maestri said on the call. .

Apple, which has so far avoided significant layoffs, also mentioned plans to continue to improve its supply chain operations.

“We will continue to find ways to optimize the supply chain based on what we learn daily, weekly, etc,” said CEO. Tim Cook speak. He added that despite the “horror” from the Covid-19 pandemic and chip shortages on the economy, “the supply chain has recovered amazingly.”

The company has taken steps over the past six months to delay bonuses, push back production on less urgent projects, reduce travel budgets, and halt hiring in some departments.

CEO Meta Mark Zuckerberg earn praise from Wall Street earlier this year when he said that 2023 would be the “effective year” after the company’s stock price lost two-thirds of its value in the past year. 2022.

Since November, the company has announced 21,000 job cuts and reduced hiring rates. At the same time, Zuckerberg takes every opportunity he gets to emphasize his investment in AI, which the company says will improve internal productivity and advertising effectiveness.

on the company first quarter earnings called, executives focused on Meta’s plan to weed out some of its unimportant revenue drivers and narrow its focus, including on AI-related areas like systems ratings for ads, a recommendation engine for feeds and Stories, plus a significant boost to general AI.

“I think this is really going to impact each of our products and services in a number of ways — and this is just a huge wave and new set of technologies that are available, and we’re working on it across the board. company-wide,” Zuckerberg said.

On the same topic, CFO Susan Li added: “We are still in the early stages of understanding different applications and possible use cases. And I think this could be an opportunity. investment opportunities that mattered to us earlier on the relative return curve for some of the other AI work we’ve done.”

However, Zuckerberg insists changing the company’s name to Meta by the end of 2021 is not done in a hurry. meta lose another 3.99 billion USD in the Reality Labs division, which houses its metadata investments, and Zuckerberg said on the call, “we’ve been focused on both AI and metadata for years now, and we’ll continue to do so.” continue to focus on both.”

CLOCK: Alex Kantrowitz on tech earnings