Cisco just laid off 4k employees. What the he-l is going on here? I understand some layoffs might be needed because some companies did over-employ in the past, but I can't wrap my head around so many tech layoffs in such a short time period. Especially since there's no end in sight.
6 replies (most recent on top)
There’s another driver — companies that receive intent-to-order communications from their customers can see when their future orders are going to drop off a cliff, and they can see it 6 months in advance (or even close to a year). Because of this, they adjust their costs to match the forecasted revenue hit.
So many people just can't hold back their political comments no matter the context
Dot-Com Bubble v2.0
Let me explain it. As soon as the Fed said they would start raising rates, tech companies started to signal hiring freezes (Q1 2021). As summer and fall came, of course the rates have gone up a ton and layoffs too.
Tech CEO/CFOs plan forward and don't wait for trouble to hit (at least the good one). With tight financial conditions, rates go up and the cost of capital to the firm goes up. The hurdle rate for new investment goes up. In plain english, this means if you want to borrow money to build a new fab it costs you more. At the same time, in rising rate environment there is increased chance of recession. Again, CEO/CFO don't wait for that. They get cautious quickly.
Cisco is interesting in particular because their last earnings report was pretty good. Yet layoffs. These companies do the analysis per above and on top of that they are always talking to customers. Customers may signal to the companies that they are unlikely to make investments or that they will be cutting back. This adds to the picture the CEO/CFO sees.
Intel situation is even worse. Intel has made many mistakes and the revenue and gross margin are dropping fast. Intel is betting the farm on new investments for fabs to support the IDM 2.0 strategy. The timing couldn't be worse. Cost of capital going up. Product gross margin falling and now the company wants to spend billions on new fabs. What the new CEO says is true. This is a 'moonshot'. It is going to work, or lots of people will blow up on the rocket. We'll see.
End of the pandemic tech bo-m.
Companies with delusion about business, oops