Amazon, Intel Pressed To Slash Costs After Years Of Bulking Up
Companies have been battered by inflation and a strong dollar, which has reduced the value of overseas sales.
(Bloomberg) -- Tech giants like Amazon.com Inc., Meta Platforms Inc. and Intel Corp., which have long touted their ambitious growth plans, are now being judged by a different measure: how quickly they can make cuts.
Amazon vowed to rein in expenses after warning Thursday of its slowest holiday season ever, saying it would pause hiring in some businesses and wind down products and services. Already, the company been on a purge in recent weeks, shutting down a delivery robot business, a virtual tour feature and a kids-focused video calling device.
“We’re taking actions to tighten our belt,” Amazon Chief Financial Officer Brian Olsavsky said on a conference call. “We believe our resources are better spent elsewhere.”
At Intel, talk has shifted from the chipmaker’s factory expansion plans to an aggressive headcount reduction. After announcing a 20% decline in revenue last quarter, the company said it would begin cutting jobs and spending as it tries to save $3 billion next year.
Meta, the owner of Facebook and Instagram, drew ire this week in part by trying to keep a lid on expenses. The company posted its second straight quarter of disappointing earnings, but Chief Executive Officer Mark Zuckerberg urged shareholders to be patient with its expansion plans. They weren’t.
With Meta’s costs growing -- including its spending on an elusive metaverse dream -- investors sent the shares down 25% on Thursday.
Even Apple Inc., which has fared better than its tech peers this year, has been cutting back. Though it has avoided mass layoffs, the company plans to trim expenditures in 2023 and slow hiring. “Obviously we’re being deliberate in our decisions of where to invest,” CEO Tim Cook said in July.
Companies have been battered by inflation and a strong dollar, which has reduced the value of overseas sales. The choppy economic outlook is worrying consumers, who are cutting their spending.
The pressure on the big technology companies to do more with less has only grown during a disastrous run of earnings reports this week. Alphabet Inc., Amazon, Meta, Microsoft Corp. and others all fell short of projections, sending their shares plunging and shaving hundreds of millions of dollars from their valuations.
Some of the few companies to emerge unscathed were the ones pledging to go on a diet. Intel, which has struggled for years to turn around its business and now faces a broader slump in personal computers, placated investors with its latest cutback plans. Even after results suggested that its plight is only getting worse, the shares climbed more than 5% in late trading Thursday.
Intel’s cost-cutting plan was “more aggressive than what investors expected,” said CJ Muse, an analyst at Evercore ISI. “It’s something that gives some comfort.”
Chipmaker SK Hynix Inc. reported a 60% in third-quarter profit but soothed fears by vowing to cut its capital expenditures by at least half next year.
Companies connected with the personal computer market -- like Intel and Hynix -- are under particular pressure because that market has begun to collapse. Consumers had snapped up PCs during the pandemic, as they equipped home offices, but are now holding off on purchases.
Seagate Technology Holdings Plc, the biggest maker of computer hard drives, announced plans to eliminate about 3,000 jobs this week.
“The whole industry has to get more pragmatic about PCs because they went irrationally high during the pandemic,” said Glenn O’Donnell, director of research at Forrester Research Group. “There was this surge, and now we’ve having the hangover.”
Amazon also has acknowledged that it grew too fast during the pandemic, betting that a shift to e-commerce would justify its sprawling delivery infrastructure. Instead, online sales slowed as consumers sought to return to pre-pandemic lifestyles.
Amazon has adjusted by delaying warehouse openings, freezing hiring in its retail group and shutting down experimental projects. But inflation and a shaky economy have only added to the company’s woes.
Amazon said it expects revenue of $140 billion to $148 billion in the holiday quarter, far short of the $156 billion estimate. It’s not the only one feeling the pain. Adobe Inc., which tracks e-commerce sales, said US online sales will rise just 2.5% in in November and December from the prior year.
“Clearly, Amazon went too big too soon on its expansion plans,” Matt Britzman, an analyst Hargreaves Lansdown, said in a note. “It’s had to put the brakes on and then some to try and get costs back under control.”
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