10 Top Tech Companies Poised For Massive Layoffs
Tech workers across the nation may witness a massive pink slip parade this year, should one Wall Street analyst's prediction of more than 260,000 tech layoffs in 2016 come true. Here's at a look at the top 10 companies on his list and why they are there.
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Workers at some of the biggest tech companies may have a reason to be nervous, according to an analyst report that predicts 261,800 positions at those organizations may be collectively cut in 2016. With that number of projected layoffs, it would be on par with doling out pink slips to approximately a quarter of the residents of San Jose, Calif.
Global Equities Research Analyst Trip Chowdhry said he pulled together layoff predictions, in part, to send a message to New York Federal Reserve Bank CEO William Dudley that his desire to see interest rates raised on the back of strong labor demand this year was unfounded.
According to Chowdhry, 10 tech companies are likely to take the largest swipe of the ax to their workforce, based on one or more of these four factors:
Technology shift. "Cloud and mobile technologies have increased the productivity of an employee exponentially," Chowdhry said in an interview with InformationWeek. "What this means is the number of employees needed to do a certain type of job is less."
Micro-services such as cloud computing improving IT efficiency. The term "micro-services" means software that can run on a fraction of the hardware that was previously needed by a customer, he said. Cloud services like Amazon Web Services or Microsoft's Azure are examples.
Integrating technology no longer valued. "Under the old world, one company would make the servers, another company would make the network, and another company would make the apps. This was an on-premises company. So, you had to hire a lot of people to configure middleware or work with the database. A lot of people had to manage the backend processes. But when you go the cloud, you don't need these backend employees," Chowdhry said.
Consumer behavioral shift. When consumers shift to a new preferred website, advertisers will follow them, he noted. As a result, advertising-dependent websites are hurt.
Although Chowdhry is predicting 261,800 layoffs at tech companies this year, Toni Sacconaghi, a senior research analyst with Sanford C. Bernstein, doubts the depth of the layoffs at IBM will reach the levels that Chowdhry is projecting. Chowdhry's estimate is nearly seven times larger than Sacconaghi's estimate, for example.
[See 7 Tech Jobs Hardest Hit by Layoffs in 2015.]
Additionally, while these tech titans are expected to lay off thousands of workers this year, they are also hiring. IBM, for example, has 877 information technology jobs posted on its site, and Hewlett Packard Enterprise lists 270 information technology jobs. In corporate America, it is a fairly common practice that as a company slashes its staff, it will hire new workers to focus on areas of growth.
In developing his layoff estimates, Chowdhry acknowledged he had to revise his overall layoff estimates lower because his employment figures for HP Enterprise and HP did not initially account for the company's split. (The numbers in this story reflect his revisions.)
Regardless of the HP and HP Enterprise snafu, Chowdhry established a methodology to put each company into one, some, or all of four buckets that explain how tech titans can find themselves in a conundrum. Here are the top 10 tech companies that Chowdhry expects will see massive layoffs this year. Take a look and let us know what you think. Does this list make you nervous about your own job security?
Estimated percentage of jobs to be cut this year: 10% to 15%
Estimated number of cut employees: 1,700 to 2,500
VMware is a victim of the technology shift to the cloud, as its virtualization customers looked to companies like Amazon and Microsoft for their micro-service of cloud computing. In addition, noted Chowdhry, VMware also faced the problem of needing a lot of employees to manage the backend process. But as its customers shifted to the cloud, the migration from technology integration to domain-specific expertise reduced the need for large numbers of these types of workers.
VMware got a jump on the layoffs at the start of the year, when it announced plans to eliminate 800 positions during the first half of the year and apply the savings toward the field, technical, and support resources that are tied to its growth products.
Over the first half of the year, VMware will be paring down its workforce as its majority investor, storage maker EMC, prepares to be acquired by Dell in a massive merger valued at approximately $60 billion. That deal is expected to close in the August to October time-frame, a Dell spokesman previously told InformationWeek. It has yet to be seen whether more cuts will come to VMware's workforce in the second half as its investor EMC looks to get lean prior to the acquisition.
Estimated percentage of jobs to be cut this year: 15%
Estimated number of cut employees: 2,800
When Symantec announced its third-quarter results in February, it posted a 6% drop in revenue, to $909 million, and a hefty 23% plunge in net income, to $170 million. As a result, it's no surprise the security software behemoth needs to cut costs, which could mean potential layoffs.
"We will be implementing plans to achieve greater profitability through cost savings of approximately $400 million by the end of fiscal year 2018," Thomas Seifert, Symantec's chief financial officer, said in a statement.
Like VMware, Symantec has also been hurt by the technology shift, Chowdhry notes. The security behemoth has seen attackers ramp up their sophistication level from launching massive attacks that its technology is attuned to fighting to selective targeted attacks that a new breed of security vendors is addressing.
Estimated percentage of jobs to be cut this year: 30%
Estimated number of cut employees: 3,500
Embattled Yahoo also got a jump on the New Year layoffs, announcing in February that it would slice 15% of its workforce, or approximately 1,700 jobs.
That announcement was made based on the assumption of restructuring the company and selling its non-core assets. But the game plan has since changed from making that announcement and now includes the consideration of Yahoo's core assets. Hence, the scope of the layoffs could get potentially much wider.
The underlying need for these layoffs has been a consumer shift in demand for using Yahoo's services, as consumers rely more on Facebook, Google, and others for their Internet fix. As a result, advertisers have followed the consumers and put pressure on Yahoo to succeed in capturing growth in advertising revenue.
"Advertising supported tech companies see consumers shift to different companies. What is the favorite hangout today for consumers? Instagram and Facebook, so they are leaving Yahoo and advertisers follow, and then the layoffs at Yahoo follow," Chowdhry said.
Estimated percentage of jobs to be cut this year: 15% to 20%
Estimated number of cut employees: 10,000 to 14,000
Data storage hardware giant EMC is struggling as its customers are making a technology shift from buying its storage equipment to using cloud services like Amazon Web Services and Microsoft's Azure. It's all part of its customers' move toward improving IT efficiency through the use of micro-services, like cloud computing. That shift is hurting EMC's revenues and forcing it to restructure its workforce.
Back in 2015, EMC kicked off a program to cut $850 million from its annual costs and announced that its plan would include layoffs that would largely occur in the first quarter of 2016 and conclude by the end of the year. The anticipated layoffs would build on the 4,600 layoffs the storage maker initiated last year, according to its filing with the Securities and Exchange Commission.
Although EMC did not outline the scope of the layoffs for 2016, they will likely effect a number of employees as it prepares for Dell to acquire the company. The deal, valued at approximately $60 billion, is expected to close in the August to October time-frame.
Estimated percentage of jobs to be cut this year: 20%
Estimated number of cut employees: 14,000
Cisco cut 2,200 employees in fiscal 2015 as a result of both the restructuring plan it announced in the previous year and attrition, according to its Securities and Exchange Commission filing.
Chowdhry, however, estimates the cuts are expected to continue in 2016, despite the company posting stronger than expected fiscal second-quarter results.
He attributes the expected downsizing to Cisco's missing out on the technology movement toward cloud computing and the company not needing as many employees handling the backend process as its customers increasingly adopted cloud computing.
Estimated percentage of jobs to be cut this year: 30%
Estimated number of cut employees: 14,000
HP is on a path to take a big chunk of the projected layoffs in Chowdhry's forecast for 2016. In its February first-quarter earnings announcement, the company announced plans to accelerate its restructuring plans.
"(HP will be) increasing the fiscal 2016 employee reductions to approximately 3,000. I believe there may be even more opportunity to reduce cost and streamline processes, and we will share details when finalized," Dion Weisler, HP chief executive, said during the earnings call.
And as HP uncovers more opportunities to streamline its process, that may likely entail discovering it doesn't need as many workers as it previously thought.
HP, which last year officially split its PC and printer business from its enterprise hardware, software, and services business, has struggled as PC sales industrywide have fallen. HP has been hit by a technology shift, as tablet computers and smartphones have increasingly become consumers' computing devices.
Estimated percentage of jobs to be cut this year: 15%
Estimated number of cut employees: 18,000
Some of the Microsoft layoffs that Chowdhry is expecting this year are partially coming from the company's plans to eliminate up to 7,800 positions. Those job cuts are expected to be completed by June 30 as part of its phone hardware restructuring plan, according to Microsoft's financial statement.
The Redmond giant has struggled for years to grab a leading role in the mobile smartphone market as the technology shifted to mobile operating systems and mobile apps that play a critical role in differentiating devices.
Estimated percentage of jobs to be cut this year: 20%
Estimated number of cut employees: 26,000
Oracle is yet another example of a tech titan hit by a technology shift and movement of its customers to micro-services, said Chowdhry, in sizing up Oracle's potential layoffs.
The database behemoth was caught flat-footed on the technology shift to the cloud as its customers toyed with the idea of shifting some of their IT budgets to micro-services like cloud computing to improve their efficiency and cost structure.
In Oracle's fiscal second quarter last year, it kicked off a restructuring to improve its own efficiencies. In corporate America, a restructuring often comes with layoffs. Oracle estimated the restructuring costs would reach $525 million, of which $300 million of that cost was recorded during the first nine months of its fiscal 2016, according to its filing with the Securities and Exchange Commission.
"We expect to incur the majority of the estimated remaining $125 million through the end of fiscal 2016," Oracle stated in the filing. The end of Oracle's fiscal year is at the end of May 2016.
Late last year, as its restructuring plan was underway, Oracle began consolidating its software support services into colocated entities in the UK, according to a report in The Register, which estimated those layoffs entailed more than 1,000 workers. US support services were expected to be next.
Estimated percentage of jobs to be cut this year: 30%
Estimated number of cut employees: 72,000
Hewlett Packard Enterprise noted in its most recent earnings call in March that it expected to eliminate 3,000 positions by the end of the first quarter. That is just a fraction of the approximate 30,000 job cuts it plans to make by the end of 2018, according to its filing with the Securities and Exchange Commission.
The number of potential layoffs may grow, should the concerns of HP Enterprise CEO Meg Whitman come true. "I think we are just a little concerned about the macroeconomic environment," Whitman said during the earnings conference call. "We saw a slowdown in the US in the last three weeks of January."
In sizing up the reasons for the layoffs, Chowdhry attributes it to the same triple whammy that has befallen VMware: a technology shift, customers who are moving to micro-services like cloud computing, and less reliance on the need to employ a larger number of workers who handle the backend process as the business moves toward the cloud.
Estimated Percentage Of Jobs To Be Cut This Year: 25%
Estimated Number of Cut Employees: 95,000
Big Blue is expected to take the largest swath of workers out with massive layoffs in 2016, according to Chowdhry. He points to IBM suffering from the challenges of a technology shift to the cloud, where its customers no longer need to buy as much of its hardware as in the past as they sign up for cloud services.
However, Toni Sacconaghi, a senior research analyst with Sanford C. Bernstein, doubts IBM will lay off the 25%, or 95,000 employees, projected by Chowdhry.
"No chance it would be that high," Sacconaghi told InformationWeek in an interview.
But Sacconaghi expects IBM's "workforce rebalancing" to reach approximately 14,000 cuts in the first quarter.
He noted, however, in his analyst report that the number of layoffs could be "materially higher" than his estimate, because IBM has reportedly lowered the amount of severance it pays out per employee in this latest restructuring. Part of the methodology that Sacconaghi uses for calculating the number of potential layoffs takes into consideration the average cost of $70,000 per IBM employee who is terminated. Should that per employee severance cost drop lower, IBM could theoretically be able to afford to cut more workers.
Lee Conrad, administrator of the Watching IBM website, told InformationWeek that while he does not know whether or not Big Blue will ultimately slash 25% of its overall workforce as part of its workforce rebalancing, he would not be surprised.
"Reports of the cuts have said a number of business units fired 20% and even 50% of its employees," Conrad said. "Unfortunately, when IBM discontinued releasing certain documents that listed age, title, number of workers cut, getting a true picture has now become a guessing game."
Estimated Percentage Of Jobs To Be Cut This Year: 25%
Estimated Number of Cut Employees: 95,000
Big Blue is expected to take the largest swath of workers out with massive layoffs in 2016, according to Chowdhry. He points to IBM suffering from the challenges of a technology shift to the cloud, where its customers no longer need to buy as much of its hardware as in the past as they sign up for cloud services.
However, Toni Sacconaghi, a senior research analyst with Sanford C. Bernstein, doubts IBM will lay off the 25%, or 95,000 employees, projected by Chowdhry.
"No chance it would be that high," Sacconaghi told InformationWeek in an interview.
But Sacconaghi expects IBM's "workforce rebalancing" to reach approximately 14,000 cuts in the first quarter.
He noted, however, in his analyst report that the number of layoffs could be "materially higher" than his estimate, because IBM has reportedly lowered the amount of severance it pays out per employee in this latest restructuring. Part of the methodology that Sacconaghi uses for calculating the number of potential layoffs takes into consideration the average cost of $70,000 per IBM employee who is terminated. Should that per employee severance cost drop lower, IBM could theoretically be able to afford to cut more workers.
Lee Conrad, administrator of the Watching IBM website, told InformationWeek that while he does not know whether or not Big Blue will ultimately slash 25% of its overall workforce as part of its workforce rebalancing, he would not be surprised.
"Reports of the cuts have said a number of business units fired 20% and even 50% of its employees," Conrad said. "Unfortunately, when IBM discontinued releasing certain documents that listed age, title, number of workers cut, getting a true picture has now become a guessing game."
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