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

It’s been a week since earnings season ended for mega-cap techs of apple Last Thursday’s report. A theme investors heard from top executives in Silicon Valley and beyond, it was time to “do more with less.”

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The cost-cutting that began in late 2022 extended through the first quarter and continues into the second quarter. Microsoft CEO Satya Nadella told employees on Wednesday that there would be no pay increase for full-time employees after the company announced 10,000 job cuts earlier this year.

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Even as industry giants enjoy declining stock prices through 2022, they are making it clear that customers will be conservative with their spending, at least for the near future, and the days of technology overcrowding are behind us.

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Alphabet CEO Sundar Pichai, who has drawn criticism from his workforce for receiving a stock award of more than $200 million while downsizing the company, has focused on efficiency. In the company’s earnings call in late April, business chief Philipp Schindler described a “macro environment of doing more with less.”

That phrase has found its way into several recent tech earnings calls. Jeff Green, CEO of digital ad buying company trade desksaid content owners are dealing with a challenging market and trying to grow profitably, “so this means people need to do more with less” as they seek to get better value from their ads. Are.

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During the earnings season, executives cited macroeconomic pressures, foreign exchange headwinds and cautious spending by customers and consumers. For many tech leaders, the plan ahead is to reallocate headcount and continue to drive spending toward revenue drivers, and look at how to reduce long-term costs for compute, supply chain and inventory. .

Among the most valuable US tech companies – Microsoft, Apple, meta, Amazon And Alphabet — two big areas for increased investment are cloud infrastructure and AI initiatives. In its earnings report, company executives took strong steps to remind investors of the importance of spending in those areas while maintaining diligence with sweeping cost-cutting.

Google parent Alphabet has spent the past few months dealing with the kinds of cuts the company never had to experience in its first quarter century. It has undertaken massive layoffs; slow recruitment; cut travel and entertainment budgets; stalled construction in at least one office complex; and reduced investments for more experimental projects, such as its Area 120 tech incubator.

This all comes after Pichai announced plans to “make the company 20% more productive” last year.

On Alphabet’s first-quarter earnings call, executives discussed efforts to allocate resources to key areas such as cloud, AI, hardware, YouTube and search. Schindler highlighted “the ability of search to surface demand and provide a measurable ROI in uncertain environments” ahead of the company’s announcement Wednesday that it would bring AI to Google Search.

In addition to the January layoffs, which affected about 12,000 employees, or 6% of Google’s workforce, Pichai noted more structural changes on the call, including “pooled computational resources” to AI-focused conglomerates Google Brain and DeepMind. Including bringing under an umbrella with.

“Beginning in the second quarter of 2023, costs associated with the teams and activities moved from Google Research will move from Google Services to Google DeepMind,” Pichai said.

Pichai said Alphabet also plans to potentially reduce its real estate portfolio and look at ways to save on compute costs through efforts to improve training efficiency for AI models and by making full use of data centers. has been created. The company will move to better manage supplier and vendor costs, as well as use AI and automation to “improve productivity across Alphabet,” said chief financial officer Ruth Porat.

During Microsoft’s earnings call on April 25, executives said the conglomerate would continue to focus on prioritizing its cloud business, which is seeing an increase in short-term customer contracts. With the company’s $13 billion commitment to OpenAI, there is endless talk about AI.

“As we look to a future where chat becomes the new way people get information, consumers will have access to Azure-powered chat entry points across Bing, Edge, Windows and OpenAI’s ChatGPT,” Nadella said. There are real choices in business models and practices with.” call. “We look forward to continuing this journey of a generational change in the biggest software category: search.”

In March, Microsoft announced plans to cut 10,000 jobs, or about 5% of the company’s workforce, through the end of 2022 following executive comments about the importance of cutting costs and increasing productivity.

“We’ve gone through about a year where that pivot Truth talked about — we’re introducing tons of new workloads, and we’ll call this transition post pandemic time — and we’re coming, really.” , the anniversary of that start,” CFO Amy Hood said on the latest earnings call. “We are continuing to set optimizations, but at some point, the workload cannot be optimized any more.”

Amazon reports first-quarter earnings after a period of unprecedented cuts for the e-retailer.

CFO Brian Olsavsky said on the call that the pesky inflation and economic uncertainty environment is prompting customers to try and “stretch their budgets,” adding “just like you’ve seen us do at Amazon.”

In recent months, the company has cut its workforce by 27,000 people, including cuts in Amazon Web Services, Twitch, the device business and the advertising unit, as well as cuts in human resources and elsewhere. Amazon also implemented a hiring slowdown or freeze for areas such as retail and Amazon Prime, and cut budgets for more experimental projects such as delivery robots.

CEO Andy Jassy said on the earnings call, “We took an in-depth look at the company and asked ourselves whether we were seeing enough revenue, operating income, free cash flow and the long-term potential of each initiative to generate return on invested capital. Is firm belief that.”

Jesse said that led the company to close its physical bookstores, four-star stores and businesses such as Amazon Fabric and Amazon Care, “where we didn’t see a path to meaningful returns.” He said Amazon has also made changes to some programs, such as eliminating free shipping for grocery orders over $35.

Meanwhile, Amazon is moving to the larger language model amid the AI ​​boom, as well as investing in cloud infrastructure, chips, regional fulfillment centers and eventually a business that lets enterprise customers use Amazon’s AI for their own purposes. Allows customizing the model.

“Every single one of our businesses within Amazon [is] Building on top of the big language model to reshape our customers’ experiences, and you’ll see it in every business, store, ad, device we run [and] Entertainment,” Jesse said.

Apple kicked off its earnings call with reporters after reporting better-than-expected revenue, but still posting a 3% decline from a year ago. The company said that macroeconomic challenges and foreign exchange constraints have led to some revenue constraints for iPad and Mac.

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

“We are closely managing our spend by focusing on long-term growth with continued investments in innovation and product development,” CFO Luca Maestri said on the call.

Apple, which has so far managed to avoid significant layoffs, also mentioned plans to continue improving its supply chain operations.

“We will continue to look for ways to optimize the supply chain based on what we learn each day and each week ahead,” said CEO Tim Cook. He added that despite the “terrible parade” from the Covid-19 pandemic and chip shortages in the economy, “the supply chain has been incredibly resilient.”

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

Meta CEO Mark Zuckerberg earned praise from Wall Street earlier this year when he said 2023 would be “the year of efficiency” after the company’s share price fell by two-thirds in 2022.

Since November, the company has announced 21,000 job cuts and reduced hiring. At the same time, Zuckerberg used every opportunity available to push for investments in AI, which the company says will improve internal productivity and advertising efficiency.

On the company’s first-quarter earnings call, executives outlined Meta’s plan to delineate some non-revenue drivers and its focus on AI-related areas such as a ranking system for ads, a recommendation engine for feeds and reels, plus a plan to reduce. Significant push towards generative AI.

“I think it’s really going to touch every single one of our products and services in multiple ways — and it’s just a huge wave and new set of technologies available, and we’re working on it across the company, Zuckerberg said.

On the same topic, CFO Susan Lee said, “We’re still in the early stages of understanding the various applications and potential use cases. And I think this could represent a significant investment opportunity for us that is ahead of the return curve.” is relative. Some of the other AI work we’ve done.”

Although Zuckerberg was insistent that the company’s name be changed to Meta by the end of 2021, it was not done in a hurry. Meta netted another $3.99 billion in its Reality Labs division, which includes its Metaverse investment, and Zuckerberg said on the call, “We’ve been focused on both AI and the Metaverse for years and we’re focused on both.” Will continue to do so.”

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