In 2022, investors suddenly began to worry about whether the Silicon Valley technology giants still had a chance to thrive in the face of a massive recession, which led to significant reductions in public and private valuations of technology companies. At present, the nightmare is becoming a reality: On Wednesday local time, the software service provider Salesforce announced that it will lay off 10% of its employees, involving about 7,000 jobs, and close some offices. Just less than a year ago, Salesforce was touting its ability to weather a market downturn.
Salesforce announced mass layoffs on the fourth day into 2023, which is a very clear signal that even last year’s environment was very unfavorable for technology companies, but the worst is yet to come.
To be sure, the situation at Salesforce has little to do with the market as a whole. The company’s revenue growth has slowed, it’s lost executives like co-CEO Bret Taylor, and it’s undergoing a massive post-merger consolidation. Salesforce previously acquired Slack, and the founder of Slack recently left Salesforce.
Enterprise customers are cutting IT budgets, which will affect Salesforce, Microsoft and other tech companies that primarily target this market. As revenues slow, the companies are expected to make more cost cuts, implement tougher austerity measures and possibly even further layoffs.
But the market also has a different view. Analysts at Bernstein believe that even in the face of such macro trends, “cloud computing should be the most defensive business among large tech companies.” Even in the worst economic climate, it is unlikely that companies will completely shed their reliance on major platform vendors.
IT managers among enterprise customers are currently reevaluating new technology investments made over the past two years. In the early days of the outbreak, businesses scrambled to switch to a remote working model, purchasing a raft of new cloud-computing software tools to do so. When they buy a tool like Zoom or Notion, they don’t necessarily take the time to think about the total cost of doing it.
Alex Zukin, an analyst at research firm Wolfe Research, wrote in a recent research report: “Executives are caught in the fog of war about demand visibility, and they don’t want to be the first to take a conservative line. Software buyers feel Scared, not just because their budgets are cut, but because they might lose their jobs.”
Analysts also pointed out that it is difficult to predict how much related spending will drop because cloud computing as a whole is a relatively new industry. Going forward, basic enterprise cloud computing infrastructure spending will likely remain the same as it has become a necessity. However, “non-mission critical” add-on services and cloud computing software tools will suffer.
“Not all cloud infrastructure spending is mission-critical,” Bernstein analysts wrote. “We are seeing many enterprise customers opting to downgrade, review various software licenses, and ‘justify’ their cloud infrastructure.” Infrastructure planning. Amazon is actively working with their customers.”
Analysts at both Bernstein and RBC pointed out that this also means that plans for companies to migrate to cloud computing platforms will slow down in the coming months.
RBC analysts said: “Enterprises are increasingly focusing on sorting out cloud computing costs and reducing spending on specific suppliers.” For large cloud computing infrastructure providers, this means that more customers will adopt cross-cloud strategies to reduce costs. For software providers, any company that offers a single tool rather than a platform is likely to suffer. Still, Salesforce’s layoffs are a sign that even platforms may not be considered as mission-critical as they were a year ago.
Analysts say companies are bracing for a poor start to 2023. RBC analysts expect more layoffs to come. It is also difficult to make a complete forecast at this time, considering that many companies have not given their performance guidance for the coming year. “As the third-quarter earnings season approaches, investors are still focused on what the year ahead will look like,” they wrote in a research note. With only a handful of companies currently providing guidance for next year, 2023 is likely to It’s still largely an unknown.”
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Event Tracking
- 2023-01-05 Salesforce announced 10% layoffs, involving about 7,000 jobs
- 2023-01-04 Salesforce announces restructuring plan: layoffs by 10% and cut office space
- 2022-12-06 Salesforce encountered a wave of executive departures, and its stock price hit a new low since the epidemic
- 2022-11-09 Salesforce lays off nearly a thousand salespeople due to declining industry demand
- 2022-09-22 Salesforce expects operating margin to be 25% in FY 2026
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