Big Tech

Amazon won't restore profitability with only 18,000 layoffs

When Jeff Bezos named his startup after the world's largest river, he could not possibly have known it would eventually become one of the planet's biggest companies, employing more than 1.5 million people. But Amazon's waters will run a little thinner in 2023. Joining other tech firms that have already announced layoffs, it plans to cut 18,000 jobs from its payroll in the coming weeks, including roles it has been scrapping since November.

It is a recognition of the tough economic environment that confronts Amazon at the start of this year. The signs were there in Amazon's last set of quarterly results, when it recorded a net loss of $3 billion for the first nine months of its current fiscal year, compared with a profit of $19 billion 12 months before. Subtract AWS, its seemingly unstoppable cloud business, and Amazon would have been staring at an operating loss of about $8.1 billion, rather than the $9.5 billion profit it reported.

Like other tech stocks, Amazon's share price has also taken a battering in the last year. Trading at a near high of about $184 in late 2021, it has slumped to about $85 today. Investors worry about the cost-of-living crisis that affects everyday consumers, and what impact it could have on their spending with Amazon. The company's expenses have also risen sharply, hurting margins. At more than $355 billion, operating costs for the first nine months were up 14% year-on-year.

The e-commerce giant aims to cut 18,000 jobs in total. (Source: Amazon)
The e-commerce giant aims to cut 18,000 jobs in total.
(Source: Amazon)

The cuts yet to be happen will mainly affect staff in Amazon Stores, the mainstream retail outfit, and PXT, Amazon's "People Experience and Technology Solutions" team. Those it has already made chopped into the devices and books divisions. Writing to staff in a memo posted online, CEO Andy Jassy was forced to explain why staff had not been notified directly before the news went mainstream.

"We typically wait to communicate about these outcomes until we can speak with the people who are directly impacted," he wrote. "However, because one of our teammates leaked this information externally, we decided it was better to share this news earlier so you can hear the details directly from me."

The limits of automation

But as big as the figure of 18,000 layoffs might sound, it represents a tiny fraction of Amazon's global workforce – just 1.2%, in fact, based on the current estimate that Amazon employs about 1.5 million people. If that widely reported number is accurate, Amazon's workforce has already shrunk dramatically since the end of 2021, when it had 1,608,000 employees, according to its annual filing with the US Securities and Exchange Commission. The filing scheduled for next month should reveal all.

From a profitability perspective, Amazon's big problem has long been headcount. As far back as 2015, it had a workforce of nearly 231,000 employees, roughly 67,000 more than Apple employs today. For all the talk of drone-delivered parcels and robot factories, Amazon still needs an army of human beings to lug boxes around warehouses and do various other menial jobs. Automation currently seems likelier to put a journalist out of work (ChatGPT, anyone?) than badly affect many of Amazon's employees.

Table 1: Headcount at major technology companies and telecom vendors

2016 2017 2018 2019 2020 2021
Amazon 341,400 566,000 647,500 798,000 1,298,000 1,608,000
AMD 8,200 8,900 10,100 11,400 12,600 15,500
Apple 116,000 123,000 132,000 137,000 147,000 154,000
Broadcom N/A N/A 15,000 19,000 21,000 20,000
Ciena 5,555 5,737 6,013 6,383 7,032 7,241
Cisco 73,700 72,900 74,200 75,900 79,500 83,300
Corning 40,700 46,200 51,500 49,500 50,110 61,200
Dell 138,000 145,000 157,000 165,000 158,000 133,000
–VMware 20,000 22,000 24,000 31,000 34,000 N/A
Ericsson 111,464 100,735 95,359 99,417 100,824 101,322
Facebook 17,048 25,105 35,587 44,942 58,604 71,970
Google 72,053 80,110 98,771 118,899 135,301 156,500
HPE N/A 66,000 60,000 61,600 59,400 60,400
Huawei 180,000 180,000 188,000 194,000 196,600 195,000
IBM 380,300 366,600 350,600 352,600 345,900 282,100
Intel 106,000 102,700 107,400 110,800 110,600 121,100
Juniper Networks 9,832 9,381 9,283 9,419 9,950 10,191
Marvell 4,617 3,749 5,275 5,633 5,340 6,729
Microsoft 124,000 131,000 144,000 163,000 181,000 221,000
Motorola Solutions 14,000 15,000 16,000 17,000 18,000 18,700
Netflix 4,700 5,500 7,100 8,600 9,400 11,300
Nokia 102,687 101,731 103,083 98,322 92,039 87,927
Nvidia 10,299 11,528 13,277 13,775 18,975 22,473
Qualcomm 30,500 33,800 35,400 37,000 45,000 51,000
Twitter 3,583 3,372 3,920 4,900 5,500 7,500
VMware N/A N/A N/A N/A N/A 37,500
(Source: companies, SEC filings)
(Notes: The fiscal year ended before December for several companies in this list; VMware was spun out of Dell in November 2021; Apple had 164,000 employees at the end of its last fiscal year in September)

That's a positive for them but a negative for Amazon – because if it cannot reduce headcount by more than 18,000 roles, its profitability is not going to markedly improve. Amazon's operating margin has been dwindling rapidly. For the first nine months of 2021, it stood at 6.4%. The most recent set of accounts points to a margin of just 2.6%. Unless sales crash, Amazon would have to slash other types of expense to boost the figure. That said, a hiring freeze after its growth spurt of recent years could make the difference, assuming revenues continue to rise.

On the downside (for Amazon), many of the 18,000 employees losing their jobs are likely to be on lowish wages, especially those working for Amazon Stores. The highest-paid employees, as at other technology companies, will be the software gurus nearly every big organization is seemingly desperate to acquire. Cutbacks here would have a bigger impact on short-term profitability, but they would potentially hinder long-term growth.

Until 2022, the tech sector had been a net creator of jobs for many years, with Amazon the biggest creator of all. But all that looks set to change in 2023. Last year, Facebook owner Meta announced it would cut 11,000 jobs across the 87,000-strong organization, and other firms are either downsizing or halting recruitment. It is not the start to the year that anyone would have wanted.

Related posts:

— Iain Morris, International Editor, Light Reading

Sign In