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

The e-commerce giant is reckoned to employ about 1.5 million people worldwide and would be loss-making without its cloud business.

Iain Morris, International Editor

January 5, 2023

9 Min Read
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.

Figure 1: 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.

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

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.

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— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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