Tech companies hit the brakes as slowdown looms

Tech giants that have often sailed above the economy’s turmoil can’t escape the current downturn’s pain, as this week’s earnings reports from the sector’s key companies illustrated.

Why it matters: Even as other industries struggled during the pandemic, tech prospered because so much of the economy shifted online. Now they are preparing to take a direct hit.

Driving the news:

• Google, Snap, Twitter and Facebook parent Meta all warned in various ways about a sharper than anticipated slowdown in online advertising.
• PC chip giant Intel on Thursday posted disappointing numbers, though its troubles are exacerbated by its own execution problems above and beyond a slowdown in PC sales.
• Amazon, which also reported results on Thursday, saw sales growth flatten, with online sales actually down year-over-year.

Apple, meanwhile, fared somewhat better in results posted yesterday.

• The company, which in April had forecasted component shortages and production issues would dent quarterly revenue by $4 billion to $8 billion, saw a somewhat milder impact, and iPhone sales remained strong.

Yes, but: Even Apple took some hits from the broader economic slowdown, including an impact on revenue from wearables and services.

• Apple said it sees the growth of its services business continuing to slow, even as it projects the company’s overall revenue will grow faster in the current quarter.

The big picture: Tech companies are hitting the brakes, especially when it comes to hiring. Just a few months ago their biggest challenge was finding enough qualified people to fill open jobs.

• While most large companies have stopped short of a full-on hiring freeze, nearly all have said they expect headcount growth to slow.
• Even Apple plans to slow its hiring pace. CEO Tim Cook told analysts Apple will continue to hire in key areas, but noted, “We are being more deliberate in doing so.”
• Many startups, meanwhile, are weighing or implementing layoffs in anticipation of a funding drought.

Between the lines: Companies are facing a long list of challenges, from lingering supply chain bottlenecks to inflation to foreign exchange costs.

Be smart: Just planning for a possible economic slowdown can make the slowdown happen.

• As companies cut their own advertising budgets and try to do more with less, the rest of the economy feels the bite.

Our thought bubble: No one is happy in this kind of business climate, but the markets appear to be relieved that most of the tech giants avoided big negative surprises.

• Also, downturns tend to be good for big companies in the long term, as they are able to use their giant hoards of cash get to keep investing in new products and growth while others are fighting for their lives.
• Typically these are also good times to make acquisitions, though that could prove tougher for the large tech companies amid greater antitrust scrutiny.