Big tech is slowing down, and that should send shivers down all of our spines. Last week, Google reported a steep drop in profits, while companies like Meta have reported that advertising sales – which is how they generate revenue – have also fallen off. Microsoft, perhaps the most reliable big tech company due to its reliance on B2B business, has said that revenues will continue slowing throughout the end of 2022, if not beyond. The problem with big tech suffering is that they have been the strongest market players over the last decade, especially during the pandemic. While more traditional firms suffered, big tech revenue soared, as lockdowns pushed people to use social media, streaming services, and more tech in general to go about their lives. With inflation that just will not quite subside and the Fed continuing to increase interest rates, there are few signs that tech will recover anytime soon.
Despite their pandemic performance, big tech firms are not immune to the same issues that are pummelling companies in other industries. Because consumers spent more during the pandemic, companies across most sectors increased investment to keep up with surging demand. As that demand plummets, these companies are forced to adjust, and doing so has been quite difficult. For example, Amazon had almost 800,00 employees in 2020, and the company expanded its warehousing operations throughout the world. But due to falling demand, they are not terminating leases and delaying plans to open new facilities. Although Amazon still employs 1.52 million people, that is still 100,000 fewer people than they had back in March of 2022.
The Getting Is Still Good
Despite these issues, big tech is still making absurd profits. Google and Microsoft combined for 31.5 billion USD in profit in Q3 2022. Apple made more than 20 billion. But these numbers are down from previous quarters, and that is why they are still disappointing. And this disappointment may also be exposing a weakness – these companies, despite acquisitions and new releases, have not really found new unicorns in quite some time. Google and Meta are heavily reliant on ad sales, and it is looking more and more like Mark Zuckerberg’s heavy investment into the metaverse will end up as an albatross around Meta’s neck. Moreover, Meta’s Facebook and Instagram are being replaced by TikTok, with social media profits for the company falling 50% compared to where they were a year ago.
Apple is now on version 15 of the iPhone, and that device is still the primary driver of the company’s profits.
The worst-hit players, however, are not the tech giants, but the upstarts. This time last year, crypto was all the rage, but now the value of Bitcoin has plunged by more than 2/3. Uber, which is still categorizable as an upstart company because they do not operate profitably, has shown that investors are no longer willing to wait as long for companies to turn profitable. Semiconductor companies are cutting spending on factories and machinery as sales of PCs, smartphones and appliances slow. Covid-related lockdowns in China and the growing threat of trade and technology restrictions have made things worse. Things are shaping up for a dark winter for the tech industry.