Shulou(Shulou.com)11/24 Report--

In 2022, investors suddenly began to worry about whether Silicon Valley's tech giants had a chance to thrive in the face of a massive recession, leading to sharp cuts in public and private valuations. For now, the nightmare is becoming a reality: on Wednesday, local time, software service provider Salesforce announced that it would cut 10% of its jobs, involving about 7000 jobs, and close some offices. Less than a year ago, Salesforce claimed to be able to weather the market downturn.

Salesforce announced massive layoffs on the fourth day of 2023, a very clear sign that the worst is yet to come for technology companies, even if last year's environment was very bad.

To be sure, the Salesforce situation has little to do with the market as a whole. Revenue growth has slowed, the company has lost executives such as co-chief executive Bret Taylor, and is in the process of consolidation after massive mergers and acquisitions. Salesforce had previously acquired Slack, and the founder of Slack recently left Salesforce.

Corporate customers are cutting IT budgets, which will affect Salesforce, Microsoft and other technology companies that focus on this market. As revenue slows, these companies are expected to cut more costs, adopt tougher austerity measures, and may even cut jobs further.

However, the market also has different views. Analysts at Bernstein believe that even in the face of this macro trend, "cloud computing should be the most defensive business among large technology companies." Even in the worst economic environment, companies are unlikely to give up their dependence on major platform vendors altogether.

Currently, IT managers among enterprise customers are re-evaluating new technology investments over the past two years. At the beginning of the outbreak, companies were busy switching to telecommuting and purchased a large number of new cloud computing software tools for this purpose. When they buy tools such as Zoom or Notion, they don't necessarily take the time to think about the total cost they have to pay for it.

"executives are caught in a fog of war over demand visibility, and they don't want to be the first to be conservative," Alex Zukin, an analyst at research firm Wolfe Research, wrote in a recent research note. Software buyers are scared, not just because of their budget cuts, but also because they may lose their jobs. "

Analysts also point out that it is difficult to predict how much spending will fall because cloud computing as a whole is a relatively new industry. Facing the future, the enterprise's basic cloud computing infrastructure spending is likely to remain the same, as it has become a necessity. However, "non-mission critical" add-on services and cloud computing software tools will be affected.

"not all cloud infrastructure spending is mission critical," wrote Bernstein analysts. "We are seeing many enterprise customers downgrade, review various software licenses, and 'adjust' their cloud infrastructure plans as appropriate. Amazon is actively working with their customers."

Analysts at Bernstein and Royal Bank of Canada point out that this also means that plans for companies to move to cloud computing platforms will slow in the coming months.

"companies are increasingly focusing on combing cloud computing costs and reducing spending on specific suppliers," said analysts at Royal Bank of Canada. " For large cloud infrastructure providers, this means that more customers will reduce costs by adopting cross-cloud strategies. For software providers, any company that provides a single tool rather than a platform is likely to be hit. However, Salesforce's layoffs are a sign that even platforms may not be seen as mission-critical as they were a year ago.

Analysts point out that companies are preparing for a poor start to 2023. Analysts at Royal Bank of Canada expect more layoffs to come. It is also difficult to make complete forecasts, given that many companies have not yet given guidance on their performance for the coming year. "as the third-quarter earnings season approaches, investors are still watching what the coming year will look like," they wrote in a research note. "as only a small number of companies have provided guidance for next year, 2023 is still largely unknown."

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