alphabet (Google) the parent company of Google wants to avoid nasty surprises.
The company believes that a significant slowdown in growth will impact advertising revenue, its main source of income.
For the past few months, the group has therefore been trying to prepare for a dark scenario as the Federal Reserve (Fed) continues to aggressively raise interest rates to combat inflation, which is at its highest level in 40 years.
For many experts, this monetary policy threatens a so-called hard landing for the economy, i.e. a recession. Alphabet executives appear to share that analysis, as CEO Sundar Pichai just warned of the “toughest macroeconomic conditions” of the last 10 years.
“We can’t choose”
“Listen, I hope you’re all reading the news externally,” Pichai told employees during an all-hands meeting held in New York this week. “The fact that we’re acting a little more responsibly in one of the most challenging macroeconomic conditions of the past decade means I think it’s important that we pull together as a company to weather such moments.”
Pichai tried to justify why the company took drastic cost-cutting measures while profits remained strong. Alphabet reported second-quarter net income of $16 billion in late July. Quarterly revenue increased 13% to $69.7 billion.
But overall, the results fell short of expectations.
“We can’t always pick the macroeconomic conditions,” Pichai told staffers.
Google has reportedly just canceled the next version of its Pixelbook laptop and disbanded the team responsible for building it.
The company has also made cuts at its tech incubator Area 120, which aimed to keep some of the company’s talent in-house, according to Siliconangle.com. Basically, Google is cutting funding and eliminating about half of the unit’s current projects and teams.
Alphabet has also cut several perks, travel and entertainment budgets, according to CNBC.
Google did not respond to TheStreet’s requests.
How Google will reduce its workforce
Pichai had already started preparing for possible layoffs in early September.
“The more we try to understand macroeconomics, the more insecure we feel,” Pichai said at the Code 2022 annual conference in Los Angeles on Sept. 6. “Macroeconomic performance correlates with advertising spending, consumer spending, and so on.”
He then added that he wanted to “make the company 20% more productive.”
It is therefore not surprising that one of the questions asked by the employees in the overall meeting was how he intends to achieve this goal.
“I think you could be a 20-person team or a 100-person team, looking forward we will be constrained in our growth,” Pichai replied. “Maybe you were planning on hiring six more people, but maybe you’re going to be dealing with four and how are you going to do that? The answers will be different for different teams.”
He continued, “Sometimes we have a product launch process that has probably gotten more complicated than it needs to be over the years,” Pichai explained. “Can we look at this process and maybe remove two steps and that will be an example of making something 20% more efficient? I think that if we all get involved and do it at all levels, we can all help the company. At our scale, we cannot solve this unless units of teams of all sizes do it better.”
Pichai assured that Alphabet will continue to invest in projects such as quantum computing, but at the same time must adapt to the new reality.
In uncertain times like the current one, the company has to be “smart”, “thrifty”, “junk” and “more efficient”, added the CEO.
During the second-quarter earnings call, Chief Financial Officer Ruth Porat told analysts that the company was slowing hiring, which would allow it to cut costs.
“Given the uncertain global economic outlook and the hiring progress made so far, as Sundar previously announced, we intend to slow the pace of hiring,” Porat said. “We expect our hiring actions to become more explicit in 2023.”
According to a regulatory filing, Alphabet employed 174,014 people as of June 30, a 21% increase from June 30, 2021.
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