As its stock price (“T”) trades at 30+ year lows, AT&T is under severe pressure to cut costs. Its wireless subscriber growth is slowing, new fiber take rates are lower, debt has increased by $6 billion to $143.3 billion, while the company faces a potentially costly ($B+) lead cable cleanup.
AT&T recently announced they will cut another $2 billion in expenses over the next three years, even after reaching a $6 billion cost reduction plan early. Largely through what AT&T called “surplussings,” rounds of layoffs have been conducted on a department level on nearly a monthly basis to reduce costs.
The Dallas-based company’s employment has shrunk this decade from a peak of 281,000 to less than 160,000 through the first half of this year. Since the beginning of 2021, AT&T has cut 74,130 employees, including through divestitures, or 32% of its total staff through June 30th.
The company added fewer customers than analysts’ expected in the second quarter of 2023. In the three months ended June 30th, AT&T added 326,000 mobile phone subscribers. AT&T has been offering free phones in order to fuel customer growth for several quarters. The appeal of those promotions may be wearing out. The company cautioned last month that the pace of subscriber gains had slowed due to competition from rivals and cable TV companies.
AT&T raised rates on its premium mobile plan to help boost revenue and is in the process of restructuring operations by reducing 350 offices across the U.S. to nine core locations with the main hubs in Dallas and Atlanta. The telco has told 60,000 managers that they need to show up in person to one of these locations, and some will face relocation decisions or be fired.
Chief executive John Stankey recently informed employees in an email about the departure of HR chief Angela Santone. She is one of only three female top executives at AT&T. During her tenure, Santone developed an internal “culture of connection” program. The idea was to echo one of Stankey’s themes of “connectivity,” the new simplified mission for the company as it returned to its telecommunications roots after a $100 billion ill-fated attempt to transform the company into a media rival of Walt Disney Co. and Netflix Inc.
“On behalf of AT&T’s leadership, I’d like to thank her for her support and commitment to driving these initiatives during a very challenging and important time of transition,” Stankey wrote in the email, which was confirmed by Bloomberg. AT&T declined to comment on Santone’s departure.
Thanks to the Federal Reserve Board’s “free money party” (aka Quantitative Easing/QE and Zero Interest Rate Policy/ZIRP) from 2009-March 2022, investors desperate for returns sent their money to Silicon Valley, which pumped it into a wide range of start-ups that might not have received any funding in other times. Extreme valuations of both public and private companies made it easy to issue stock or take on loans to expand aggressively or to offer sweet deals to potential customers that quickly boosted market share.
“The whole tech industry of the last 15 years was built by cheap money,” said Sam Abuelsamid, principal analyst with Guidehouse Insights. “Now they’re getting hit by a new reality, and they will pay the price.”
Cheap money funded many of the tech acquisitions that were a substitute for internal growth. Two years ago, as the pandemic raged and many office workers were confined to their homes, Salesforce bought the office communications tool Slack for $28 billion, a sum that some analysts thought was way too high. Salesforce borrowed $10 billion to do that deal. This month, Salesforce said it’s laying off 8,000 employees, about 10% of its staff, many of them from Slack.
More than 46,000 workers in U.S.-based tech companies have been laid off in mass job cuts so far in 2023, according to a Crunchbase News tally. Last year, more than 107,000 jobs were slashed from public and private tech companies Here are just a few:
- Amazon is laying off 18,000 office workers and shuttering operations that are not financially viable. More below.
- Google parent Alphabet is cutting 12,000 jobs.
- Microsoft, which has been riding high on cloud revenues for years, is eliminating 10,000 jobs.
- Cisco plans to cut 5% of workforce – approximately 4,100 people will lose their jobs.
- Facebook parent Meta announced in November that it plans to eliminate 13% of its staff, which amounts to more than 11,000 employees.
- Shortly after closing his $44 billion purchase of Twitter in late October, new owner Elon Musk cut around 3,700 Twitter employees.
- IBM said today it would eliminate about 1.5% of its global workforce, which amounts to a “ballpark” figure of 3,900 job cuts.
The easy money era (which started shortly after the Lehman Brothers bankruptcy in September 2008) had been well established when Amazon decided it had mastered e-commerce enough to take on the physical world. Its plans to expand into bookstores was a rumor for years and finally happened in 2015. The media went wild. According to one well-circulated story, the retailer planned to open as many as 400 bookstores. Instead, the eRetail and cloud computing leader closed 68 stores last March, including not only bookstores but also pop-ups and so-called four-star stores. It continues to operate its Whole Foods grocery subsidiary, which has 500 U.S. locations, and other food stores. Amazon said in a statement that it was “committed to building great, long-term physical retail experiences and technologies.”
“High rates are painful for almost everyone, but they are particularly painful for Silicon Valley,” said Kairong Xiao, an associate professor of finance at Columbia Business School. “I expect more layoffs and investment cuts unless the Fed reverses its tightening.”
Addendum (Feb 26, 2023):
Ericsson will lay off 8,500 employees globally as part of its plan to cut costs, according to a memo sent to employees and seen by Reuters. “The way headcount reductions will be managed will differ depending on local country practice,” Chief Executive Borje Ekholm wrote in the memo. “In several countries the headcount reductions have already been communicated this week,” he said. “It is our obligation to take this cost out to remain competitive,” Ekholm said in the memo. “Our biggest enemy right now may be complacency.”
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