- IT consultancy to axe 19,000 jobs worldwide
- Stock jumps more than 7% in response
- Guidance trimmed on concern over corporate IT spending
Big tech keeps shrinking. Last week Amazon (AMZN:NASDAQ) said it is cutting another 9,000 workers, adding to Facebook-parent Meta Platforms’ (META:NASDAQ) recent announcement that it will slash another 10,000 jobs on top of the 11,000 it cut in November.
Now we have 19,000 layoffs at Accenture (ACN:NYSE), another massive downsizing that is being repeated across an embattled tech sector that is uncertain about the economic future. This is not so surprising. A shrinking global economy, soaring inflation, higher interest rates; investors want big tech to realign costs with slowing revenue growth to defend margins.
TECH SPENDING CONFIDENCE SAPPED
Accenture’s swing of the axe is just another sign that uncertainty about the global economic outlook is sapping confidence in corporate spending on IT services.
The $178 billion consultancy also trimmed its annual revenue growth and profit forecasts overnight (23 Mar), with Accenture now expecting annual revenue growth to be in the range of 8% to 10% in local currency, compared to 8% to 11% previously.
The company forecast current-quarter revenue in the range of $16.1 billion and $16.7 billion. But the impact on earnings will be larger. Accenture said that it expects annual EPS (earnings per share) to be in the range of $10.84 to $11.06 compared to $11.20 to $11.52 previously.
Consensus for fiscal 2023 (to 31 Aug) is $11.49 EPS on $64.1 billion revenue, according to Koyfin data.
‘While we continue to hire, especially to support our strategic growth priorities, during the second quarter of fiscal 2023, we initiated actions to streamline our operations and transform our non-billable corporate functions to reduce costs,’ the company said in an SEC filing.
‘Over the next 18 months, these actions are expected to result in the departure of approximately 19,000 people (or 2.5% of our current workforce), and we expect over half of these departures will consist of people in our non-billable corporate functions.’
RISK OF CUTTING TOO DEEPLY
For investors, taking the axe to bloated workforces is an obvious solution to a slowing economy, especially when so many big tech firms over-hired during the pandemic boom.
Shares in Accenture jumped more than 7% in response to $271.66. But big tech and investors alike must be careful not to cut so deeply that they are unable to respond to higher demand for technology services when confidence improves and demand picks up.
