Monday, March 27, 2023
HomeMarketDow, IBM, and SAP Keep the Layoffs Coming. It’s Spreading Beyond Tech.

Dow, IBM, and SAP Keep the Layoffs Coming. It’s Spreading Beyond Tech.

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Layoffs in the tech sector are becoming an almost daily occurrence.

IBM and SAP are the latest companies to join the industry’s wave of job cuts, with announcements late Wednesday and early Thursday.

They join



and Spotify in announcing head-count reductions so far in January. That’s a running total of more than 56,000 tech jobs.

It’s no longer just the high-growth Big Tech companies, which aggressively hired during the Covid-19 pandemic, that are reducing head count—It’s spreading as more and more companies prepare for an economic slowdown. Chemicals giant Dow said Thursday it will cut around 2,000 jobs as part of a plan to deliver cost savings of $1 billion in 2023. While online furniture retailer
unveiled job cuts last week.

The tech industry is still largely standing alone when it comes to layoffs but it could be a prelude to reductions across the broader economy. That being said, Federal Reserve officials noted in the central bank’s December meeting that companies were keen to retain workers due to labor shortages and hiring challenges.

The Fed will be watching the seemingly relentless stream of layoffs closely, particularly ahead of its meeting next week. The central bank needs the labor market to cool before it can contemplate ending rate hikes, although it may need to see job losses spreading significantly into other sectors.

Officials are likely to be focusing on something else, though. Friday’s PCE price index is the Fed’s favored inflation metric.

The Bank of Canada became the first major central bank to signal it will pause rate hikes on Wednesday. “We are turning the corner on inflation,” governor Tiff Macklem said.

Investors, particularly those of the tech persuasion, will be hoping the Fed follows suit soon.

Callum Keown

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Alex Eule today at noon when they discuss the outlook for tech companies and individual stocks. Sign up here.

Try your hand at this morning’s Barron’s crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.


IBM Posts Solid Revenue, Announces Job Cuts

International Business Machines
beat revenue expectations and will be cutting about 3,900 jobs, The Wall Street Journal reported, joining other tech giants that are shrinking their workforces. For 2023, IBM forecast adjusted revenue growth consistent with mid-single digits and $10.5 billion in consolidated free cash flow.

  • CEO Arvind Krishna told Barron’s the company sees strength in consulting signings, as well as 4% to 5% growth in the recurring software revenue base. Revenue in the infrastructure sector will likely be lower in 2023 after last year’s spike from the rollout of new mainframe hardware.

  • IBM will take a $300 million first-quarter charge related to the company’s divestitures of
    and Watson Health, a reference to job cuts. Krishna toldBarron’s the cuts don’t affect research and development, sales or consulting. They didn’t over-hire and they aren’t cutting capacity, he said.

  • Lam Research,
    a foundry equipment supplier, plans to cut 7% of its workforce, or 1,300 workers amid a steep drop in chip demand. The layoffs come following a big personnel buildup during the pandemic.

  • Lam expects research and development as a percentage of operating expenses in 2023 will increase compared with 2022. Fiscal third-quarter adjusted earnings are projected to be between $5.75 and $7.25 a share on sales of $3.5 billion to $4.1 billion, both measure below expectations.

What’s Next: IBM’s free cash flow projection for 2023 is slightly below expectations, leaving $15.2 billion for the company to bring in next year to meet a previous forecast for $35 billion in total free cash flow for the three years through 2025.

Eric J. Savtiz and Liz Moyer


Tesla Beats Expectations With Record Operating Profit

beat expectations and reported record operating profit in the fourth quarter but
warned of uncertainty ahead. It said in the near term it is speeding up its cost-reduction plans and is “driving toward” higher production rates as it cuts the cost of its cars.

  • Elon Musk’s electric-vehicle maker had fourth-quarter earnings of $1.19 a share from sales of $24.3 billion. Analysts were expecting earnings of about $1.13 from $24.7 billion in sales. Automotive revenue rose 33% from the prior year.

  • Tesla, the most actively traded stock in the U.S. market, faces a tougher economic environment, with rising interest rates, elevated inflation, and recession fears. EV competition is ramping up, and investors also are wary of Musk’s new role as the owner of Twitter.

  • Tesla shares rose 3.8% in late trading. Tesla will invest more than $3.6 billion in two Nevada factories to manufacture battery cells and increase production of its Semi truck.

  • Musk’s representatives have talked to investors about raising up to $3 billion to repay some of Twitter’s $13 billion in debt, The Wall Street Journal reported, citing people familiar with the matter. Musk’s team didn’t respond to the Journal’s request for comment.

What’s Next: Tesla plans to produce 1.8 million vehicles in 2023. Tesla aspires to sell 20 million vehicles annually by 2030, making it the largest car manufacturer by volume. Musk has said that would require about a dozen factories, the Journal reported.

Al Root and Janet H. Cho


Southwest Airlines Faces DOT Investigation Into Holiday Meltdown

The Department of Transportation (DOT) has started investigating
Southwest Airlines
’ scheduling after its holiday meltdown during which 16,700 flights were canceled. It is looking at whether the airline engaged in an “unfair and deceptive practice” by selling more flights than it could operate, The Wall Street Journal

  • Southwest told Barron’s that its holiday schedule, operations, and staffing were “stressed” by multiple days of flight cancellations across 50 airports. “We will cooperate with any inquiry or request from government oversight or elected officials. We’re acutely focused on learning from this event” and preventing it from happening again.

  • Southwest CEO Bob Jordan has said the airline is focused on making sure the issues over the holiday travel week don’t re-emerge. It hired consultants at Oliver Wyman to review its processes and is working with
    General Electric
    to improve the software it uses to assign crew.

  • Southwest offered flight attendants premium pay and gave pilots “gratitude pay” of $45 million after the holiday outage, CNBC reported. The Southwest Airlines Pilots Association has called for a vote in May to authorize strikes for better pay and working conditions.

  • Winter storm Kassandra forced airlines to cancel or delay more than 5,600 U.S. flights on Wednesday. Southwest canceled 6% of its flights, and told Barron’s it modified schedules and let people rebook before the storm.

What’s Next: Travel booking site Hopper said 2023 domestic flights will cost 13% more between February and April, compared with last year. Hotel rooms are costing 60% more than 2022.

Janet H. Cho


Eli Lilly’s, Novo Nordisk’s Weight-Loss Treatments to Keep Growing

Eli Lilly’s
33% growth in 2022 and Novo Nordisk’s 25% increase were driven in large part by their lead in a class of drugs known as incretins, which are injectable treatments first developed for diabetes that also caused dramatic weight loss. Sales are expected to keep climbing in 2023.

  • Incretins target receptors in the gut and brain, taming hunger and enabling patients to shed an average of 15% to 20% of their weight. Analysts project that sales of the drugs could someday total tens of billions of dollars a year.

  • When
    Novo Nordisk’s
    Wegovy became the first incretin approved for weight loss in 2021, demand quickly exhausted supply. Doctors started off-label prescribing of Novo’s similar diabetes product, Ozempic. Lilly’s new incretin Mounjaro has seen similarly unexpected demand since it was approved for diabetes in May 2022.

  • New prescriptions for Novo’s incretin products are growing at more than 60% from last year, wrote Guggenheim analyst Seamus Fernandez, including 82% growth in prescriptions for Ozempic. New prescriptions are up nearly 300% for Lilly’s two incretins: Mounjaro and the earlier Trulicity.

  • Lilly Chief Financial Officer Anat Ashkenazi told a JPMorgan healthcare conference in January the category would get a boost if Congress passes the Treat and Reduce Obesity Act, driving insurance coverage for obesity drugs. Without insurance, some incretin products can cost $1,000 a month.

What’s Next: Lilly is hoping to get Food and Drug Administration approval for a weight-loss version of Mounjaro and launch the resulting product by the end of 2023. Novo Nordisk and Lilly both report earnings next week.

Bill Alpert and Janet H. Cho


Meta to Reinstate Trump on
and Instagram

Meta Platforms said it would end its suspension of former President Donald Trump from its social media sites Facebook and Instagram.

  • The move opens the door for Trump’s return to the platforms for the first time since January 2021, and just as he kicks his 2024 presidential bid into gear. Before the suspension, Trump had 34 million followers on Facebook and 23 million on Instagram.

  • “As a general rule, we don’t want to get in the way of open, public, and democratic debate on Meta’s platforms,” wrote Nick Clegg, Meta’s president of global affairs, in a blog post. “But that does not mean there are no limits to what people can say.”

  • Trump was indefinitely suspended by Meta after the violence at the U.S. Capitol. Meta’s independent Oversight Board upheld that decision in May 2021 but was critical of the open-endedness. In June 2021, Meta said the suspension would be for two years from the original date.

What’s Next: Trump is not guaranteed to return to the platforms as he is also building his own social media app, called Truth Social. The former president has not yet come back to Twitter, despite his account being restored in November shortly after Elon Musk bought the company.

Liz Moyer


GoFundMe campaigns have been raising piles of cash for older
workers who want to retire—but the heartwarming stories about sudden windfalls mask a dark reality about economic security and growing old in America, say retirement experts.

“This is not a feel-good story, this is about the failure of our retirement system,” said Teresa Ghilarducci, a labor economist at the New School, about the spate of GoFundMe campaigns supporting older Walmart workers.

Read more here.

Leslie Albrecht


—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown


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