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

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
Wayfair
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

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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
  Kyndryl
  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
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

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 reported.

• 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