Technology companies are cutting jobs and Wall Street is happy about it

Tech giants will report quarterly figures from Tuesday, starting with Alphabet and Microsoft. Wall Street expects good news, including more progress in artificial intelligence.

But the industry has also relied on another strategy to improve its financial situation: layoffs. The cuts are not as widespread as last year, when hundreds of thousands of jobs were cut. But they're a reminder that the tech sector is still trying to find its footing after a hiring boom during the coronavirus pandemic and find ways to maintain staggering stock gains.

About 100 companies have cut 25,000 jobs this year, according to Layoffs.fyi. By comparison, more than 1,000 companies eliminated about 260,000 last year.

So far this month: Microsoft announced 1,900 cuts to its video game division, including at recently acquired Activision Blizzard; Google has laid off hundreds of employees, including in its tech ranks and in its hardware division; and Amazon said it would lay off hundreds of people, including 35 percent of the workforce at its Twitch unit.

Not all layoffs are the same The Times notes:

• For big tech companies, job cuts have been a way to reduce spending on non-core activities and achieve the kind of cost savings that Wall Street loves. Now those cuts are more targeted: in the case of Meta, this means reducing the number of middle managers at Instagram.

• For smaller tech companies, it's more a matter of survival. Startups are finding it harder to raise capital as risk-averse venture capitalists persist their wallets closed. In the words of Nabeel Hyatt, general partner at Spark Capital, these young companies are “just trying to get a runway to survive.”

The cuts are likely to last as long as investors like them. Wall Street has rewarded tech companies that laid off thousands of people with higher stock prices. Meta's shares have soared since it embarked on a self-described “year of efficiency” last year, making it a third leaner in terms of employees. These cost savings, combined with a doubling down on AI, have helped push the tech giant's market value to more than $1 trillion.

And venture capitalists have told DealBook that they are willing to invest in startups, but that it helps if those companies make themselves leaner. According to the investors, this will enable them to operate better in potentially difficult times.

• In other layoff news, some tech workers are filming their layoffs and posting them on social media, in the name of catharsis and transparency.

HERE'S WHAT'S HAPPENING

Boeing is withdrawing efforts to expedite safety approval for a version of its 737 Max jet. The aircraft manufacturer has withdrawn an application submitted last year to request an exemption from a safety standard for a version of its 737 Max 7. In addition, Boeing received good news during the latest crisis: the European airline Ryanairone of its largest customers, said it would buy more planes if U.S. airlines halt orders.

Amazon is scrapping its deal to buy the maker of Roomba vacuum cleaners. The move to halt the $1.7 billion acquisition of iRobot came days after FTC officials told Amazon lawyers that the agency would likely file a lawsuit to block the transaction. In November, European competition authorities warned that they were also against the takeover.

Elon Musk said Neuralink had implanted his first device in a human brain. Musk said the product, Telepathy, would allow someone to control a phone or computer “just by thinking” and would initially be aimed at “those who have lost the use of their limbs.” He said the early results were encouraging.

Reed Hastings is donating $1.1 billion in Netflix stock to charity. The co-founder of the streaming giant admitted it 40 percent of his stake to the Silicon Valley Community Foundation, a California-based nonprofit popular among tech founders. The group offers donor-advised funds, a philanthropic vehicle that can offer benefactors both privacy and significant tax benefits.

Wall Street is waiting for JetBlue's exit plan

JetBlue just reported income, predicting higher costs and flat sales. But a bigger issue looms for the airline: what its plans are for the $3.8 billion deal to buy Spirit Airlines.

A federal judge two weeks ago blocked the deal, intended to create one of the nation's largest airlines. Now JetBlue has said it might try to pull out, potentially setting off the kind of messy divorce drama that has investors concerned.

Wall Street thinks JetBlue is better off without Spirit. Blocking the deal meant JetBlue had “dodged a bullet,” JPMorgan Chase analysts said. Spirit has struggled with weak performance and heavy debt.

Shares in JetBlue have risen by double digits since the judge's ruling, as investors hope the airline can focus on its own operations at a difficult time for its industry.

But getting out may not be easy. The deal has a “drop-dead” date of July, until which JetBlue must use its best faith efforts to complete the transaction, including appealing the judge's ruling.

That is unless Spirit breaches the contract, an argument for which JetBlue appears to be laying the groundwork: In a regulatory filing on Friday, the larger airline said Spirit had not met “certain closing conditions” required by the deal. It's not clear what terms Spirit may have violated (or if JetBlue is simply trying to apply pressure to negotiate an exit). For its part, Spirit says it believes “there is no basis to terminate the deal.”

Delays will be costly. To beat Frontier Airlines in a bidding war for Spirit, JetBlue offered to include a $470 million breakup payment, including a monthly ticking fee of 10 cents per share that it has paid since January 2023.

“Every second this thing drags along, it's paying out big bucks,” Ann Lipton, a professor of corporate governance at Tulane University, told DealBook. “The advantage of terminating now is that you no longer have to pay the ticking costs.”

All eyes are on the Fed again

The Fed is holding its final two-day meeting and is expected to leave interest rates unchanged. But investors will be looking for clues from Fed Chairman Jay Powell at his news conference on Wednesday about when the central bank might start cutting spending.

The strong economy complicates the Fed's decision. Growth continues apace, even as interest rates are at their highest levels in more than two decades. Investors put the odds of a rate cut after the Fed's March meeting at about 50-50, although many economists say late spring or early summer is more likely.

One concern: interest rate cuts could fuel inflation, It has fallen, but has not yet reached the Fed's 2 percent target. “Overall, we view this meeting as one that will buy the committee time to determine whether inflation is indeed on a sustainable path back to 2 percent,” Wells Fargo economists wrote in a research note.

Inflation-adjusted interest rates weigh on Fed thinking, writes Jeanna Smialek of The Times. Many experts think this really matters for the economy, especially as investors and lenders take into account future purchasing power and the interest they will earn when making decisions.

The Fed is expected to proceed cautiously. Last month, Powell indicated three cuts were planned in 2024, before officials walked back the comments. If a move in March is likely, many observers expect him to give a strong hint.

But officials don't want to make cuts too early. “Premature rate cuts could trigger a surge in demand that could put upward pressure on prices,” Raphael Bostic, the president of the Atlanta Fed, said this month.

“For most companies, the ship has sailed full circle back to the office. They don't go from three days a week to five days a week by beautifying their space.”

— Rob Sadow, CEO of Scoop Technologies, a software company that developed an index that tracks workplace strategies, on why many employers giving up on forcing employees to be in the office five days a week.

Why markets aren't panicking about the Middle East (yet).

President Biden is weighing how to respond after three U.S. soldiers were killed in Jordan in what his administration said was a drone strike by an Iranian-backed militia. (Iran has denied ordering it.)

Still, markets have largely shrugged off concerns that unrest in the Middle East could increase. Why?

John Authersa Bloomberg opinion columnist, suggests several factors are at play, including investors' desensitization to bad news and the belief that full-scale war won't break out in an election year.

The most important thing when it comes to assessing the Middle East, Authers writes, is oil:

Another reason for the calm on Wall Street is that traders are outsourcing the task of risk assessment to the oil market. If the oil price doesn't rise, the risk may not be that great, so it's safe to stay on the stock bandwagon. …

Oil fell quickly after trading resumed following last weekend's news, reassuring traders in other markets that the risks were not serious. They are also, arguably, skewed against disaster. If Biden's response isn't strong enough, the US will look bad, but the oil will keep flowing.

Jean Ergas, chief economist at Tigress Financial Partners in New York, points out that oil is almost a binary market, and that at least the largest supertankers do not pass through the Red Sea and the Suez Canal. “The oil is there or it isn't there. As it is now, it is dangerous, risky, but it is coming.”

READING THE SPEED

Offers

• The French car manufacturer Renault dropped plans to spin off its electric car division, Ampere, citing poor IPO market conditions. (Reuters)

• For task transfers: Jim Esposito, a veteran Goldman Sachs executive who heads the global banking and markets division, is retiring; And Tom Nides, a longtime banker and diplomat, will join Blackstone as vice chairman. (WSJ)

Policy

• A former IRS contractor accused of leaking the tax documents of Donald Trump and others was sentenced to five years in prison. (NYT)

• Lawmakers in Congress have done just that threatened hearings on President Biden's plan to pause approval of liquefied natural gas exports over climate and energy security concerns. (Axios)

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