Big Tech hiring freeze in the US 'unlikely to affect IT services spending'

Big technology companies such as Apple, Amazon and Facebook owner Meta Platforms plan to freeze hiring amid a slowdown in the US economy, but this is not expected to hit IT spending significantly as demand for services continues to grow, industry experts have said.

The companies are bracing for one of the “worst economic downturns”, with Amazon saying it is overstaffed after reporting a second-quarter loss of $2 billion last week. Facebook has also scaled back plans to hire engineers while Microsoft, Netflix and Tesla have been eliminating jobs in recent months, Bloomberg reported.

However, the Big Tech hiring freeze is being offset by “significant uptake of demand for IT services”, which are mostly driven by the requirements of digital transformation that accelerated during the pandemic, said DD Mishra, a senior director analyst at Gartner.

“Most of the Big Tech firms are anticipating the risk of a recession and slowdown in the US economy, and are taking some measures in the form of a hiring freeze and slowdown in hiring due to the global economic environment, geopolitical situations and other challenges,” Mr Mishra told The National. “[But] inflation, geopolitical disruption and talent shortages are not expected to slow IT investments significantly for now. Purchasing and investing preferences will be focused on areas including analytics, cloud computing, seamless customer experiences and security.”

Geopolitical and economic uncertainty is mounting across the world after Russia’s military offensive against Ukraine, with inflation also rising due to higher commodity prices and supply chain disruptions. In July, the US economy shrunk for a second quarter in a row, triggering one definition of a “technical recession”, as record-high inflation and aggressive interest rate increases by the Federal Reserve hit business and housing demand.

However, the US hiring market remains strong, with employers having added more jobs in June than forecast and the unemployment rate near a five-decade low, suggesting recruitment needs are, so far, eclipsing concerns about the economic outlook.

Meanwhile, the number of information technology professionals globally is expected to grow more than 12 per cent to about 62 million in 2023, from 55.3 million in 2020, data from Statista shows. Earlier this year, Gartner projected end-user IT services spending would grow at a compound annual rate of 9.1 per cent between 2020 and 2025.

However, the research company has since lowered its forecast to an annual growth rate of 8.5 per cent between 2021 and 2026. “The demand pipeline for IT services is expected to stabilise, and a slowdown in additional demand could also be one of the reasons for taking steps towards stabilising demand and supply,” said Mr Mishra.

He said 2023 and 2024 would be “much better”, compared with this year. “A combination of all these factors may require some short-term and long-term measures to navigate through emerging situations … we have not seen such an impending challenge from a services perspective in the short term.”

Technology companies may have to consider pausing their hiring plans to sustain the record growth they experienced during the Covid-19 pandemic, said George Foley, a Dubai-based senior consultant at recruitment company Michael Page. “The worst of the pandemic seems to be over and now these tech companies are in a great position for sustainable long-term growth. While this may mean temporary freezes for some during this transition period, we are more positive about the technological future than ever before,” Mr Foley said.

Kazim Hussain, a Dubai-based business manager for cloud infrastructure and telecoms at recruitment company Cooper Fitch, said that while the technology sector in the Mena region continued to grow, some companies were slowing down overall hiring plans to ensure the employment of people with niche skills in cloud computing and machine learning.

However, it is important for technology start-ups to avoid overhiring, he said. “[I have] witnessed many start-ups overhiring talent without demonstrating any real business growth, and then cutting jobs to balance their books.”