Silicon Valley layoffs were on the rise for the first four months of 2016. Between January and April of 2016, company notices filed under the California Worker Adjustment and Retraining Notification (WARN) act show that 3,135 workers were let go by Bay Area tech companies in the counties of Alameda, Santa Clara, San Mateo and San Francisco. By comparison, for the same period in 2014, San Francisco Bay Area tech companies filed just 1,330 WARN act notices. Tech companies contributing to the early 2016 layoffs include Yahoo! Inc. (NASDAQ: YHOO) and Autodesk Inc. (NASDAQ: ADSK). Other Bay Area employers that have filed WARN act layoff notices for mid-2016 include International Business Machines Corporation (NYSE: IBM), Western Digital Corporation (NASDAQ: WDC) and Lockheed Martin Corporation (NYSE: LMT). The layoffs indicate that companies are reigning in spending after stock turmoil in early 2016, but other jobs data indicates that the tech sector is still poised for continued growth.
Tech Stock Cool Off
At the root of the layoffs is the 2016 tech sector slowdown, reflected in disappointing earnings reports by several Silicon Valley giants. In April, Apple Inc. (NASDAQ: AAPL) posted an earnings miss and a drop in revenue for the first time in 13 years. Reasons for Apple's revenue miss include a saturated smartphone market at home and a significant sales drop in China. Other Silicon Valley tech leaders that reported earnings misses in April include Alphabet Inc. (NASDAQ: GOOG) and Twitter Inc. (NYSE: TWTR). Another factor at play is the sluggish initial public offering (IPO) market for tech stocks for the first two quarters of 2016. The absence of IPO activity by late spring usually means that the summer IPO market will be quiet. IPO activity typically resumes in the fall, but the U.S. presidential election in November 2016 could further delay big IPO launches.
The job market volatility signals a cool-off in funding for start-ups backed by venture capital. Stock market shifts affect hiring, as management and investors switch their focus from growth to generating sustainable income. This entails taking a closer look at company expenditures and making difficult decisions about nonessential staff. Increased competition for funding by private companies is also shifting the focus to profitability. Overall, companies that can withstand the belt-tightening are poised to bounce back and grow.
Mergers and Acquisitions
While the IPO market has cooled, global tech mergers and acquisitions (M&A) are on the rise and contributing to the Bay Area layoff count. For example, in May 2015, Singapore-based electronics firm Avago Technologies Ltd. purchased Irvine-based chipmaker Broadcom Limited (NASDAQ: AVGO). The company acquisition resulted in the layoffs of a total of 869 former Broadcom workers from the company's Santa Clara, San Jose and Irvine locations.
While the current wave of layoffs in the Bay Area brings to mind previous downturns in the tech sector, the overall numbers in 2016 are comparatively strong. For example, after the dot-com bubble burst, the Bay Area lost jobs from 2001 to 2004. During the pre-recession period of 2008, employment growth slowed for more than six months before tech company layoffs began in earnest. Employment then fell by as much 32,000 a month during the 2008 recession and into 2009. By comparison, as of March 2016, the regional job market was still growing, with 102,600 new workers hired since 2015. Total employment in the Bay Area stands at 3,353,600.
Overall Hiring Trends
The Bay Area job numbers may be even larger than reported, as the California WARN act does not require companies with fewer than 75 employees to file layoff notices. Additionally, the WARN act only applies to employees who worked for the company for six out of 12 months prior to the layoff notice. Overall, however, the Silicon Valley job market remains healthy. Hiring remains steady at most large tech companies such as Apple and Facebook Inc. (NASDAQ: FB). Unicorn private companies such as Dropbox and Zenefits are also still hiring, although mutual fund investors marked down both companies in early 2016. Start-up companies with good fundamentals are taking advantage of the layoffs to recruit new talent to their own teams.