Big tech bleeds in 2022 — All eyes on what 2023 holds for IT giants amid recession worries

What is hurting the IT giants are the rising rates of interest being announced by central banks around the world including the US Federal Reserve and the Reserve Bank of India (RBI), macro economic uncertainties i.e. concerns surrounding an impending recession and global pressures.

Recession worries hurt Amazon and Apple and concerns about the strategy shift, for example Meta, going all in on Augmented and Virtual Reality or Netflix now embracing advertising have all hurt these companies.

Back home, 2022 marked a sharp decline in stock prices of Indian IT giants as they moved in step with their global counterparts. As things stand now, this year could be the worst since 2008 when the Nifty IT index was down 54.6 percent, the closest was in 2011 when the index slumped 18 percent.

The decline comes against the backdrop of de-rating price–earnings ratio as global interest rates went up with some earnings per share (EPS) cuts as growth forecasts moderated.

TCS now trades at a forward multiple of 26 times versus peak of nearly 32 times and the trend follows for Infosys, HCL Tech and Wipro trading at much reduced valuations than their peaks.

The next big story of 2022 was the tech layoffs. According to layoff tracking website layoffs.fyi - data as of December 18, 2022 shows 986 tech companies laid off workers and 1.5 lakh employees were let go.

That includes biggies like Meta, Google, Amazon that laid off thousands of employees as they look to cut costs in the face of rising global uncertainties and challenging macro environment.

Analysts estimate growth to slow further. Global brokerage Nomura expects the US dollar revenue growth to slow down to 8 percent in the 2023-2024 financial year from 12.7 percent in the 2022-2023 fiscal.

Another question is if the belt tightening i.e job layoffs will continue in 2023? The answer is probably yes, as many companies which have not announced job cuts yet are likely to do so next year.

HP, for instance, is looking to pull back on its workforce while reports suggest Google is looking to axe 10,000 employees next year.

While these developments are only from multinational tech giants, there are so many smaller companies and startups where there is not only a hiring freeze, but there have been big job cuts too.

i-Phone maker Apple has for the first time moved production to India. Apple has been assembling smartphones in India since 2017, but until this year, the i-phone-maker used manufacturing facilities in India to assemble older generation handsets and legacy models.

This is the first time that it will produce i-phone 14 in the same calendar year as its release, with a lag of a few months compared to China versus years before and India has just gotten started.

According to JPMorgan, every fourth i-Phone will be made in India by 2025.

What is the driver of this big shift? — The unrest in China, reduced dependency on China and an affirmation of India’s production-linked incentive (PLI) schemes.

According to India Cellular and Electronics Association (ICEA), India is likely to export handsets worth $9 billion in FY23 compared to $5.8 billion in FY22, which is a whopping jump of about 55 percent.

The next big question — Can India become the new smartphone manufacturing factory for the world, by uprooting China?