- Microsoft has joined Amazon, Meta, Twitter, Salesforce.com, and many other tech companies that have recently unveiled sizable job cuts.
- Apple has not yet followed suit. Should Apple stock (AAPL) – Get Free Report investors expect a job cut announcement soon, maybe as early as on fiscal Q1 earnings day?
- The Apple Maven looks at the possibility, as well as what it could mean for the Cupertino company’s finances.
(Read more from the Apple Maven: Apple Stock: What The Charts Suggest Might Happen Next)
Apple’s Peers Could Face A Tough 2023
Another tech giant has announced a round of layoffs. This time, Microsoft (MSFT) – Get Free Report plans on firing 10,000 of its employees, or about 5% of its workforce, in addition to taking a $1.2 billion P&L hit likely associated with severance and lease consolidation costs.
Essence reports that “according to Computer World, there were 1,138 rounds of layoffs at tech companies globally through mid-November, affecting 182,605 people.”
Within the FAAMG group of the top 5 Big Tech companies alone, the number of announced layoffs has come close to 40,000 workers. In addition to Microsoft, Amazon (AMZN) – Get Free Report and Target (TARGET) – Get Free Report plan on firing 18,000 and 11,000 employees, respectively.
Of the three companies mentioned above, only Microsoft has seen the size of its workforce decline at any moment in the past ten years. It happened between 2013 and 2015, in the early years of Satya Nadella’s tenure as CEO, when the total headcount dropped from around 130,000 to 115,000.
Still, since the early 2010s, Microsoft’s workforce has grown from about 90,000 to 220,000 today. Apple’s number has jumped from 50,000 in the last couple of years of Steve Job’s era to about 165,000 currently.
It is not much of a surprise that tech companies seem to have coordinated their job cut announcements in January. The transition to 2023 gives management teams a chance to think through their strategies for the new year.
Most corporations hold their internal budget conversations for the following fiscal year in Q4, with final numbers around planned personnel spending being locked in around December.
Apple Is Still Fighting The Trend
Up to this point, Apple has not joined its peers in announcing job cuts. However, Insider has recently reported that the Cupertino company has gone on a hiring freeze that could last until September 2023 – the end of Apple’s fiscal year.
This most recent piece of news follows another one, from August 2022, suggesting that Apple had already severed ties with around 100 contract recruiters. That was potentially the canary in the coal mine for Apple’s late 2022 and early 2023 hiring plans.
As mentioned above, Apple currently employs around 165,000 workers. The graph below, provided by Stock Rover, shows that the Cupertino company has grown its headcount dramatically in the past ten years, under the leadership of CEO Tim Cook.
Figure 2: Apple employees.
Stock Rover
Apple is only a few days away from a key reporting milestone: fiscal Q1 earnings. Should the company have plans to reduce its workforce in 2023, there is a chance that they will be shared with investors and analysts on earnings day, February 2.
What Job Cuts Could Mean For Apple
To the best of my knowledge, Apple does not disclose its total employee compensation costs. But still, we can make some high-level inferences.
We know that the company outsources most of its production to partnering suppliers – which helps to explain why Apple is so lean and holds so little inventory on its balance sheet. Yet, I expect some employee costs that are hard to estimate to “live” in Apple’s cost of sales.
That said, I believe that most of Apple’s employee-related expenses are mapped to R&D and SG&A (combined referred to as “opex”). In fiscal 2022, Apple’s opex surpassed $50 billion, or the equivalent of $313,000 per employee which could be related to salaries and benefits.
Should Apple announce a Microsoft-like reduction in workforce of around 5%, it would mean job cuts totaling around 8,000 employees at an estimated cost savings of $2.5 billion per year. On an after-tax basis, the initiative could lift Apple’s annual EPS by 13 cents, just north of 2% of the forecasted $6.16 for fiscal 2023.
Could AAPL Stock Benefit?
What would the effect of this hypothetical round of layoffs be on Apple’s stock price? It is hard to tell. Judging by the impact on EPS alone, job cuts could represent a slight uptick in share price: up 2% for each 5% drop in headcount, per my estimates.
But then, there are more nuanced implications. Since Apple’s management team has repeatedly boasted about strong demand for Apple products and services as of late, wouldn’t layoffs signal the opposite – that the sales outlook for 2023 is worse than expected?
In this case, Apple stock could end up taking a hit from previously bullish investors choosing to sell shares as they rethink their optimistic stance.
Ask Twitter
The tech sector seems to be going through a rough patch, with several rounds of layoffs being announced recently. Do you think Apple should worry about its own labor costs and consider job cuts as well?
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)
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