February 4, 2023

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Amazon’s hardware teams are the first to face the tech giant’s downsizing

Shortly after Andy Jassy announced that the “hardest” decision in his brief tenure as Amazon’s CEO was to make about 10,000 “role eliminations,” the ax began to swing against the company’s low-margin and expensive hardware businesses.

Teams working on the Alexa voice assistant, Kindle e-reader and Halo health-tracking device were among the first to be told they were among the layoffs coming this month after the Financial Times, according to several employees contacted by the Financial Times The tech giant’s “Routine” Annual Review of Business Performance.

“It’s not surprising that they decided to start there,” said a member of the Kindle team. “What none of us realize is if it ends there.”

Amazon’s layoffs are part of the broader tech sell-off and downsizing in the industry. But there’s a unique Wall Street discontent that Amazon’s management is doing little to tame a workforce that has doubled during the pandemic.

The move aims to meet investor demand for higher profitability at the company, whose capitalization has fallen from $1.8 trillion a year ago to $940 billion today. The wave of job cuts is focused on expensive corporate and technology positions, rather than the warehousing and fulfillment centers that make up the vast majority of the global workforce of 1.5 million.

Amazon CEO Andy Jassy: “Our annual planning process extends into the new year, which means there will be further role cuts as executives continue to make adjustments” © David Ryder/Bloomberg

Where all of the 10,000 rolls will be lost is not yet clear, and the number of cuts could fluctuate around that number, said a person familiar with the company’s strategy.

In a memo to employees, Jassy suggested that even sacred cows, like the online store, could be hit in the coming months. A hiring freeze is already in effect throughout the company.

“They’re massively overweight and need to scale down for the holidays,” said Brent Thill, an analyst at Jefferies, indicating investors were anticipating broader cuts.

“Hardware isn’t really going to move the needle. It’s really a rounding error in relation to the total number of employees. It has to go much deeper for it to really matter to Wall Street.”

Investors are eyeing Amazon’s global operations with increasing concern, said Jim Tierney, chief investment officer at AllianceBernstein, which owns a nearly $4.5 billion stake in Amazon.

Amazon’s hardware teams are the first to face the tech giant’s downsizing

“The big question investors are asking is what’s going to happen to the international business,” he said, citing the $2.5 billion operating loss for global e-commerce in the most recent reporting quarter as the strain supply chain and inflation took their toll.

“Will investors have the same patience for the international deals, especially when they are so much more diversified and the market shares are so much lower compared to the US?” Tierney added.

Sales at Amazon’s online store fell to $102 billion in the first half of the year from $106 billion before rebounding in the third quarter, due in part to a postponed Prime Day. Still, overall revenue growth, including cloud, had fallen to just 7.3 and 7.2 percent in the first two quarters this year, the lowest rate in more than two decades.

An Amazon courier delivering packages in San Francisco, USAThe downsizing is focused on expensive corporate and technology positions rather than the warehousing and fulfillment centers that make up the vast majority of Amazon’s global workforce © David Paul Morris/Bloomberg

In his memo, which Amazon later published on its company blog, Jassy set the stage for more sweeping layoffs for the rest of this year and next.

“Our annual planning process extends into the new year, which means there will be further role cuts as leaders continue to make adjustments,” he wrote. “These decisions will be communicated to affected employees and organizations in early 2023.”

This threat has created fear and tension in the company. More than 20,000 employees have joined a discussion channel on Slack, the internal work communication tool, to share their layoffs, learn the fate of other colleagues or offer advice on next steps.

But efforts were complicated by the fact that some of the laid-off workers were denied access to internal systems, prompting them to set up alternative groups on messaging app Discord. Amazon said affected employees would still have access to tools needed to find new jobs within the company.

According to employees, the hardware teams bore the brunt of the initial downsizing. A document obtained by Business Insider suggested that Amazon’s Worldwide Digital division, of which Alexa is a big part, was on track to lose $10 billion this year. Amazon declined to comment on the number — it doesn’t detail how its devices are performing in its quarterly earnings.

Its Alexa voice assistants were bestsellers at the company’s Prime Day sales event, though they’re usually heavily discounted. The Alexa team, which began as a passion project for Amazon founder Jeff Bezos, has yet to solidify a lucrative use for the device as it was intended. Users regularly use only a fraction of the 30,000 or so Alexa “skills” — applications — created by Amazon and third-party developers.

More recently, headline-grabbing innovations like the $1,000 home robot Astro had raised eyebrows internally, a current employee said, with questions about practical applications or the likelihood of widespread appeal. In its efforts to conquer more of the smart home category, Amazon agreed in October to acquire iRobot, the company behind the Roomba vacuum robot, in a deal worth $1.7 billion.

As he searches for broader savings, insiders said Jassy seems less committed to Alexa than to Bezos.

“Executives keep emphasizing that they’re still investing heavily in Alexa, which I think is right, but I think they’ve just overinvested given the current economic climate,” said a current member of the Alexa team. “Too much money is lost.”