Google’s parent company, Alphabet Inc, was told it needs to make aggressive cost-cutting moves after receiving a letter from activist hedge fund TCI Fund Management.
The London-based hedge fund, TCI, is owned by billionaire Christopher Hohn who wrote a letter to Alphabet’s CEO Sundar Pichai on Tuesday urging the company to make swift decisions to reduce its financial output.
“This growth is excessive, both in relation to historic headcount growth and what the business requires,” Hohn said in the letter. “Our conversations with former executives of Alphabet suggest that the business could be operated more effectively with significantly fewer employees.”
Alphabet Inc’s staff numbers have increased at a rate of 20 percent annually, almost doubling in growth to a staggering 187,000 employees since 2017, and it has one of the highest salaries in Silicon Valley.
The letter also notes that Alphabet Inc’s 14A filing showed staff’s median compensation was $295,884 in 2021, making it 67 percent higher than Microsoft and “153 percent higher than the 20 largest listed technology companies in the US.” The median salary for the top 20 technology companies hovers around $117,000 while Microsoft offers an annual salary of $177,858. The letter argued against these numbers, saying, “There is no justification for this enormous disparity.”
“We acknowledge that Alphabet employs some of the most talented and brightest computer scientists,” the letter said, “but these represent only a fraction of the employee base.” However, for Alphabet’s nonengineering staff, the letter said their compensation should fall “in line with other technology companies.”
Alphabet’s also being told to eliminate costly long-term bets such as the self-driving car project Waymo, with the letter saying Alphabet’s outside bets cumulatively generated only $3 billion but incurred a substantial loss of $20 billion over the last five years.
TCI falls just outside Alphabet’s top 20 largest shareholders, according to CNBC’s David Faber.
Alphabet Inc did not immediately respond to Gizmodo’s request for comment.
Google is one of the only outliers so far to refrain from cutting back on employees. The letter points to other tech companies like Meta and Twitter as examples of businesses that have recently slashed headcount. The letter went on to quote Altimeter Capital’s Brad Gerstner who wrote, “It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people.”
The news comes as Facebook’s parent company Meta laid off about 11,000 employees, Twitter reduced its staff by 3,700 jobs, and The New York Times reported Amazon plans to lay off 10,000 employees, marking what some are calling the end of Silicon Valley’s golden era.
“This party couldn’t go on forever,” Margaret O’Mara, a professor at the University of Washington and author of The Code: Silicon Valley and the Remaking of America told The Guardian. “In many ways, we are just going back to normal after a huge run-up during which everything became supersized.”
There have been more than 121,000 layoffs across 789 tech companies in 2022 according to layoffs.fyi, a site that tracks job cuts across the tech industry. The numbers have jumped from 3,625 layoffs in February of this year to 25,563 within the first half of November.
However, despite the sudden uptick in layoffs and cost-cutting efforts, O’Mara told the outlet she does not believe this will be the end of the Silicon Valley tech industry. “The industry obituary has been written prematurely a few times,” she said. “It may be the end of an era for Silicon Valley, but it is unlikely to be the end of Silicon Valley,” she added.
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