An investor with a $6 billion stake in Google’s parent company Alphabet is calling for more layoffs at the company, despite it already cutting 12,000 jobs.

The managing partner of London-based TCI Capital Fund Management has written to Alphabet’s chief executive, Sundar Pichai, asking him to cut thousands more jobs and cut pay for its remaining employees.

Alphabet already plans to cut its workforce by 6%, it said on Jan. 20, 2023, a move that will affect the company’s staff, including in its enterprise cloud computing division.

This is the second time TCI managing partner Christopher Hohn has written to Alphabet. In his first letter to Pichai in November, he called on the company to take aggressive action to address staff growth, employee compensation and operating losses in the company’s Other Bets division.

Its second letter, written the day Alphabet announced the layoffs, said the company should further reduce its cost base by reducing its workforce to the 150,000 it employed at the end of 2021. Prior to the recent round of layoffs, it had 187 000 employees.

However, the possibility of further job cuts at Alphabet has raised concerns that it could affect services such as Google Cloud, one of the company’s most profitable and fastest growing businesses. . In October 2022, Google Cloud grew 38% year-over-year to $6.9 billion in revenue, while Alphabet’s overall revenue growth slowed to 6%.

“Further layoffs at Google could impact the quality of Google Cloud services,” said Hyoun Park, principal analyst at Amalgam Insights. “They have already laid off technical staff from the cloud computing division, mainly in India, although this is a growing business for the company.”

Despite its reliance on automation, the scale of Google’s cloud infrastructure means it needs a significant number of workers to keep it running. Companies that drastically reduce their data center staff – as Twitter recently did – will quickly run into problems, Park said: “The cloud takes a lot of people to support because a company is essentially outsourcing its workloads to another organization. So that’s a concern Google needs to address, especially since these layoffs are public, which in turn could lead to support issues that could arise quickly.

Serving investors, not clients

Park sees layoffs like Alphabet’s, intended to please investors, as a threat to future business services.

“These layoffs, including those of Google, appear to be an attempt to appease investors rather than simply making the best business decisions from a cash flow profit perspective,” he said, adding that these layoffs really change the bottom line of a few. percent.

“It’s hard to understand how these layoffs will change the amount of profit the company gets by more than a few percent. So it’s not a fundamental change in profit,” he explained.

Additionally, some of those layoffs would result in companies doubling their core product and reducing the level of innovation, he said.

However, another analyst believes that “the layoffs were a necessary evil”.

“Google’s downsizing was healthy for the business, as companies would need to focus on revenue growth faster than headcount. The company should cut more roles,” said Gene Munster, the firm’s managing partner. consulting firm Deepwater Asset Management.

Munster said he did not expect Alphabet’s initial downsizing to affect any of its departments, although he was unsure of further layoffs at the company.

Alphabet has a 10% attrition rate and that should play a part in reducing the company’s total number of employees in the coming months, he said.

Call for pay cuts

TCI’s Hohn has repeatedly urged Alphabet to cut employee pay. In his first letter, he criticized Alphabet’s median salary of $295,884 for being too high. That’s 67% higher than Microsoft’s ($176,858) and well above the $117,055 median for 20 of the biggest tech companies, according to figures he cited from S&P Global Market Intelligence.

“Management should also take the opportunity to address excessive employee compensation,” Hohn wrote in the second letter. Competition for talent in the tech industry has diminished, which should allow Alphabet to cut wages without losing staff, he said.

Much of the employee pay gap at Alphabet is due to stock options, according to Park.

“Alphabet’s higher compensation does not necessarily come from base salary but from its stock offering. That’s where that $50-100,000 delta exists between Alphabet and most of its peers,” he said.

Hohn, in his letter, also alludes to stock-based compensation and urges Pichai to limit this form of compensation to employees.

At Deepwater, Munster agreed with Hohn’s assessment, saying Alphabet should cut employee compensation to bring it closer to what its peers are currently offering.

Copyright © 2023 IDG Communications, Inc.

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