Amazon’s hardware teams first to face axe as tech giant downsizes

Staff working on Alexa, Kindle and Halo part of initial wave of lay-offs but investors want further cuts

Soon after Andy Jassy announced the “most difficult” decision in his short tenure as Amazon’s chief executive was to make about 10,000 “role eliminations”, the axe began to swing at the company’s low-margin and costly hardware divisions.

According to several employees contacted by the Financial Times, teams working on the Alexa voice assistant, Kindle e-reader and Halo health tracking device were among the first to have been told that they were among the dismissals taking place this month, following the tech giant’s “routine” yearly review into its business performance.

“It’s not surprising that that’s where they decided to start,” said one employee on the Kindle team. “What isn’t clear to any of us is if it ends there.”

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Amazon’s dismissals come as part of the broader tech sell-off and headcount reduction in the sector. But there is a singular discontent from Wall Street around the management of Amazon doing little to tame a workforce that doubled during the pandemic.

The move seeks to satisfy investor demands for greater profitability at the company, which has seen its capitalisation fall from $1.8 trillion (€1.7 trillion) a year ago to $940 billion today. The wave of job cuts is focused on expensive corporate and technology positions, rather than the warehouse and fulfilment centres that make up the large majority of its global workforce of 1.5 million.

It has not yet been made clear where all of the 10,000 roles will be lost, and the number of cuts could fluctuate around that figure, a person familiar with the company’s strategy said.

In a memo to staff, Mr Jassy suggested even sacred cows, such as the online store, could be hit in the coming months. Already, a hiring freeze is in place across the entire company.

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

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“Hardware is not really going to move the needle. It really is a rounding error relative to their overall headcount number. It has to be much deeper for it to really matter for Wall Street.”

Investors are looking at Amazon’s global operations with increasing concern, said Jim Tierney, a chief investment officer at AllianceBernstein, which holds an almost $4.5 billion stake in Amazon.

“The big question that investors have is what’s going to happen to the international business,” he said, noting the $2.5 billion operating loss for global ecommerce in the last reported quarter, as supply chain strain and inflation took its toll.

Online store

“Will investors have the same patience for the international operations, especially when it’s so much more spread out, and the market shares are so much lower compared to the US?” Mr Tierney added.

Sales on Amazon’s online store dropped from $106 billion to $102 billion for the first half of the year, before staging a recovery in the third quarter thanks in part to a rescheduled Prime Day. Still, overall revenue growth, including cloud, had fallen this year to as low as 7.3 and 7.2 per cent in the first two quarters, its lowest rate for more than two decades.

In his memo, which Amazon later posted on its corporate blog, Mr Jassy set the scene for more sweeping dismissals in the remainder of this year and into the next.

“Our annual planning process extends into the new year, which means there will be more role reductions as leaders continue to make adjustments,” he wrote. “Those decisions will be shared with impacted employees and organisations early in 2023.”

That threat has generated fear and tension within the company. More than 20,000 employees have joined a discussion channel on Slack, the internal work communications tool, to share they had been let go, learn the fate of other colleagues or offer advice on next steps.

Complicating the effort, however, was that some of the dismissed workers are seeing their access to internal systems cut off, leading them to set up alternative groups on messaging app Discord. Amazon said affected employees still had access to tools needed to find new jobs within the company.

According to employees, the hardware teams have borne the brunt of the initial job cuts. A document obtained by Business Insider suggested Amazon’s Worldwide Digital division, of which Alexa is a large part, was on course to lose $10 billion this year. Amazon declined to comment on the figure — it does not detail the performance of its devices within its quarterly earnings.

Its Alexa voice assistant devices have been bestsellers at the company’s Prime Day sales event, although they are typically heavily discounted. Starting out as a passion project for Amazon founder Jeff Bezos, the Alexa team has yet to cement any lucrative utility for the device, as had been the intention.

Users are making regular use of only a fraction of the about 30,000 Alexa “skills”, uses, created by Amazon and external developers.

More recently, headline-grabbing innovations, such as the $1,000 home robot, Astro, had raised eyebrows internally, one current employee said, with questions over practical uses or any likelihood of broad appeal.

That said, in its efforts to capture more of the smarthome category, Amazon in October agreed to acquire iRobot, the company behind the Roomba robot vacuum, in a deal worth $1.7 billion.

As he seeks to find broader savings, insiders said Mr Jassy appeared less attached to Alexa than Bezos.

“Leadership keeps emphasising that they’re still investing heavily in Alexa, which I think is true, but I think they were just investing too heavily given the current economic state,” one current employee on the Alexa team said. “It’s losing too much money”. — Copyright The Financial Times Limited 2022