Posted on Dec 27, 2022 at 2:16 pm
Technology fell from its pedestal in 2022. The sector that until then accumulated billions in advertising revenue and market capitalization is affected by the return of war in the heart of Europe, the economic crisis, inflation… Elon Musk’s incredible takeover of Twitter, a 6-point look back at the key events that shaped tech in 2022.
Growth failure for Gafam
Back to reality for Silicon Valley. In many ways, 2022 will have been an “annus horribilis” for entire tech sections. Gone are the double-digit growth rates that prevailed for a decade, recruiting by the thousands and easy money. “It’s the end of the ‘free lunch’ sums up Jean-Baptiste Bearez, BCG associate. Technology now faces the same risks as other industries.” The year 2022 also marks the end of the paradoxically positive Covid period, when the explosion of online time propelled digital advertising and e-commerce to the top.
The crisis is partly cyclical. Like other sectors, technology is affected by the war in Ukraine, inflation and rising interest rates. Geopolitical and macroeconomic risks that lead advertisers to revise their advertising budgets downwards, amputating social media revenues. The situation is such that, in the spring of 2022, Meta (formerly Facebook) revenues fell for the first time since the creation of the group by Mark Zuckerberg in 2004. The same trend of YouTube, which also saw its advertising revenues drop by first time. Apple’s restrictions on ad targeting also went through this.
But the difficulties are also and above all structural. Older social networks, such as Facebook (2004), are losing ground to TikTok, Snap, Twitch or even BeReal, newer services perceived as more innovative. On the face of it, Facebook is trying a fresh start with the metaverse. But this immersive “new Internet” project does not convince either internally or with investors. After this difficult year, 2023 could give rise to “a new paradigm for the sector”, according to BCG, with a reorientation towards fundamentals. Tech giants will have to pursue more profitability, but without sacrificing their growth engines. “This balance will be one of the main challenges for the sector in 2023”, writes the company.
3,000 billion market capitalization went up in smoke
Unsurprisingly, operational difficulties set off a stock market storm, reviving the specter of the 2000 Internet bubble burst. Within a year, Amazon’s stock price had halved, Snap by three, and Meta by six! Even Apple is losing ground, with a title falling by almost a third in a year… However, the Apple brand is protected by a hybrid model, which combines hardware, services and audiovisual content, with Apple TV+. But investors remain concerned about China’s “covid zero” strategy that complicates iPhone production, particularly at Foxconn’s factory in Zhengzhou, the scene of violent demonstrations in the autumn.
Overall, the six largest US technology groups (Apple, Netflix, Amazon, Microsoft, Meta and Alphabet) had already lost $3.3 trillion in market capitalization at the end of October. The fall is particularly brutal for Meta. With 312 billion dollars at the end of December, Meta is now worth less on the stock exchange than heavyweights in traditional economics such as Procter & Gamble (361 billion) or the oil company Chevron (343 billion, etc.).
An unprecedented wave of layoffs
The timing is critical, and tech giants from San Francisco to Shenzhen must respond. Layoffs are rising everywhere. Platforms are obliged to implement the first social plans in their history. They who, until now, recruited alternately around the world… In total, more than 152,000 tech employees were laid off in 2022, all countries combined, according to aggregator Layoffs.fyi.
Snap opens the ball in the summer by announcing a layoff plan that affects 20% of its approximately 6,500 employees. Even the 70 people at Zenly, the French startup acquired by Snap in 2017 for $300 million, are worried. The app for the fantasminha must save money: if it always conquers more users, its performance does not increase in the same proportions. In the third quarter, Snap posted a net loss of $360 million.
A few weeks later, Meta, in turn, announces that it will lay off 13% of its workforce. Specifically, 11,000 employees out of 87,000 will have to leave the group. The news is like a bombshell, and for good reason: Meta has never launched such a social plan before. In a blog post, Mark Zuckerberg talks about “one of the toughest changes in Meta’s history”.
But the worst is yet to come. In the fall, Elon Musk, who had just bought Twitter for $44 billion, decided to lay off… half of the platform’s employees. In passing, he says he wants teams ready to be “extremely hardcore”, able to work long hours at high intensity. A far cry from the Silicon Valley image. Later, the billionaire would justify himself by comparing Twitter to a plane without a captain, about to crash. Here again all teams and all countries or almost all are involved.
Elon Musk, sole master on board at Twitter
This will have been the surprise of 2022: the acquisition of Twitter by Elon Musk. After saying “yes” and pulling out, the billionaire finally completed the transaction in October, no doubt to avoid the long legal battle looming between him and Twitter. Its goal: to make the social network “the global platform for free expression”. And unlock Twitter’s economic potential by diversifying revenues beyond strict advertising.
The project did not take long to come to fruition. Donald Trump, blocked by Twitter since the Capitol robbery, is allowed to return to the microblogging site. Twitter Blue, the paid version, is relaunched. At the same time, Elon Musk is changing the content moderation rules, hitherto governed by internal rules. The billionaire-boss imposes himself as chief moderator, taking decisions himself that he sometimes submits to popular vote, through polls among “twittes”.
But in December, Elon Musk crosses the red line. His decision to suspend several journalists from Twitter sparked a wave of outrage from the UN to the European Commission. Having fun with these criticisms, the billionaire then puts his head in the game. In yet another poll, Elon Musk asks users if he should give way to a new boss on Twitter. “Yes” answer 57% of respondents. Musk complies and announces that he will resign when he finds someone “crazy” enough to run Twitter. But at this stage, the billionaire remains in office, which promises new twists in 2023…
Cold snap at the flea market
The return to normality is not just about social media. Electronic chips are also inserted in the economic context. In 2022, the demand for these small essential components for a multitude of products was much lower. The year should even end with a 4.4% drop in sales – the first in three years, according to the WSTS, the sector’s statistics organization in the world.
After the 26% jump registered in 2021, this cold shower ended the hopes of a continuous decade of growth held by some manufacturers. Historically very cyclical, the market took another dip due to customers who also suffered from the economic slowdown linked to inflation in the United States and Europe. For example, smartphone makers ordered fewer chips due to the mobile market downturn, with sales falling 9% year-over-year, according to IDC.
But some segments of the chip market continue to benefit from an unprecedented increase in demand. For example, the chips intended for the automotive world that the Franco-Italian STMicroelectronics designs and manufactures.
Mega-plans for mini-chips
The fall in demand for semiconductors, however, does not scare either the United States or European Europe. The two powers line up the billions in 2022 to fund new foundries, the factories where chips are produced. The objective is to rebalance the world map of the sector, facing Asia, which manufactures 75% of the planet’s semiconductors.
In the United States, Congress released an envelope of 52 billion dollars to attract subsidies to the world champions in the sector, such as TSMC, Intel and others. They are also courted in Europe where the Commission has presented a 43 billion dollar plan with the aim of quadrupling European production by 2030.
Intel has already chosen to establish itself in Germany and GlobalFoundries has partnered with STMicroelectronics near Grenoble. What to do with China, with its own sector support plan of… 136 billion euros? The fight for strategic autonomy in this key sector of the economy is just beginning.