“We don’t get to choose the macroeconomic conditions always,” Alphabet CEO Sundar Pichai told employees at a companywide meeting last week. That remark from the head of Google’s parent company, reported on Friday by CNBC, follows a corporate directive earlier this month to limit staffer travel and gatherings to only the “business critical” variety, a designation which carries a “high bar.” In response to employee complaints over the c-suite’s perceived “nickel and diming,” Pichai responded thus:
How do I say it? Look, I hope all of you are reading the news externally. The fact [is], we are being a bit more responsible through one of the toughest macroeconomic conditions underway in the past decade.
The search behemoth, which minted $67 billion in free cash flow and $76 billion in net income across 2021, saw sales growth slow to just 13% year over-year to $69.7 billion during the quarter ending June 30, short of the $70.8 billion analyst consensus and the fourth consecutive growth-rate slowdown relative to a year ago. Revenues will sink 10% year-over-year to $58.6 billion in the third quarter if sell side guesstimates are on point, which would be the weakest top line showing since the start of 2020.
Of course, the fact that a pre-eminent tech mainstay is tightening the corporate purse strings augurs poorly for less advantageously positioned peers. Along those lines, analysts at Jefferies report today that sales of Apple’s iPhone 14 are off to a slow start in China, with 987,000 deliveries over the first three days of availability. That’s off 11% from the same period following the iPhone 13’s launch a year ago.
Those figures present a marked contrast to those seen earlier this month, when data from retailer JD.com suggested that iPhone 14 pre-orders were tracking at or above the iPhone 13’s and iPhone 12’s respective debuts in fall 2021 and 2020. “These initial data suggested that iPhone14 sales may not be as strong as the pre-level orders indicated, since pre-order does not come with any payment obligations,” the Jefferies analysts cautioned.
Bolstering that perspective: Apple has instructed key supplier Foxconn to idle five iPhone 14 production lines at its Zhengzhou factory, Asian Tech Press reported Friday, “as the sales of this iPhone model fell short of expectations.” Overall smartphone sales in the Middle Kingdom totaled 19.1 million July, government statisticians find. That’s down 31% from the year-ago level.
Cooling demand for its shiny new model would be no small development for the Cupertino-based behemoth, as iPhone sales compounded by 16.1% over the two years through June 30, accounting for 52% of total revenues over the preceding 12 months.
Meanwhile, the everything store opts for some extra markdowns of its own. Amazon announced today that it will hold a “Prime Early Access Sale” on Oct. 11 and 12, marking a departure from prior form as the comprehensive “Prime Day Sale,” which took place in July, was heretofore a once-per-annum occasion.
That move comes as annual U.S. e-commerce sales growth will shrink to just 9.4% this year, market research firm Insider Intelligence predicts, which would be the first time in the internet era that online transaction volumes will expand by less than 10% year-over-year. “These days, it’s not lost on you or me that folks are trying to make their dollar stretch,” Jamil Ghani, vice president of Prime, told CNBC.
It's not just the masses contemplating a thriftier approach. Citing data from consulting firm MWPVL International, Bloomberg reported earlier this month that Amazon “has abandoned dozens of existing and planned [warehouse] facilities” around the country. That retrenchment, which includes 25 million square feet of cancelled or scuttled projects along with 28 million square feet of delayed space, marks a “striking contrast with previous years, when the world’s largest e-commerce company typically entered the fall rushing to open new facilities and hire thousands of workers to prepare for the holiday shopping season.”
Similarly, researchers at DePaul University’s Chaddick Institute for Metropolitan Development found that Amazon Air freighters averaged 194 daily flights during the early stages of September, up 3.8% from March. That’s the slowest acceleration tracked by the institution since the early stages of the pandemic. For a sense of Amazon’s capacity expansion during recent years, such daily flights tracked at fewer than 100 as of May 2020.
See the editions of Grant’s Interest Rate Observer dated July 22 and Aug. 5 for a closer look at the suddenly bruising environment faced by Silicon Valley’s leading lights, along with a pair of picks-to-not-click.