The pace of hiring and unemployment rate point to labor market strength, but just try telling that to employees at Royal Dutch Shell plc (ADR) (RDS.A, RDS.B), which announced a new round of layoffs Wednesday.
Sadly, RDS.A is hardly the only big, blue-chip company that’s having layoffs. Indeed, job cuts are hitting some of the most storied names in business even though the picture for workers is supposed to be firming up.
Non-farm payroll growth has generally been healthy, and unemployment is low. And yet some of the biggest employers are having large layoffs. Macroeconomic troubles are the primary culprit, but industry- or company-specific problems can take some of the blame as well.
The bottom line is that if revenue is stagnant or in decline — for whatever reason — the only way to boost profits is to cut costs. Employees, of course, are very expensive. That’s why the market tends to like job cuts. It leads to an increase in earnings, which in turn lifts share prices.
But it’s an ugly — and unsustainable — way to grow income. After all, it’s tough to have accelerating economic growth when some of the biggest employers in the land are cutting jobs.
To get a sense of the size of the problem, here are just five of the most recent big blue chips cutting jobs because of global woes or their own missteps.
Blue-Chip Layoffs: Chevron Corporation (CVX)
The entire energy sector, from exploration to refiners to pipeline companies, is getting slammed by persistently low oil prices. No one has been immune, especially not Chevron Corporation (CVX), a component of the Dow Jones Industrial Average.
CVX recently announced another round of layoffs — this time affecting 1,000 workers — after posting a wider-than-expected quarterly loss. As it stands now, CVX is committed to axing a total of 8,000 of its 62,000 employees. That’s more than 12% of its total workforce.
Not that the oil major has all that many options. Crude-oil prices fell 35% year-over-year in the first quarter. As CVX pointed out, the average price per barrel of crude oil and natural gas liquids was $26 in the first quarter vs. $43 a year ago.
Blue-Chip Layoffs: International Business Machines Corp. (IBM)
Fresh off announced layoffs of 5,000 in March, credible reports say International Business Machines Corp. (IBM) is quietly shedding more jobs. Analysts say the latest moves could bring the total number of jobs affected to 14,000. That’s about 4% of the Dow stock’s workforce.
IBM is suffering from both macro issues and problems more of its own making. The strong dollar is taking a bite out of international revenue, as is sluggish-to-no growth in much of the rest of the world.
But IBM’s biggest problem is the competition. Revenue is down in 16 straight quarters because companies with cloud-based services are clobbering IBM’s most important businesses.
With a long, painful transition ahead, this probably won’t be the last round of IBM layoffs.
Blue-Chip Layoffs: Intel Corporation (INTC)
Like IBM, Intel Corporation (INTC) is old-line tech stock/Dow component that has fallen a step or two behind the times.
INTC badly missed out on the emergence of mobile computing. Making matter worse, it’s dominant in a PC market that’s like a slowly melting iceberg. The company is trying to become a dominant player in powering cloud that serves the Internet of Things, but that revolution isn’t yet at hand.
INTC has no choice but to replace PC-based revenue with something bold and new. As with IBM, it’s going to be a slow process where not everyone gets to come along for the ride.
IBM is eliminating 12,000 positions globally by 2017, or approximately 11% of its workforce. Don’t be surprised if that number grows in the near future.
Blue-Chip Layoffs: Microsoft Corporation (MSFT)
Microsoft Corporation (MSFT) acquired once-dominant mobile phone maker Nokia a couple of years ago, and it has been getting rid of thousands of workers ever since. Heck, after the latest round of cuts, almost all of the 25,000 employees inherited in the Nokia deal are gone.
MSFT intended to use the handset maker’s mobile business to put its mobile operating system on the map. It failed almost immediately. MSFT cut 18,000 jobs two years ago, 7,800 jobs in 2015 and on Wednesday announced another 1,850 layoffs.
Prior to the Nokia deal, the company had about 99,000 workers. It might only be a matter of time before it returns to such pre-acquisition levels.
Blue-Chip Layoffs: Royal Dutch Shell plc (ADR) (RDS.A, RDS.B)
Integrated oil companies based overseas are hurting just as much or more than their U.S. peers. Witness Royal Dutch Shell, which just announced another 2,200 in jobs cuts.
That raises the total number of layoffs to 12,500 since last year. At least 5,000 jobs will be cut this year, the company said, and there’s every reason to believe there will be even more to come. Revenue is plunging and RDS.B recently took a cut to its credit rating.
Oil prices have come back since January, but they’re still down about 50% from 2013. Statoil, Norway’s largest oil company, said Wednesday that it expects industry-wide capital expenditures to continue to drop for another two years. Anytime capacity is in decline, workers’ jobs are on the line.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.