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Sundar Pichai, CEO, Alphabet

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Days after Google announced the largest round of layoffs in the company’s 25-year history, executives defended the job cuts and took questions from a concerned workforce during a town hall meeting Monday.

Google CEO Sundar Pichai led the companywide meeting and told employees executives will see their bonuses cut. He pleaded with staffers to remain motivated as Google faces heightened competition in areas like artificial intelligence, while also trying to explain why employees who lost their jobs were removed from the internal system without warning.

“I understand you are worried about what comes next for your work,” Pichai said. “Also very sad for the loss of some really good colleagues across the company. For those of you outside the U.S., the delay in being able to make and communicate decisions about roles in your region is undoubtedly causing anxiety.”

CNBC listened to audio of the meeting, which followed the company’s announcement Friday that it’s eliminating 12,000 jobs, or roughly 6% of the full-time workforce. While employees had been bracing for a potential layoff, they wanted answers regarding the criteria that was used to determine who would stay and who would go. Some of the laid-off staffers had long tenures and were recently promoted.

Pichai opened Monday’s town hall meeting acknowledging the Lunar New Year mass shooting in Southern California on Saturday night that killed 11 people and injured at least nine others.

“Many of us are still grappling with the violence in LA over the weekend and the tragic loss in life,” he said. “I know more details are yet to come out, but it’s definitely hit our Asian American community in a deep way, especially during the moment of Lunar New Year and we’re all thinking of them.”

‘We have over 30,000 managers’

After moving the conversation to job cuts, Pichai offered some explanation for how he and the executive team made their decisions.

Pichai said he consulted with the founders and controlling shareholders, Sergey Brin and Larry Page, as well as the board of directors.

Pichai said 2021 marked “one of the strongest years we’ve ever had in the history of the company,” with 41% revenue growth. Google increased head count to match that expansion, and Pichai said the company was assuming growth would persist.

“In that context, we made a set of decisions that might have been right if the trends continued,” he said. “You have to remember if the trend had continued and we had not hired to keep pace, we would fall behind in many areas as a company.”

Google and Alphabet finance chief Ruth Porat responded to a couple employee questions in Monday’s town hall that addressed its recent layoff.

Executives said 750 senior leaders were involved in the process, adding it took a few weeks to determine who would be laid off.

“We have over 30,000 managers at Google and to consult with all of them would have made this an open process where it would have taken additional weeks or even months to come to a decision,” said Fiona Cicconi, Google’s chief people officer, at the meeting. “We wanted to get certainty sooner.”

Regarding the criteria for cuts, Cicconi said execs looked at areas where the work was necessary, but the company had too many people as well as places where the work itself wasn’t critical. Cicconi said the company considered “skill set, time in role where experience or relationships are relevant and matter, productivity indicators like sales quotas and performance history.”

Pichai indicated there would be executive compensation cuts but provided limited details. He said all senior vice presidents “will see a very significant reduction in their annual bonus” this year.

“The more senior you are, the more your compensation is tied to performance,” he said. “You can reduce your equity grants if performance is not great.”

Before the job cuts, Google had made the decision to pay out 80% of bonuses this month with the rest expected in March or April. In prior years, the full bonus was paid in January.

Thomas Kurian, CEO of Google Cloud, offered some perspective on the areas that saw cuts. Google’s cloud unit has been one of the fastest-growing areas for head count expansion as the company tries to catch Amazon and Microsoft.

“Our engineering hiring is being much more targeted in areas where we need to fill out a product portfolio,” Kurian said. “We are adding sales and customer engineers in very specific countries and industries.”

Kurian said that starting in July, the cloud unit’s aim was to focus hiring “in response to generative AI across our portfolio.”

Like with other all-hands meetings, Google executives took questions from the company’s internal forum called Dory. Employees can post questions there, and they bubble up to the top when their co-workers give them an upvote.

For Monday’s meeting, some of the top-rated questions had to do with the process and communication around the layoffs. One comment said that employees are “playing a game of ping-and-hope-to-hear-back to figure out who lost their job. Can you speak to the communication strategy?”

Rick Osterloh, senior vice president of devices and services, said the company “deliberately didn’t share out of respect for people’s privacy.”

“We know this can be frustrating for people who are still here,” Osterloh said. “But losing your job without any choice in it is very difficult and it’s very personal and many people don’t want their names to be on a list that’s distributed to everyone.”

Looking ahead to A.I.

Another commenter on Dory wrote, “We severed access for 12k employees without the chance to perform knowledge transfers or even let them say goodbye to their colleagues. This is what we do to people who get fired.”

Then came the question: “What’s the message for those of us who are left?”

Royal Hansen, vice president of security at Google, chimed in to describe “an unusual set of risks that frankly we’re not that well practiced at managing.” He said there were “trade-offs.”

“When you think about our users and how critical they’ve become in people’s lives — all the products and services, the sensitive data they’ve trusted us with — even though it might have been a very low likelihood, we had to plan for the possibility that something could go terribly wrong,” Hansen said. “The best option was to close corporate access the way you described,” he said, referring to the abrupt shutdown.

In response to a question asking how employees who had been with the company for 15-plus years were targeted for cuts, Brian Glaser, vice president and chief talent and learning officer said, “we all know that no one is immune to change in our careers.”

Pichai reminded staffers that the company has important work ahead, in particular with respect to rapid progress in AI. Last month, Google employees asked executives at an all-hands meeting whether the AI chatbot ChatGPT represents a “missed opportunity” for Google.”

Pichai said Monday that “it will be an important year given the rapid advancements in AI,” which will have an impact across the company.

“There’s a paradigm shift with AI and I think, with the concentration of talent we have and work we will do here, will be a big draw and I hope it will continue to be,” Pichai added. “We have to keep earning it.”

He closed the town hall by bringing the discussion back to the topic at hand.

It’s evident, Pichai said, “how much you all care about your colleagues and the company.” He added, “I know it will take a lot more time to process this moment and what you heard today as well.”

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Apple’s falling iPhone sales don’t bother Wall Street so long as margins, buybacks are increasing

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May 3, 2024

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Apple's falling iPhone sales don't bother Wall Street so long as margins, buybacks are increasing

A 10% decline in iPhone sales sounds like a problem for Apple, considering the company counts on the devices for half its revenue.

But investors didn’t seem to mind Thursday, when Apple revealed the year-over-year drop in its fiscal second-quarter earnings report. The stock rose more than 6% after the market close, a rally that would be the steepest since November 2022 should it continue into regular trading Friday.

Instead of glaring too much at iPhone revenue, Wall Street chose to focus on the positive. Apple’s gross margin expanded to 46.6%, continuing an upward trajectory that reflects the company’s growing services business, which brings with it stout profits.

Apple also signaled overall revenue growth in the current quarter will be in the low single digits, after a 4% decline in the second period. Analysts were looking for third-quarter growth of 1.3%, according to LSEG.

Deepwater Asset Management’s Gene Munster described the guidance as a “relief” given the recent trajectory of the business.

“I was expecting this was going to be flat, some investors were saying it was going to be down a few percent in June,” Munster told CNBC’s “Fast Money” after the report. “I think that was a big part of this move higher.”

But perhaps the biggest catalyst for the pop was Apple’s announcement that it had approved $110 billion of share buybacks, the most ever for a public company. For the past three years, Apple has authorized $90 billion in annual repurchases.

The after-hours jump shows how much investors are valuing Apple’s massive cash flow and the company’s willingness to return more of it to shareholders. It’s a shift in the way Apple has been viewed by Wall Street over the years, away from a hits-driven gadgets business and toward a financial powerhouse.

“Our free cash flow generation has been very strong over the years, particularly the last few years,” Apple CFO Luca Maestri said on an earnings call.

Apple revealed earlier this year that it has 2.2 billion active devices, illustrating the mammoth reach of its customer base as the company rolls out new subscription services. Despite the 4% drop in revenue, Apple still recorded nearly $24 billion in profit, a slip of just over 2% from a year earlier.

Apple said iPhone sales suffered from a difficult comparison to last year, when sales were elevated after previous shortages. Still, investors are looking for future iPhone growth, and many analysts say a potential iPhone with artificial intelligence features could do the trick and help the company snag customers from Android. Annual iPhone revenue peaked in Apple’s fiscal 2022.

While Apple provided some guidance for total revenue, it avoided offering any sort of forecast for iPhone sales.

That’s a change, even for a company that’s been giving less forward guidance since the pandemic. Maestri typically provides trends on iPhone sales, and had for the past four quarters.

There’s no guarantee investors will be able to continue counting on increased buybacks from a company that’s been more aggressive in that department than any other. Apple says it’s trying to draw down its huge cash pile, which stood at $162 billion at the end of the quarter. When its debt is roughly equal to its cash balance — meaning the company is net cash neutral — Apple will evaluate what to do next, executives said Thursday.

As of the end of 2023, Apple had spent $658 billion on buybacks over the past 10 years, far ahead of second-place Microsoft, according to S&P Dow Jones Indices.

“For the last couple of years we were doing $90 billion and now we’re doing $110 billion,” Maestri said on the call.

In terms of what happens when Apple gets to net cash neutral, Maestri said, “let’s get there first. It’s going to take a while still.”

“And then when we are there,” he said, “we’re going to reassess and see what is the optimum capital structure for the company at that point in time.”

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Don’t rate Tesla’s Full Self Driving too highly, tech investor says: ‘By no means autonomous driving’

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May 3, 2024

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Don't rate Tesla's Full Self Driving too highly, tech investor says: 'By no means autonomous driving'

People are shopping at a Tesla store in Shanghai, China, on Feb. 17, 2024.

Costfoto | Nurphoto | Getty Images

News of electric car giant Tesla’s progress toward rolling out its advanced driver-assistance feature in China isn’t as groundbreaking as investors are treating it, according to a top tech investor.

Mark Hawtin, GAM Investment Management’s investment director focused on investing in disruptive growth and technology stocks, told CNBC’ “Squawk Box Europe” Thursday that such expectations were misleading — not least because Tesla’s Full Self Driving service doesn’t offer full autonomous driving.

“We should say what they’re doing — everyone’s talking about this full self-driving capability,” Hawtin told CNBC. “What they’re going to be able to do in China is what they already do in the U.S. or U.K., which is sort of this assisted-driver capability.”

On Monday, shares of Tesla rose sharply, notching their best day since March 2021, after it passed a significant milestone toward the launch of FSD in China. Local Chinese authorities removed restrictions on its cars after passing the country’s data security requirements, Tesla said Sunday.

This raised expectations that Tesla’s FSD would soon be available in China. Tesla shares are up 6.7% in the last five trading days, largely on the back of buzz surrounding its roadmap to bringing FSD to China — plus, comments from CEO Elon Musk about plans to start production of more affordable models in early 2025.

But Hawtin said that the company’s so-called Full Self Driving service lacks the qualities that would make it an example of truly self-driving technology.

“It’s by no means autonomous driving yet,” he told CNBC. He thinks that a version of Tesla FSD capable of “true autonomy” is still five to 10 years away.

Hawtin said that Tesla’s reported deal with China’s Baidu is a bigger short-term win for Baidu than Tesla, adding that competition is intense in China with names like BYD, Huawei, Xpeng, Li Auto, and Xiaomi all supplying technology capable of Level 2 autonomy.

Tesla reportedly scored a deal with Baidu that would allow Musk’s firm to tap into Baidu’s mapping service license, a key requirement for offering FSD on Chinese public roads, per Reuters.

Tesla was not immediately available for comment when contacted by CNBC.

Full Self Driving, or FSD, is an upgrade to Tesla’s Autopilot driver assistant. Tesla doesn’t yet make or sell cars capable of full autonomous driving. It sells “Level 2” driver-assistance systems, marketed under the brand name FSD.

“Level 3” assisted driving, otherwise known as “conditional automation,” entails systems that handle all aspects of driving, but a driver still must be present, according to the SAE standards-setting organization.

Tesla has offered its FSD technology in China for years, but with a restricted feature set that limits it to operations like automated lane changing.

GAM does not own shares of Tesla, and Hawtin said he doesn’t personally own shares either.

– CNBC’s Lora Kolodny and Evelyn Cheng contributed to this report

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Apple on pace for best day since 2022 after earnings beat, $110 billion stock buyback

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May 3, 2024

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Apple on pace for best day since 2022 after earnings beat, 0 billion stock buyback

Apple’s Chief Executive Officer Tim Cook attends the China Development Forum in Beijing on March 24, 2024. 

Pedro Pardo | AFP  | Getty Images

Apple shares popped more than 6% on Friday morning after the company reported better-than-expected second-quarter earnings and the largest-ever stock buyback program. If the gains hold until the market closes, it will be the best day for Apple shares since Nov. 30, 2022.

The iPhone maker announced on Thursday it would repurchase $110 billion of its shares, the biggest buyback in U.S. history, surpassing Apple’s prior repurchases. The company posted earnings of $1.53 per share on revenue of $90.75 billion, exceeding analysts’ estimates of earnings of $1.50 per share on revenue of $90.01 billion, according to LSEG.

But overall sales decreased 4% and iPhone sales dropped 10% year over year during the quarter, indicating flagging demand for the smartphone’s latest generation. Apple CEO Tim Cook told CNBC that quarterly sales suffered from a difficult comparison to the year-earlier period.

Analysts at Bank of America reiterated their buy rating of Apple stock — calling it a top pick — and raised their price target to $230 from $225 in a Friday investor note, writing that they expect the company to roll out generative artificial intelligence features for the iPhone this year.

“Apple is growing iPhones in Mainland China, estimate revisions are turning positive and GenAI features will drive a strong upgrade cycle,” they wrote.

JPMorgan analysts, maintaining an overweight rating, lifted their price target for Apple to $225 from $210 on Thursday, pointing to “resilient” year-over-year iPhone revenues and “expectations of an upgrade cycle-led tailwind in iPads” ahead of Apple’s product launch event next week.

“All in all, while modest revenue growth year-over-year might not be the ideal outcome,” they wrote, “it now provides visibility into higher revenue opportunities in the coming years with tailwinds from product cycles across hardware devices as well as an AI-led smartphone cycle further boosting growth.”

Morgan Stanley analysts retained their overweight rating of Apple and hiked their price target to $216 from $210 on Friday, citing the company’s quarterly performance, year-over-year growth in iPhone shipments to China in March, stock buyback and hints at AI updates to come.

“It’s hard not to get more bullish here,” they wrote.

CNBC’s Michael Bloom contributed to this report.

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