Google last week reported a steep decline in profits. Social media companies such as Meta said that advertising sales – the heart of its businesses – have rapidly cooled off. And Microsoft, perhaps the technology industry’s most reliable performer, predicted a slowdown at least until the end of 2022.

Tech companies led the way for the United States economy over the past decade and buoyed the stock market during the worst days of the coronavirus pandemic. Now, amid stubborn inflation and rising interest rates, even the biggest giants of Silicon Valley are signalling that tough days may be ahead.

The companies are navigating the same problems as the rest of the economy. Pumped up by aggressive consumer spending during the pandemic, they invested to keep up with demand. Now, as that spending is slowing, they are trying to adjust. It has not been easy.

Amazon, which had 798,000 employees at the beginning of 2020, is reining in expansion of its warehousing operations, mothballing buildings, pulling out of leases and delaying plans to open facilities. The company employed 1.52 million people in the second quarter, almost 100,000 fewer than at the end of March.

Most companies would love to have the problems of the tech industry’s leaders. Between them, Google and Microsoft made US$31.5 billion (S$44.5 billion) in profits in their most recent quarter. Apple delivered enough good news in its quarterly report, although it warned of a holiday slowdown.

But their sudden slowdown is exposing a weakness. The Big Tech companies have not really found a new, very profitable idea in years. Despite years of investment in new businesses, Google and Meta still rely mostly on advertisement sales. The iPhone, 15 years after it upended the industry, still drives Apple’s profits.

That has left some of these companies vulnerable to the disruptive upstarts that they once were. Google’s YouTube and Meta’s Facebook and Instagram social media platforms are being upended by the much younger TikTok. Meta said last Wednesday that its profit in the most recent quarter was down more than 50 per cent from a year ago.

The slowdown has been more severe among companies in young markets like crypto and the gig economy, but also the more staid chipmakers. The value of Bitcoin has plunged by two-thirds in 2022, dragging a host of start-ups down with it. Uber, the ride-hailing pioneer, has slashed spending as investors have lost their patience with unprofitable businesses.

Semiconductor companies are cutting spending on factories and machinery as sales of PCs, smartphones and appliances slow. Texas Instruments told financial analysts last Tuesday that the contagion is spreading to sales for things like heating controls and factory robots. Covid-19-related lockdowns in China and the growing threat of trade and technology restrictions have made things worse.

“We’re in for a dark winter,” said Mr Brent Thill, a technology analyst with the investment firm Jefferies. “From small to big to large – no one is immune.”

Google and Microsoft assured investors last week that they would slow hiring and monitor rising energy and supply chain costs. Apple has said it plans to be more deliberate about how it expands its workforce as the economy struggles.

Other companies are embarking on new strategies. Netflix, weakened by slowing subscription growth, hopes to revive its business in November with the release of a lower-priced service that is subsidised by ads.

Meta is pouring billions into the construction of a so-called metaverse, which it hopes will be tech’s next big thing. But that investment is costing it a lot of money. Meta said its Reality Labs division, which is responsible for the virtual reality and augmented reality efforts that are central to the metaverse, had lost US$3.7 billion, compared with US$2.6 billion a year earlier.

“Look, I get that a lot of people might disagree with this investment,” Meta chief executive Mark Zuckerberg said on a call with financial analysts last Wednesday. “But from what I can tell, I think this is going to be a very important thing and I think it would be a mistake for us to not focus on any of these areas, which I think are going to be fundamentally important to the future.”

For nearly three years, tech companies ballooned as businesses sent workers home and schools shifted classes online. The fallout from Covid-19 played to the industry’s strengths.

Employees and students splurged on smartphones and computers. Businesses supported remote work by purchasing cloud storage and videoconferencing software. People stuck at home resorted to online shopping, which forced small businesses to pour money into digital ads in hopes of snagging potential customers.

It is proving impossible for tech companies to maintain that growth. Smartphone and computer sales are slowing worldwide. Cloud computing spending is being scrutinised by businesses troubled by the slowing economy. Shoppers have returned to stores and started spending their money on travel, concerts and sporting events – the in-person moments they once sacrificed.

Wall Street analysts predict that Apple sales will decline in 2023 as customers in its two biggest markets, the United States and China, struggle with economic slowdowns.

A similar turnabout in computer sales threatens to compound Apple’s woes, as well as drag down its long-time rival, Microsoft. The computer market is deteriorating at its fastest rate in decades. The decline is hobbling Apple’s Mac business and led Microsoft to forecast a roughly 30 per cent decline in Windows sales over the final months of 2022.

“There were so many PCs purchased in the last two years that there’s no demand,” said Ms Mikako Kitagawa, a technology analyst with Gartner, a market research firm. “Plus, hiring is frozen, so businesses don’t need new PCs.”

Microsoft has shaken off sluggish computer sales before by leaning into the explosive growth of its cloud computing product, Azure. But that business has begun to soften as cloud customers look to reduce spending. Microsoft said last Tuesday that Azure sales increased 35 per cent, a slowdown from earlier in 2022.

The industry’s slackening started with a downturn in online ad sales. The cracks in that business began to form early in 2022 when Apple introduced privacy changes that made it harder for Meta and Snap to target their digital advertising. Last Wednesday, Meta warned that it did not see any relief on the horizon to the declining ad market.

“We’ve still got a ways to go,” said Mr Steve Milunovich, a long-time Wall Street analyst who now consults for tech companies. “This reset is overdue.” NYTIMES