Journalists at Business Insider are claiming that the hardware division of Amazon is on track to lose $10 Billion (with a B) in 2022 because of Alexa. The story has been picked up by other news sources and is being repeated as factual. Let us look closer at the claims.
The Alexa division is part of the "Worldwide Digital" group along with Amazon Prime video, and Business Insider says that division lost $3 billion in just the first quarter of 2022, with "the vast majority" of the losses blamed on Alexa. That is apparently double the losses of any other division, and the report says the hardware team is on pace to lose $10 billion this year.
Engineers are paid a lot of money and they get a lot of benefits, so engineers are expensive. Engineers at high-tech Internet companies are paid even better than average (e.g., Facebook and Google engineers are better paid than AMD and Intel engineers). To understand the situation, we need to make some assumptions.
First, although the article blames "the vast majority" of the losses on Alexa, let us just assume all the losses are due to Alexa and stick with the $10B. Further, let us assume that Alexa makes no money and that $10B represents the entire cost of the Alexa organization. Other articles claim that hardware products are sold "at cost", so we assign zero to the cost of consumer products sold (the cost will equal the income, therefore having no impact on our estimates). As a generous guess, let us assume that the annual cost of an engineer is $500000 (half a million bucks), including benefits and overhead (building rent, computer equipment, heat, health benefits, stock grants, and so on). This is high, but it is an average across engineers and it is based on industry knowledge.
If we take the claimed loss of $10B and divide by the $500K, we get 20000 engineers. I am pretty confident that Amazon does not have 20K engineers working in the hardware division. Elsewhere in the article, it is claimed that Amazon as a whole is eliminating 10K jobs (e.g., CNBC report) out of 1 million or more employees. But remember that most of those 1 million jobs are at the entry level in the warehouses (fulfillment centers) and are about $15/hour or about $30K annualized. Converting that to a "loaded salary" is still only about $60K per year, so it would take almost 170K employees to achieve a $10B savings in lay-offs.
So if the number of laid-off employees does not match the headline, it must be the amount of the losses that is wrong. And I submit the losses are exaggerated. Significantly exaggerated.
Because we are talking about sad things like lay-offs, I have attached a picture of a cat as a palate cleanser.
No comments:
Post a Comment