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Comment by louniks | Hacker News Reader

From what we were told this morning, this is a purely Red Hat decision not influenced by IBM, primarily intended to reduce our spending and save cash in light of the increased cost of money caused by rising interest rates.

Roles affected will be "general and administrative" (apparently this is a GAAP - Generally Accepted Accounting Practices - term), and folks directly involved in developing or selling products (my interpretation: software engineers and sales) are safe.

Source: am Red Hatter, opinions/interpretations are my own.

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For the causes of R&D layoffs, I'm curious about the split between (a) increased interest rates, vs. (b) changes to U.S. tax code that disallow 5-year amortization of software-development costs.

I'm only hearing people mention (a). So maybe (b) is less relevant than I'm imagining?

CORRECTION: I think I stated (b) exactly backwards. IIUC, previously a company could fully expense the cost of software development in the year it occurred, but now it must be amortized over 5 years.

Isn't (b) forcing 5 year amortization? Which I believe doesn't affect large long running steady businesses. It's mostly about cashflow.

Sorry, I think you're right. I've updated my original comment.

This change will have a real impact to cashflow, in the sense that you are paying more (in taxes) in the first year than you would under the previous model.

And cashflow is incredibly important, Free Cash Flow metrics etc. are all fairly critical within the investing world.

Now that you put it that way, maybe (b) is the ugly truth, and (a) is just the prettier (everyone else is doing it) scape goat.

I see interest rates being the number 1 excuse for layoffs, but there has to be something else on why Software is getting screwed so much in this down cycle. I used to think AI/LLMs, but who knows.

Im not seeing as many layoffs internationally but that might be biased, one would thought climbing interests rates would have more of a first order global effect

But why would companies want to say (a) and not (b)? Seems like “you lost your job because the government raised taxes” would be a pretty popular explanation and PR strategy to get the change reversed.

1: "government" would likely be a large customer, and putting blame on one of your large customers is not a good business plan.

2: As much as we know the Biden Administration is largely responsible for our rampant inflation, to point out their significant part into our trashed economy only invites retaliation from them and their cronies. This administration is quick to attack anyone who even slightly besmirches or questions them (much like their masters in the CCP).

Just some friendly advice for the future, statements like this do much damage to your credibility.

> (much like their masters in the CCP).

Conversely, I think it should make sense that the growthiest of growth areas, tech, would see the biggest pullback once money starts costing money again.

A lot of loss-making / future growth speculative tech business models make a lot less sense when you can make about 5% risk free.

It doesn't get discussed much, but during the boomiest tech hiring days of COVID.. interest rates weren't just 0%.. they were, in real terms, negative.

Circa 2021 the treasury/risk free rate was about 1.5% while inflation ended the year at about 7%. So you were getting paid 5.5% to take risk. This incentives speculation as parking your money in a safe CD/bond/whatever loses real-money with time.

Now inflation & risk free rate are at about parity.

AI is too nascent to be the sole reason for so many layoffs. Emulating HR is about all it can be trusted to do autonomously.

Old people (50+) and troublemakers (PIPs) comprised the entirety of my own company's most recent layoff round. They're not even trying to hide it anymore.

My hunch is that [America] is laying off domestic engineers so we can outsource more of the positions to India during the next hiring phase. If anything, AI is playing middleman in flattening a lot of the communication hurdles.

Management in the Red Hat's Support organization said recently they were hiring new support engineers out of India to help alleviate burnout. A hiring freeze in all countries except India effectively is outsourcing.

> there has to be something else on why Software is getting screwed

A lot of companies clearly overhired in the last few years, and had access to cheap money if needed to help with that. Perhaps that is most of what explains it? It was also biased to US companies, so would make sense that the reversal would be larger there also.

There is so much misunderstanding about the amortization of software dev costs rule (and yes, I see your correction).

I've worked in large and small companies in my career, and nearly every large company desperately wanted devs to count as much time as possible as capex (vs. opex). Reason being that, if you're a growing software company, counting dev salaries (often your largest expense) as capex can make you look a ton more profitable, which is of course good for your stock price and valuation (indeed, counting opex as capex is one of the oldest frauds in the book - it's what brought down WorldCom 20 years ago). It's just that, in a modern software company, it's really hard to separate any individual dev's time into separate capex vs opex buckets. The reason I hated capitalizing my time as a software engineer is because the line between capex vs. opex is gray beyond belief for modern SaaS companies that do continuous delivery.

Yeah, but also keep in mind the previous quarter announcement about the complete revamp of performance evaluation, and bonus payout. They have setup a situation where it's much easier for managers to under-evaluate employees. They are creating the future where it's much easier to layoff so-called "under performing" associates, while making it much easier to label average folks as under performing, or performing folks as average.

The 4% figure they have given is a very low figure compared to other tech firms doing 10% ~ 20%, and while one might optimistically say the progressive nature of Red Hat trying to keep the percentage low, while the pessimist might say this is just the first round. So it's possible that during Q2 performance is being looked at closely, and now is the time to shine.

As usual, all opinions are my own personal.

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