Tech firms laying off staff to consolidate as funding dries up, say analysts

After a race for growth in a boom market, many tech firms are now "consolidating", one of the key reasons there have been layoffs at a number of technology companies, analysts told CNA.

In the United States, more than 35,000 workers have been retrenched in the last six months, according to Layoffs.fyi, a website tracking tech layoffs. But this is a small number compared to the total IT workforce there, said Associate Professor Damien Joseph from the Nanyang Business School's division of Information Technology & Operations Management.

Big names in the US tech sector that have shed staff this year include Coinbase, Peloton, Netflix and Paypal.

In Singapore, Shopee is laying off some employees in its food delivery and online payment teams in Southeast Asia. It is also cutting staff in Mexico, Argentina and Chile, as well as a cross-border team supporting the Spanish market.

At one point, Singapore-based Sea Ltd – Shopee's parent company – was said to be Southeast Asia’s most valuable company, before its valuation collapsed after a US tech selloff. In recent months, Shopee has withdrawn from India and France, and is closing its early-stage pilot in Spain.

While Sea Ltd is one of the biggest losers in current market conditions, it's not the only one to suffer.

Tesla laid off its Singapore country manager Christopher Bousigues after chief executive Elon Musk warned he could cut 10 per cent of jobs worldwide due to fears of an upcoming recession.

Cryptocurrency exchange Crypto.com cut 260 employees or 5 per cent of its corporate workforce as the digital currency market slumped, while robot investor Stashaway laid off 31 employees across five markets.

A spokesperson from StashAway said that in the past few months, the world’s economic situation has "changed significantly and abruptly, with the fight on inflation triggering fear of a global recession".

"This change has impacted the public capital markets, with tech companies being particularly affected. The impact is not unique to StashAway, and our goal is to stay ahead of market dynamics," said the spokesperson.

StashAway added that despite layoffs, it has expanded the investment team and will launch new products over the next few months.

Assoc Prof Joseph said that many of these companies expanded very quickly during the pandemic, and are now "consolidating ahead of an expected recession". At the same time, liquidity is drying up in Asia, and as venture capital funding is more challenging to secure, start-ups are closing.

"To the extent that these lay-offs are concentrated in global companies, Singapore may not be spared," he said. "The question is the value-add local operations make to the strategies of these global firms."

Ms Yorlin Ng, COO of Momentum Works, a firm that builds and manages tech ventures, said no one knows how long the bearish outlook will last. It would be prudent and necessary for these firms to "adjust their priorities to this changing landscape", she said.

"In a boom market where capital was cheap, everyone raced for growth because if they did not, their competitors would.

"When market sentiment shifted, some companies were forced to make cuts and compromise their growth; some companies were prudent to prepare for the unpredictable future; while some others might be just using external factors as a better excuse to trim costs."

She added that companies in the US public market, like Grab and Sea Group, hold significant cash reserves and should be able to ride through this wave "in one piece".

Early-stage tech companies would also see little impact as venture capital investors in the region have enough "dry powder" stocked up. "The real challenge will be for the companies in the growth stage where profitability is still far away, and significant organisational adjustments are needed to switch gears," she said.

And the effect on the job market is limited, with both analysts saying that demand for IT professionals will continue to be high. Assoc Prof Joseph pointed out that there were about 9,000 permanent IT job listings on mycareersfuture as of Wednesday night.

"The local IT labour market appears to be tight and in favour of the prospective employee, so some perspective is needed here ... layoffs are taking place primarily in some tech firms and start-ups at the moment," he said.

"There are still job roles that are in high demand, such as software developers, business analytics professionals, data scientists, project managers."

Ms Ng said that the demand for IT professionals might not reduce drastically in the current wave.

"Prudent companies with good cash reserves might see this as a good opportunity to grab IT talent which has been in short supply in the region and is seen as a strategic asset for the future," she said. "The tech layoffs might not be a bad thing for society after all. As experienced tech professionals leave tech firms, they either start their own companies or join firms in other sectors, which in either way will accelerate innovation."

Source: CNA Online