SINGAPORE – Last Wednesday, HP announced plans to eliminate 4,000 to 6,000 jobs – or as much as 10 per cent of its 61,000-employee global workforce – over the next three years, amid waning demand for personal computers that has crimped profits.
HP joined a string of tech companies wielding the axe on a global scale following the sector’s entry into the bust phase of the economic cycle. To date, more than 800 tech companies globally have laid off more than 100,000 workers in 2022, according to Layoffs.fyi, a site that tracks layoffs.
The cuts came primarily from tech companies including Meta, Amazon, Twitter, Cisco Systems, Salesforce, Snap, GoTo, Grab, Sea and Netflix. Others, including Microsoft, Stripe, Shopify and Shopee, also recently announced layoffs.
The Straits Times answers some of the most commonly asked questions surrounding these cuts, including whether tech layoffs will lead to broader cuts in other industries and if the laid-off workers could be easily rehired.
1. What are the drivers behind the tech layoffs?
Market observers and experts said the tech industry faces a perfect storm sparked by Russia’s invasion of Ukraine, opposition to intrusive advertising practices, fast expansions built on weak fundamentals and the collapse of cryptocurrencies. These factors have come together in an unprecedented time, when technology is so intertwined with everyone’s daily lives.
The Russia-Ukraine war, which began in February, created a global energy and inflation crisis just as economies were coming out of the Covid-19 pandemic. The war is threatening to cause the world’s leading economies to slide into recession, further crimping growth.
“Geopolitical tensions are seeing no signs of relief, and this triggers a domino effect,” said Dr David Leong, managing director of PeopleWorldwide Consulting.
A new privacy feature that Apple rolled out in April 2021 also curtailed app makers’ ability to collect data on users for personalised advertising.
Starting with Apple’s iOS 14.5 and iPadOS 14.5, all apps are required to ask users’ permission when they want to track them across third-party apps and websites. Users can also change their preferences for any app or block apps from asking for permission.
Facebook’s parent company Meta had earlier in 2022 said Apple’s new privacy feature would cut its sales in the same year by about US$10 billion (S$13.8 billion).
The collapse of cryptocurrency exchange FTX and the TerraUSD stablecoin have also wiped out investors’ fortunes, affecting liquidity in the market, said Dr Leong.
The writing was on the wall when behemoths Meta, Twitter, Snap, Google, Apple and Microsoft all reported weaker quarterly earnings in July due to shrinking advertising budgets to cope with inflation.
2. Weren’t tech companies on aggressive hiring sprees just months ago?
Most of these hiring sprees were not built on strong business fundamentals, but on the excess liquidity in the market contributed by the Covid-19 pandemic bubble.
Tech companies’ revenue and market capitalisation rose in unprecedented fashion during the pandemic as spending surged on computers, video games, online retail, advertising and cloud computing services.
Combined yearly revenue for the five biggest United States tech companies – Apple, Microsoft, Amazon, Google’s parent Alphabet and Facebook – grew by a fifth to US$1.1 trillion in 2020. Their combined market capitalisation also soared to a staggering US$7.5 trillion at the end of 2020, from US$4.9 trillion at the end of 2019, according to The Wall Street Journal.
Similarly, global venture capital funding in 2021 broke records, reaching US$643 billion, almost doubling the amount in 2020, according to Crunchbase, which tracks investment and funding information. Accompanying the excess liquidity was a surge in the number of unicorn start-ups valued at more than US$1 billion in 2021. Crunchbase added 586 unicorns in 2021, up from 167 additions in 2020, bringing the total number of global unicorns to more than 1,100 in 2021.
They were collectively valued at US$3.8 trillion that year.
Belief that the pandemic-fuelled boom would keep going spurred aggressive hiring, even as companies dug in to hoard their talent. This sent tech salaries to new heights across the entire tech sector. Meta, for one, hired more than 15,000 workers globally in the first nine months of 2022. In November, when Meta said it would shed 11,000 jobs, or 13 per cent of its global workforce, its chief executive Mark Zuckerberg told employees he miscalculated.
Mr Tan Yinglan, founding managing partner of Insignia Ventures Partners, said: “The technology sector is crumbling under the weight of its growth amid global market headwinds.
“Particularly, hiring sprees for many tech companies were fuelled by premiums not necessarily built on actual growth or profitability.”
When rising inflation hits, causing spending and investor funds to tighten, the pressure on boards to reprioritise expenses for financial sustainability builds. In such an environment, the premiums paid to hoard tech workers can no longer hold.
3. What sort of premiums were paid for tech workers?
In Singapore, some tech workers saw their salary almost double when they switched jobs in 2021, compared with increments of between 10 per cent and 30 per cent in 2020, according to tech career platform NodeFlair.
In the third quarter of 2021, monthly salaries for lead engineers went up to an eye-popping $16,000, from $12,000 in the first quarter of the year. Even entry-level software engineers could command monthly salaries anywhere from $3,000 to $7,250 in the third quarter of 2021, according to NodeFlair, based on more than 5,600 data points including job listings and users’ payslips or offer letters.
4. Will the tech cuts broaden to other sectors?
For now, it does not look like the cuts will spill over to other sectors, barring a prolonged recession or a black swan event.
Mr Tan said: “The job cuts are directly related to how tech companies have been spending in recent years. This is unique to the sector.”
He believes that companies in other sectors may be better equipped to handle the economic shocks of global inflation.
Dr Leong said the massive tech job cuts are not linked to structural financial sector weaknesses.
“When the big elephants start to retrench, instinctive herd responses follow,” he said. “The fears are primarily sentiment-driven. It is not an economic implosion like the collapse of Lehman Brothers in 2008 or the Asian financial crisis in 1997.”
Job cuts are not expected to spill over to other industries and sectors, unless a black swan event emerges, he added. Such an event is unpredictable and has potentially severe consequences. This includes another war or a financial market collapse.
In a Nov 17 note, Morgan Stanley analysts drew similar conclusions: Major job cuts in non-tech industries are unlikely in the US as the economy at large remains short-staffed, CNBC reported. The analysts said the large market cap of tech companies and “idiosyncratic” hiring in tech relative to the rest of the labour market have resulted in tech layoffs having an outsized impact on perceptions.
5. Will the releasing of tech workers finally ease the longstanding manpower crunch in the tech sector?
Now that talent hoarding among big tech companies has eased, some experts said smaller companies starved of tech resources may finally be able to plug their manpower gaps.
“One of the things the layoffs has shown is just how massive the pool of tech talent is,” said Mr Tan. “This could be a good time for companies better equipped to hire to provide new opportunities for talent seeking jobs in the market.”
The Singapore Government is among those keen to fill immediate tech manpower gaps. Last Thursday, the Open Government Products and the Smart Nation and Digital Government Group launched an online platform called Tech for Public Good to get interested parties, including those who had lost their jobs recently, to apply for about 700 software engineering, product management and design jobs.
US-based Generation, which provides training for the unemployed, said it is still seeing demand for tech talent, especially in Web and software development, cloud operations and data analytics.
“A lot of hiring in Singapore has been driven by small and medium-sized enterprises; we’re expecting to still see this demand,” said Mr Jeremy Fox, the organisation’s Asia-Pacific chief executive.
But finding the right fit may still be hard. A list circulating in Singapore that contains the details of close to 200 laid-off tech workers trying to find jobs shows that the majority of the affected roles are in human resources and recruitment, followed by marketing. Engineering roles come next, but these are mostly junior functions.
Mr Fox said reskilling and upskilling may be needed for many of these affected workers to find re-employment.
The boss of a tech distributor in Singapore, who wanted to be known only as Mr Tan, told The Straits Times that the tech supply chain industry is starved of workers, including programmers, warehouse workers and product managers with local knowledge. But there is no match for his company’s needs among those laid-off workers.
“Most of these functions were created in multinational firms as part of turf expansion; these roles are not useful to me,” said Mr Tan, a tech veteran of more than three decades.