Since March, the backdrop for the tech industry has changed dramatically. Suddenly, the syrupy projections of companies and investment funds that have prevailed during the pandemic are over. the euphoria ended and in this new, more bitter and painful cycle, what stands out are the announcements of layoffs, the adjustment of expenses and the containment of communications.
So far this year, the high-tech industry is estimated laid off nearly 140,000 employees, according to a report from the redundancy fund portal, which reports 863 companies in the sector. This is a global trend that has impacted the country. with nuances, the list of settings it includes giants like Twitter, Facebook, Amazon, Microsoft, Google and Oracle. And also Argentine unicorns (including Ualá, TiendaNube, Etermax and Digital House) and especially to companies in the cryptocurrency worldsuch as Bitso, Lemon Cash and BuenBit.
The wave is not widespread, but affects companies and startups that depend on capital to grow or survive. The Nasdaq (the index that brings together the main technology companies) largely reflects the difficulties of the moment: “From December 27, 2021 (when it reached its second maximum value in history) until today, shows a decline of 30.6%”, explains Damián Vlassich, analyst at IOL (Invest Online).
The crash in prices harkens back to the dotcom furor and crisis of the late 1990s. During that time, the Nasdaq soared relentlessly until September 2000 and plummeted from there. “After one year the index recorded a 64% drop”, recalls Vlassich, as if to distinguish both moments. There is another fundamental aspect to take into consideration, since many traditional companies have been forced to cut their workforce.
For example, Wells Fargo has downsized its mortgage division. Barclays laid off about 200 workers last month, as did Goldman Sachs, Morgan Stanley and Citigroup, all highly traded firms on Wall Street. Walmart has laid off company employees, but has made no changes to its warehouses and supermarkets. It also emerged that PepsiCo is laying off hundreds of workers, as are General Motors and Ford. “These types of ads appear more frequently”says Diego Martínez Burzaco, of Inviu.
For many, these are all signs that the global economy is slowing down. International trade economist Marcelo Elizondo says that only large companies are laying off workers in the United States, “partly because of the global slowdown and partly because their work patterns are outdated and they have more workers than they need”, He says. He also mentions that in North America and many European countries they have a more flexible regulatory framework “and hiring and firing is something natural”.
But the aftershocks are known and no significant changes are expected for 2023. “The scenario is still challenging, especially in the technological field. The CEOs of US companies such as JP Morgan, General Motors or Walmart are cautious, mentioning that high interest rates, coupled with high inflation and growing geopolitical pressures, the chances of having a recession next year increase”, sums up Vlassich.
Consultant Enrique Carrier agrees, but adds that there is another important trend: “Many Western companies -he underlines- are migrating their production from China to other countries” due to their restrictive policies to stop the spread of the Covid. For Carrier, the most worrying thing is that the Asian country (the largest potato chip producer in the world)”It has ceased to be a reliable country to do business with.”
The Wall Street Journal reported last week that Apple is looking to move some of its manufacturing out of China, advising its suppliers to assemble their products in markets like India and Vietnam to diversify their supply chains. Without going any further and for the same reason, Samsung has opened a chip manufacturing plant in Egypt in order to integrate the offer into global markets.
Such rearrangements make projections difficult for technology manufacturers. The fundamental change is that The times of abundant money due to high monetary issuance are over with the pandemic and central bank rate hikes. The Fed (the American Federal Reserve) kept it at 0.25% for almost two years and in 2022 raised it to 4%, with the aim of countering annual inflation which today is around 8, 2%.
“This has a stronger impact on the global economy and on Europe. The worst is expected in the first half of next year”, explains Martínez Burzaco. The expert points out that the technological ones are the most affected “because they have taken a lot of staff during the pandemic”. A common miscalculation. Investors and companies believed that many consumer habits (online shopping, electronic payments) would continue to grow in the “new normal”.
The same goes for many startups, fintechs and companies in the crypto universe, which have managed to finance their growth without difficulty. Several layoffs announced in Argentina last month, including Ualá, TiendaNube, Etermax (the creator of Trivia Crack), Mexican companies Kavak and Bitso, and crypto platform Lemon Cash. An estimated 500 people have lost their jobs.
“Now companies that have a sustainable business are starting to distinguish themselves from those that spent billions of dollars when the money was practically free. Spending other people’s money is easy”, he said a few days ago clarion the president of the Mercado Libre, Juan Martín de la Serna
The fall of FTX, another scandal, and they’re gone…
In early November and plagued by massive withdrawals of funds, the second largest global cryptocurrency platform, FTX, filed for bankruptcy and its CEO and founder, 30-year-old Californian Sam Bankman-Fried, tendered his resignation after apologized. “I’m sorry, I should have done better,” said the entrepreneur, who was considered until last week almost an evangelist for crypto enthusiasts.
The collapse of FTX has once again highlighted the doubts hovering over the cryptocurrency market, especially bitcoin. The most popular crypto asset is trading around US$17,000, after hitting US$69,000, its all-time high. The collapse of the FTX produced a real earthquake in an industry that has almost no regulation to support investors and savers.
This was announced by several companies in the sector operating in the country spending cuts and layoffs. The pioneer in this regard was BuenBit, a startup that laid off half of its employees. Followed by the Mexican Bitso and the Lemmon Cash, of Argentine origin. Companies justified the adjustment with the lack of financing, the increase in rates and the global slowdown of the economy.
Bitso had 600 employees globally. The platform is based in Mexico, but also operates in Brazil, Colombia and Argentina. Weeks ago they reported the layoff of 150 people. “We understand that these companies, with more or less anabolicswe are startups, what we are not profitable and we depend on the inflow of capital. This year, investment funds are asking us to reduce costs and that the priority today is to generate profits,” said a company source clarion.
The cryptocurrency market generates, once again, many concerns from the general public, but also from the highest regulatory authorities of the central countries. It’s not the first time this has happened. The head of the US Treasury, Janet Yellen, and the head of the European Central Bank, Christine Lagarde, have announced that they are studying measures to control this business.
In early December, the Nobel Prize in Economics, Paul Krugman, published a note entitled “Blockchains, what are they for?” , in which he puts the magnifying glass not only on the inconsistencies of bitcoin but also on the technology that supports it. Krugman argued that cryptocurrencies are not experiencing a “crypto winter” as many analysts have described the latest bitcoin crash.
Krugman questioned all blockchain technology: “The original reason for bitcoin was that it would eliminate the need for trust: you wouldn’t have to worry about banks taking your money or governments increasing its value.”He explained.
But at the same time he recalled the scandalous fall of FTX and the consequences it brought to the entire industry. “It was supposed to offer a safer and cheaper way to track transactions,” joked the economist. On the other hand, he pointed out that several blockchain projects are drifting apart.
In this sense he used the examples of the firm Maersk, Amazon Web Services and the Australian Stock Exchange, which according to Krugman show that “The romance with high tech” is over.
Before the FTX crash, Sam Bankman-Fried was worth an estimated $15 billion. FTX rivaled the world’s largest Binance, which played a key role in the fall. In the midst of the rush, the company announced its interest in buying it and hours later shut it down. After the fall, Bankman Fried settled in the Bahamas.
Source: Clarin
