The tech downturn: meltdown or hiccup?

The recent job cuts announced by big tech in Ireland have caused a ripple-effect of worry. The sweeping cuts by Twitter, Meta and Stripe before Christmas will make for some unhappy households across the country. And the people laid off are unlikely to be appeased by the public apologies of Meta’s Mark Zuckerberg and Stripe’s Patrick Collison, who both claim not to have predicted the global downturn post the pandemic push.

These cuts are not unique, with other tech giants announcing significant job losses including Zendesk, Lyft, Snap and Salesforce. Intel says it will cut costs by $3 billion (€2.8 billion) next year raising fears among its 5,000 employees in Ireland.

Ironically, these job cuts have come just after data published by the Central Bank of Ireland showed that the number of people in the State employed in the information and communications technology (ICT) sector fell by 11,000, or 6.6 per cent, over the third quarter to 158,800.

However, the latest figure was up 12,300 on those employed in the sector in September 2021, and 28,500 up on the 127,300 people working in that area at the end of 2019, before the virus struck.

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Central Bank governor Gabriel Makhlouf called the reduction a pause following rapid growth during the Covid-19 pandemic.

Connor Cantwell, partner with Cosimo Venture Partners, an emerging venture capital firm, is not overtly worried. He posits that the trajectory of growth doesn’t go in a straight line but includes peaks and troughs.

“The rate of growth overall in the Irish market has been phenomenal and as a result the market is very heated. Ironically, just to fill the existing jobs is a huge issue and there is a constant scramble for resources.”

Cantwell’s Venture Fund invests in early-stage organisations. Last year they averaged two investments a month; this year in reaction to the frothy marketplace they stopped investing in February.

“We are looking for more value and more realistic valuations in the new year.”

With regard to Foreign Direct Investment (FDI), Cantwell believes a lot of the companies are sufficiently robust and are constantly innovating.

“I think they’ve enough to kick on to the next cycle.”

However, allowing for the rollercoaster nature of job losses and vacancies, Cantwell does believe that the salaries might be reduced in the cooler waters.

“It might be time for a reset and rebalance. I certainly have sympathy for those who have lost their jobs, but it might also give local SMEs a chance to hire again at a more reasonable rate.”

Moreover, Cantwell sees it as an opportunity for the Government to support SMEs, notably in reviewing capital gains tax for start-ups.

Most multinationals plan a long way out and even the most optimistic person might have considered this cooling off – even without the war in Ukraine and the energy crisis

“The tax situation means we are not competitive and lose a lot of bright start-ups to other jurisdictions,” says Cantwell.

Adrian McGennis, chief executive of Sigmar Recruitment, would also view the Irish jobs market as being frothy. He gets asked every week by the media about the market and he does see an easing in the heat.

“Many companies won’t actually let go of their people, but they might institute hiring freezes. It’s just because we have come through such an accelerated growth, there had to be let up.”

“I hope it’s just a correction but to be honest, I don’t think we’ve seen the worst of it so far.”

McGennis reckons that the multinationals have enough reserves to keep going and may have planned for a possible downturn.

“Most multinationals plan a long way out and even the most optimistic person might have considered this cooling off – even without the war in Ukraine and the energy crisis.”

Further data issued by the Central Bank would also seem to indicate that the hiring wage is growing broadly in line with core inflation at closer to 5 per cent in Ireland and the euro area – but still above pre-pandemic growth of 2 per cent.

Accordingly, Makhlouf says the data shows the labour market continues to look tight, despite weakening growth outlook. Secondly, as the hiring wage relates to the marginal worker, the job switcher or new hires, the rate of 5 per cent growth represents an upper bound for the growth rate of average wages across the economy, he says.