Do not be jealous of them: Expect thousands of high-tech layoffs due to the halt in recruitment

The economy's growth engine may continue to lead, but it will certainly slow its growth.

Many start-ups are forced to downsize and even close due to an inability to raise credit for their continued operations, and the industry estimates that employees recruited with a view to future growth will be the first to pay the price.

Roast Greenberg

25/05/2022

Wednesday, 25 May, 2022, 10:11 Updated: 10:27

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Investors have closed their wallets and raised a global wave of cuts and layoffs.

The first to be hit are the growth companies in the various fields of technology, but it is estimated that the wave will deepen towards all the companies in the American economy, and probably also to some of the companies in the Israeli economy.

Yesterday, the chip giant Anvidia, and the operator of the American Snapshot app, reported that they were slowing down the recruitment of new employees, while the latter even reported that it would not meet the lower threshold of its net profit forecasts.

All this against the background of high inflation, rising interest rates, and rising wages.

Earlier, the biotech company Biomix, which is traded on the Tel Aviv and New York US stock exchanges and develops virus-based treatments that attack bacteria, reported a 50% reduction in its workforce under the heading "reorganization".

But while Snap's report dropped about 43% of its share price, Biomix's report led to a halt in the downward trend it experienced, leading to a 12.93% rise.

In this way, the company concluded a decrease of 39.68% since the beginning of the year and about 86% since the beginning of 2021, as of the end of the trading day on the Tel Aviv Stock Exchange on the reporting day.

The announcement of the dismissal of its employees comes just 3 months after Biomix reported in its financial statements for 2021 that it intends to increase its workforce, and invest funds in physical infrastructure for the benefit of advancing its research and development.

But the bear market has also forced it to find ways to endure 'until the rage passes'.

Biomix employed 103 full-time employees as of the end of 2021, along with 16 part-time employees, and noted in its financial statements for the most recent fiscal year that the addition of research staff alone increased its salary expenses by about $ 3.1 million for that year.

The company's administrative expenses also increased to about $ 11.3 million compared to $ 9.3 million in 2020, and the company attributes its increase in manpower to an increase in all its expenses, which contributed to a 20.66% increase in the annual loss, which stood at about $ 36.2 million.

It will be recalled that two days ago it was announced that the Israeli artificial intelligence company BeyondMinds will close down and lay off its 65 employees, after, according to the company's CEO, it was unable to sell due to the change in the direction of the markets.

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High-tech workers (illustration).

The celebration may not be over, but from now on it will be much more modest (Photo: ShutterStock)

The harm to high-tech workers

Mali Bitzur Perens, CEO of the Tefen consulting and management group

, which specializes in organizational and management consulting for high-tech and advanced manufacturing companies, explained to Walla! Money that And are not with a full cash register.

Most of them have not been and will not be able to recruit in the mood in the markets today and grow forced to cut salaries, and eventually will have to cut back on manpower as well in order to survive.

It should be noted that the trend

we are now seeing in the markets started at the beginning of the year, so the main struggle for start-ups was in wage cuts and spending on salaries.

In the near future, and the assessment at this time is that it will not change, it is likely that more extensive waves of layoffs will begin.

It is possible that about 5% -10% of the sector's workers will be washed out, and it is assumed that some will demand unemployment benefits, and another part will be integrated into other sectors of the Israeli economy, such as the industrial sector in desperate need of working hands.

The layoffs came as a surprise in light of the demand for workers from high-tech companies, who have even started advertising it over billboards, but in start-up companies the demand is sometimes only on paper, and that for industry it is primarily for future growth, not for existing activity.

It is estimated that the various high-tech companies have recruited about 10% -15% of excess manpower in favor of future growth, and not necessarily in favor of immediate operational needs.

In addition, it is important to put things in proportion, as some start-ups have managed to complete relatively large pre-crisis capital raisings in the markets, giving them an interval of at least two years to get through the current wave, alongside large companies still in need of quality and available manpower.

Mali Bitzur Perens, CEO of the Tefen consulting and management group, estimates that 5% -10% of high-tech employees will be expelled from the industry (Photo: Anat Kazula)

Impairment of workers' wages and cash flow difficulties

Fortress France adds: "But not only is the state of the markets influential, but also the rapid and disproportionate rise in wages, especially in high-tech, alongside the rise in the cost of living as a result of continuing to feel the corona signals, some of which are experienced with supply chain problems

. For example, the salary of software, electronics or information systems engineers in the initial position, which currently amounts to NIS 18-23,000 gross, compared with the average salary of NIS 11-16,000 that companies were used to paying before

. And the assumption is that this will also lead to lower consumption, which in turn will lower the cost of living, including housing prices that have jumped sharply.

At the moment, we do not see the end of the crisis in the markets, and the question that is asked in our context is how much Israel will be affected by the expected global recession, assuming it will be.

This is in the shadow of the cash flow difficulties that are evident among some of the companies in Israel, which have switched to current payments of 60+ and even 90+, and will lead to indirect consequences for all economic activity.

Due to this, a number of parties are also seeking the intervention of the Innovation Authority, as well as other relevant government ministries, to formulate a plan to assist start-ups in moving to the near future until the market trend changes, assuming no significant recession.

At the moment, Israel seems less close to recession than other countries, as we are less affected by commodity prices than Europe or the United States. Banks also claim today that there will be no recession, but it is felt that the crisis is going to continue.

It is desirable that the organizations prepare a plan for efficiency and activity during this period already, and do not wait for the 90th minute in which they will have to operate under an existential crisis, which will force them to operate in survival mode and send quality personnel to recruit it home.

It is also not fair to the workers. "

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Tags

• Hi-Tech

• start up

• slowdown

• Tefen