Tencent and other tech firms downsize, stocks recover

Tencent is planning to trim its sizable staff in two of the company’s six major divisions, including its cloud and smart industries unit and internet platform division.

With over 100,000 Tencent employees, layoffs of hundreds, even thousands, are fairly routine. However, rumors suggest that Tencent’s upcoming move seeks to reduce its total workforce somewhere between 10% and 20%. Other reports claiming the firm was downsizing by ~30% were discredited.

• The cloud unit is expected to release approximately 20% of its staff by year-end. Job cuts in the internet platform unit are already near 10%, and reported to be continuing steadily.
• Both divisions were established in 2018. The cloud unit focuses on cloud-computing data services. The platform unit is in charge of Tencent’s messaging services and other content platforms. Each sector employs around 20,000 people.

The layoffs come amid dwindling profit margins in each division, and after a year of persistent government actions against large tech companies for antitrust and other reasons. Cloud services have endured fierce competition from rivals such as Alibaba and Huawei. Meanwhile, Tencent’s content platforms have suffered from high overhead costs and slowing domestic game sales.

Tencent is not alone: Many of China’s major tech companies are undergoing restructuring to survive Beijing’s new economic compact.

• Alibaba is rumored to be laying off 15% of its total workforce, approximately 39,000 estimated staff, this year. The tech giant’s reshuffling also comes amid difficult times with a sluggish domestic economy, international trade tensions, and Beijing’s regulatory hurdles.
• Search giant Baidu and video-sharing platform Kuaishou have also reduced staff, with cuts ranging between 10% and 20% of total personnel. Last August, ByteDance released hundreds of employees.
• While these layoffs may appear to be trouble for China’s tech industry, China’s tech stocks just had their best day in years as Beijing sent out positive signals to investors to boost growth this year.

Key takeaway: Stocks of Baidu, Tencent, and Alibaba skyrocketed on Wednesday, finishing their day on the NYSE up 42%, 33%, and 36%, respectively. The reshuffling occurring in China’s tech industry may give investors confidence that tech giants will be more resilient to political turbulence in the future.

For more on this week’s wild stock market fluctuations, please click through to this Q&A with veteran investor and China tech analyst Rui Ma: It’s a crazy world out there!