Palo Alto, U.S. -- Rumors that jobs cuts were coming had been circulating at Huawei's U.S. research arm for months, but employees at Futurewei say the scale of the downsizing took them by surprise.
The Chinese telecom equipment giant announced on Monday that it was cutting a total of 600 jobs at various Futurewei offices -- roughly 70% of the total workforce -- citing a "curtailment of business operations" caused by the U.S. placing it on an export blacklist.
While this may be one of the most dramatic cutbacks by a Chinese tech player in the U.S., it is far from the first, nor is it the last -- the following day, electric car startup Seres announced it was cutting 17 positions at its Silicon Valley office.
With trade tensions showing no signs of easing and a slowdown in the Chinese economy crimping companies spending power, the stage is set for even more moves like these as waves of layoffs wash over China's tech giants, both at home and overseas.
Huawei has been in a particularly difficult situation.
One former employee, a senior software engineer who had been working on open-source projects at Futurewei, told the Nikkei Asian Review as he left the company’s grounds in Silicon Valley on Tuesday about the uncertainty that had been hanging over the company.
"The layoff rumor has been going around for a while since Trump put Huawei on the entity list. But we were not sure it would happen because Trump is so unpredictable, and none of us knew it would be this bad,” said the former staff.
The U.S. Department of Commerce put Huawei on the so-called entity list in May, essentially an export blacklist, though the company was granted a 90-day reprieve shortly after.
Huawei blamed the layoffs on the commerce department's move, saying it had resulted in "curtailment of business operations" in the U.S.
"Decisions like this are never easy to make. Eligible employees will be offered severance packages, including both pay and benefits," Huawei said in a statement to Nikkei Asian Review. "Futurewei will continue to operate in strict compliance with U.S. local laws and regulations."
Futurewei operates in Silicon Valley, Chicago, Seattle, and Dallas and has been working closely with researchers and labs in U.S. universities across the country.
According to two former employees, most labs in the Silicon Valley office have been closed, namely those involved in open-source projects or any project related to Huawei’s core technologies such as mobile chip development. A few other labs and some administrative jobs, they said, are not impacted by the layoff.
They added that the layoffs in the Silicon Valley office mostly impacted U.S. hires, while expats who had been dispatched from China have been offered positions in offices back home.
Futurewei has made major contributions to Huawei's technological advancement, filing more than 2,100 patents in the U.S. since its founding in 2001, in areas including telecommunications, 5G cellular networks, and video and camera technologies.
Those contributions did not come cheap -- Futurewei's operational costs in 2018 came to $510 million, according to a company spokesperson. Before the layoffs, Huawei employed around 1,500 people in the U.S., including 850 at Futurewei.
Huawei's inclusion on the entity list made it almost impossible for Futurewei to transfer technologies and intellectual property it developed in the U.S. back to its parent company in China, which may have been a factor in Huawei reconsidering its investment in Silicon Valley.
"I think the company just doesn't want to over-spend on projects that cannot necessarily be monetized, so they cut back costs on those," one of the Futurewei former employees said.
"Operating labs in the U.S. is very costly, and not all the teams are involved in much of the money-making tech development like the mobile chips," the employee added.
Huawei is just one of several Chinese tech companies that have reduced its presence in Silicon Valley over the past year. While escalating trade tensions have been a catalyst for recent pullbacks, slowing growth and high costs form another underlying reason.
Seres, a Chinese electric car startup formerly known as SF Motors announced they eliminated 17 positions in their Silicon Valley office on July 23rd.
The company said in a press release on Tuesday that it has cut a total of 47 jobs across the U.S., a move it described as a "necessary adjustment according to the company's new business plan and evolving market conditions."
The company has yet to launch production in America.
"Seres has decided to delay the launch of the production version of the SF5 crossover in the U.S. as uncertainties of the U.S. auto market remain, and the company will focus on the launch of the product in China," James Taylor, co-CEO of Seres, said in the press release.
NIO, another Chinese electric car marker, has laid off 70 employees across two Silicon Valley offices and closed one of the offices in May, according to California public filings.
Fifty of those 70 jobs were at its North America headquarters in San Jose, while 20 were at the now-closed San Francisco office, which was home to the company's user interface and experience teams.
The layoffs in the U.S. came after the New York-listed company said in March it would cut 3% of its workforce in China in hopes of "optimizing costs" after three years of rapid growth.
NIO generated $720 million in revenue in 2018 but recorded a net loss of $1.4 billion, nearly doubled the company's losses in 2017.
The company did not respond to a request for comment.
Tech companies are not the only one who is having a hard time justifying their sizeable spending on U.S. offices. Chinese investors are also reconsidering the necessity to maintain operations in Silicon Valley as it’s becoming more difficult to source deals in the U.S.
Sinovation Ventures, a Chinese venture capital firm founded by former Google China head Kaifu Lee, began operating in the U.S. in 2013 but closed its Silicon Valley office early this year after halting all investment activities in the country in late 2018.
In June, meanwhile, the firm opened a new headquarters for China's Greater Bay Area in Guangzhou.
Sinovation's decision to close its Silicon Valley office comes as growing trade tensions and tighter regulations make U.S. startups increasingly reluctant to accept Chinese investment.
Chinese direct in investment in the U.S. plummeted to a nine-year low of $5.4 billion in 2018, down 88% from an all-time high of $ 46.5 billion in 2016, according to data research firm Rhodium Group.