Microsoft Corp has said it will eliminate 10,000 jobs and take a $1.2bn charge as its cloud-computing customers dissect their spending and the company braces for potential recession.
The layoffs, announced on Wednesday and far larger than cuts by Microsoft last year, piled on to tens of thousands of job cuts across the technology sector that is long past its ceaseless growth during the coronavirus pandemic.
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The news comes even as the software maker is set to ramp up spending in generative artificial intelligence that the industry sees as the new bright spot.
In a note to employees, CEO Satya Nadella attempted to address the divergent realities.
Customers wanted to “optimize their digital spend to do more with less” and “exercise caution as some parts of the world are in a recession and other parts are anticipating one”, he said. “At the same time, the next major wave of computing is being born with advances in AI.”
The layoffs, affecting less than five percent of the workforce, would conclude by the end of March, with notifications beginning on Wednesday.
However, Microsoft will cut far fewer jobs than it had added during the COVID-19 pandemic as it responded to a boom in demand for its workplace software and cloud computing services with so many people working and studying from home.
Microsoft’s workforce expanded by about 36 percent in the two fiscal years following the emergence of the pandemic, growing from 163,000 workers at the end of June 2020 to 221,000 in June 2022.
Microsoft would keep hiring in “strategic areas”, Nadella said.
Artificial intelligence (AI) is likely to be one of those areas. Nadella this week touted AI to global leaders gathered in Davos, Switzerland for the World Economic Forum, claiming the technology would transform its products and touch people around the globe.
Microsoft has looked at adding to its $1bn stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft plans to soon market through its cloud service.
Shares of the company, based in Redmond, Washington in the US, fell about one percent.
The timing corresponded with the date that Microsoft’s rival Amazon.com Inc said more employees will be notified in its own 18,000-person layoffs.
The cuts reflect broader belt-tightening in the technology sector. In 2022, more than 97,000 job cuts were announced, the highest in the sector since 2002, when 131,294 cuts were announced, according to outplacement firm Challenger, Gray & Christmas.
“We haven’t seen this activity since the dot-com bust in 2001 and 2002,” said Andrew Challenger, the company’s senior vice president.
Among those cuts were 11,000 at Facebook parent Meta Platforms Inc, as the breadth of workforce reductions stretches beyond enterprise IT to ad-based business and the consumer internet.
Another company serving enterprises, Palantir Technologies Inc, said this week that reducing cloud spending was a top-10 priority of its customers.
‘Rip the Band-Aid off’
In addition to severance costs, Microsoft would take a billion-dollar charge from changes to its lineup of hardware products and from consolidating leases “as we create higher density across our workspaces”, Nadella said.
The charge in the second quarter of fiscal 2023 represented a negative impact of 12 cents per share profit, Microsoft said.
Wedbush Securities analyst Dan Ives said, “This is a rip the Band-Aid off moment to preserve margins and cut costs in a softer macro, a strategy the Street will continue to applaud.”
Microsoft said in July last year that a small number of roles had been eliminated, while news site Axios in October reported that the company had laid off fewer than 1,000 employees across several divisions.
The company has also grappled with a slump in the personal computer market after a pandemic boom fizzled out, leaving little demand for its Windows and accompanying software.
Microsoft’s cloud revenues soared in recent years from an explosion in corporate demand to host data online and handle computing in the so-called cloud. But growth dropped to 35 percent in the first fiscal quarter of 2023, and the company projects more declines to come.