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Microsoft will cut 10,000 jobs, adding to the number of layoffs in technology

DAVOS, Switzerland, Jan 18 (Reuters) – Microsoft Corp ( MSFT.O ) said on Wednesday it would eliminate 10,000 jobs and charge $1.2 billion in earnings as its cloud computing customers reassess their spending and the company is preparing for a potential recession.

The layoffs add to tens of thousands announced in recent months in the technology sector, which has slumped after a period of strong growth during the pandemic.

The news comes even as the software maker is poised to increase spending on generative artificial intelligence, which the industry sees as a new bright spot.

In a note to employees, CEO Satya Nadella tried to address different prospects for different parts of the business.

Customers wanted to “optimize their digital spending to do more with less” and “be cautious because some parts of the world are in recession and other parts are expecting a recession,” he said. “At the same time, the next great wave of computing is being born with advances in artificial intelligence.”

Nadella said the layoffs, which affect less than 5% of Microsoft’s workforce, will be completed by the end of March, with notices beginning Wednesday.

However, Microsoft will continue to hire in “strategic areas,” he said. AI is likely to be one of those areas. Nadella touted artificial intelligence to world leaders gathered in Davos, Switzerland this week, claiming the technology would transform its products and touch people around the world.

Microsoft has been considering adding its $1 billion stake in OpenAI, the startup behind the Silicon Valley chat sensation known as ChatGPT, which Microsoft plans to bring to market soon through its cloud service.

Shares of the Redmond, Washington-based company ended 2% lower on Wednesday.

The announcement coincides with the start of layoffs at retail and cloud computing rival Amazon.com Inc ( AMZN.O ), which on Wednesday began notifying employees of its own layoffs for 18,000 people.

In an internal memo seen by Reuters, Amazon said affected workers in the United States, Canada and Costa Rica would be notified by the end of the day. Employees in China will be notified after Chinese New Year.

Facebook parent Meta Platforms Inc ( META.O ) announced 11,000 job cuts, while cloud-based software company Salesforce Inc ( CRM.N ) said it would cut 10% of its 80,000-strong workforce.

In all, more than 97,000 tech job cuts are expected in 2022, the most for the sector since 2002, when 131,000 layoffs were announced, according to Challenger, Gray & Christmas.

“We haven’t seen this activity since the dot-com bust,” said Andrew Challenger, the company’s senior vice president.

Microsoft is laying off 878 full-time workers at its Redmond headquarters, according to an update on the Washington State Worker Adjustment and Retraining Notice (VARN) page. Under US law, most employers are required to report layoffs that affect 50 or more workers at a single location.

Reuters Graphics

CLOUD GROWTH DECLINES

Microsoft’s $1 billion charge will cut profit by 12 cents per share in the fiscal second quarter of this year and could reverberate beyond the technology sector, some analysts say.

“Here’s one of the growth companies in the market with a very clear user base that says maybe economic conditions aren’t nearly as good as we thought they were,” said Brian Frank, a portfolio manager at Frank Funds who is on and off owned shares of Microsoft. during the last few years.

The increase can be attributed to severance costs, as well as adjustments to Microsoft’s hardware lineup and lease consolidation to build higher-density workspaces, Nadella said.

Microsoft declined to detail the hardware changes or say whether it would stop developing any product lines.

Microsoft’s cloud revenues have grown in recent years due to an explosion in corporate demand for hosting data online and handling computing in the so-called cloud. But growth slowed to 35% in the first fiscal quarter of 2023, and the company anticipates further cooling. In July last year, it was said that a small number of roles had been eliminated.

Reuters Graphics Reuters Graphics

Reporting by Jeffrey Dustin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Bala in Bengaluru; additional reporting by David Randall in New York; Editing: David Gaffen, Nick Zieminski and Rosalba O’Brien

Our Standards: Thomson Reuters Trust Principles.

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