DAVOS, Switzerland (Reuters) – Microsoft Corp on Wednesday said it would eliminate 10,000 jobs and take a $1.2 billion charge to earnings, as its cloud-computing customers reassess their spending and the company braces for potential recession.
The layoffs, far larger than cuts by Microsoft last year, add to the tens of thousands of job cuts across the technology sector, which has downshifted following a strong growth period during the pandemic.
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.”
Nadella said the layoffs, affecting less than 5% of Microsoft’s workforce, would conclude by the end of March, with notifications beginning Wednesday. However, Microsoft would keep hiring in “strategic areas,” he said.
AI is likely to be one of those areas. Nadella this week touted AI to world leaders gathered in Davos, Switzerland, claiming the technology would transform its products and touch people around the globe.
Microsoft has looked at adding to its $1-billion 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 Redmond, Washington-based company fell about 1%.
The announcement corresponds with the start of layoffs at its retail and cloud-computing rival Amazon.com Inc which started notifying employees of its own 18,000-person job cuts.
In an internal memo seen by Reuters, Amazon said that all affected workers in the United States, Canada and Costa Rica would be informed by the end of the day. Employees in China will be notified after the Chinese New Year.
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 <META.O>, as breadth of workforce reductions stretches beyond enterprise IT to ad-based business and the consumer internet.
The CEO of another company serving enterprises, Palantir Technologies Inc, this week told Reuters that reducing cloud spending was a top-ten priority for his customers.
GRAPHIC: Big tech companies sack staff amid recession fears (https://www.reuters.com/graphics/BIGTECH-LAYOFFS/znpnbzqbkpl/chart_eikon.jpg)
SLUMP IN PERSONAL COMPUTERS
Microsoft’s billion-dollar is in part due 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 if it would stop developing any product line.
The company has grappled with a slump in the personal-computer market after a pandemic boom fizzled out, leaving little demand for its Windows software and accompanying products.
The charge will have a negative impact of 12 cents a share in profit, to be taken in Microsoft’s second fiscal quarter this year.
“This is a ‘rip the Band-Aid off’ moment to preserve margins and cut costs,” said Wedbush Securities analyst Dan Ives.
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% in the first fiscal quarter of 2023, and the company projects more declines to come. In July last year, it said a small number of roles had been eliminated.
GRAPHIC: Azure growth sinks as cloud market matures, competition rises Azure growth sinks as cloud market matures, competition rises (https://www.reuters.com/graphics/MICROSOFT-RESULTS/lbvgnodqkpq/chart.png)
(Reporting by Jeffrey Dastin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bengaluru; Editing by Shinjini Ganguli and Nick Zieminski)
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