Microsoft will cut 10,000 jobs with concern about a recession in the cloud technology sector

DAVOS, Switzerland, Jan. 18 (Reuters) – Microsoft said Wednesday it will cut 10,000 jobs and slash $1.2 billion, as cloud computing customers reassess their spending and the company prepares for a possible recession.

The layoffs, much larger than the cuts Microsoft made last year, are piling up to tens of thousands of jobs in a tech sector that has long outpaced its strong growth during the pandemic.

Its shares fell about 1%.

The news comes even as the software maker is preparing to increase spending on generative AI which is a new bright spot for the industry.

Just this week, its CEO pitched AI to world leaders gathered in Davos, Switzerland, claiming that the technology will transform its products and impact people around the world. Microsoft has considered adding a $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT.

In a note to employees, CEO Satya Nadella attempted to address the disparate realities.

He said customers wanted to “optimize their digital spending to do more with less” and “be careful because some parts of the world are in a recession and other parts expect it to happen”. “At the same time, the next major 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 end by the end of March, with notifications beginning Wednesday. However, Microsoft will continue to recruit in “strategic areas,” he said.

The January 18 timing coincides with the date when retail and cloud computing rival Amazon.com Inc (AMZN.O) announced that it would notify more employees in the 18,000 layoffs.

The cuts reflect broader belt-tightening in the tech sector. The CEO of another company serving businesses, Palantir Technologies Inc (PLTR.N), told Reuters this week that reducing cloud spending was a top 10 priority for his customers.

More than 150,000 workers at tech companies faced job cuts in 2022, according to the tracking website Layoffs.fyi. Among them were 11,000 at Facebook parent Meta Platforms Inc (META.O), marking the widening of workforce cuts that extend beyond enterprise IT to ad- and internet-based businesses for consumers.

Reuters graphics

Stumbled upon personal computers

Microsoft said it would take $1 billion in severance costs, among other changes. Eligible employees in the United States, for example, will receive Medicare coverage and a six-month stock benefit.

Nadella said the fees also relate to making adjustments to the hardware lineup and consolidating rents to build high-density workspaces. Microsoft declined to disclose details of the hardware changes or say whether it will stop developing any product line.

The Redmond, Washington-based company faced a slump in the PC market after the pandemic boom died down, leaving little demand for Windows software and companion products.

The company said the fee, which occurred in Microsoft’s second fiscal quarter this year, represented a negative impact of 12 cents per share on earnings.

“This is a layoff moment for help to maintain margins and cut costs in a softer macro,” said Dan Ives, analyst at Wedbush Securities.

Building on a rise in recent years’ demand for companies to host data online and handle computing in what’s called the cloud, Microsoft has taken a different tone in recent months.

In the first fiscal quarter of 2023, cloud growth fell to 35%, and the company expects that number to drop again. In July last year, she said a small number of roles had been cancelled.

Reuters Graphics Reuters

However, Nadella sought to reassure the staff about the future. Generative AI, as exemplified by OpenAI’s ChatGPT that Microsoft will soon commercialize through its cloud service, points the way forward.

“We allocate our capital and talent to areas of secular growth and the long-term competitiveness of the company. We will emerge stronger,” he said.

Additional reporting by Jeffrey Dustin in Davos, Yuvraj Malik and Akash Sriram in Bengaluru; Editing by Chingini Ganguly and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

Leave a Comment