DAVOS, Switzerland, Jan 18 (Portal) – Microsoft Corp (MSFT.O) said on Wednesday it would cut 10,000 jobs and take a $1.2 billion charge on earnings as its cloud-computing Customers are reassessing their spending and the company is preparing for a possible recession.
The layoffs come on top of the tens of thousands announced in recent months across the tech sector, which has declined after a strong spell of growth during the pandemic.
The news comes as the software maker is set to ramp up 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 the different prospects for different parts of the company.
Clients wanted to “optimize their digital spend to do more with less” and “exercise caution as some parts of the world are in recession and other parts are anticipating a recession,” he said. “Concurrently, with advances in AI, the next great wave of computing is being born.”
Nadella said the layoffs, which affect less than 5% of Microsoft’s workforce, would be completed by the end of March, with notifications beginning on Wednesday.
However, Microsoft will continue to hire in “strategic areas,” he said. AI will likely be one of those areas. Nadella promoted AI 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 increasing its $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft plans to soon commercialize through its cloud service.
Shares of the Redmond, Wash.-based company fell about 1%.
The announcement coincides with the start of layoffs at its retail and cloud computing rival Amazon.com Inc (AMZN.O), which on Wednesday began informing employees of its own job cuts of 18,000 people.
In an internal Portal memo, 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 the Chinese New Year.
Along with Amazon, Facebook parent company Meta Platforms Inc (META.O) announced 11,000 job cuts, while cloud-based software company Salesforce Inc (CRM.N) announced it would cut 10% of its 80,000 employees.
Overall, more than 97,000 tech job cuts were announced in 2022, the highest for the sector since 2002, when 131,000 job cuts were announced, according to outplacement firm Challenger, Gray & Christmas.
“We haven’t seen this activity since the dot-com bust,” said Andrew Challenger, the company’s senior vice president.
The company is laying off 878 full-time employees at its Redmond headquarters, according to an update on Washington state’s Worker Adjustment and Retraining Notification (WARN) page. Under US law, most employers are required to report workforce reductions that affect 50 or more employees at a single location.
CLOUD GROWTH DECREASING
Microsoft’s multibillion-dollar charge will eat into Microsoft’s fiscal second quarter earnings by 12 cents a share this year and could have appeal beyond the technology sector, some analysts said.
“Here’s one of the leading growth companies with a very distinct user base that’s saying economic conditions might not be nearly as good as we thought they were,” said Brian Frank, a portfolio manager at Frank Funds who has owned Microsoft stock in the last years.
The strain is due to severance costs as well as adjustments to Microsoft’s hardware offering and rental consolidation to create higher-density jobs, Nadella said.
Microsoft declined to describe the hardware changes in detail or say if it would stop developing a product line.
Microsoft’s cloud revenue has grown in recent years due to an explosion in corporate demand for hosting data online and processing computing in the so-called cloud. But growth slowed to 35% in the first fiscal quarter of 2023, and the company forecast further declines. In July last year, it was said that a small number of roles had been cut.
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Reporting by Jeffrey Dastin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bengaluru; additional reporting by David Randall in New York; Edited by David Gaffen, Shinjini Ganguli and Nick Zieminski
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