The company will lay off approximately 10,000 employees as part of broader cost-cutting measures. Microsoft will reduce staff due to economic uncertainty. Microsoft announced this in a securities filing on January 18. This makes it the latest technology company to lay off employees as economic uncertainty grows.
Microsoft CEO Satya Nadella broke the news on Wednesday at the World Economic Forum (WEF) in Davos, Switzerland.
In a memo to employees on Wednesday, Nadella also mentioned changing demand for digital services years into the pandemic and concerns about a coming recession.
The CEO says that his company is going through a lot of change right now, and as he meets with partners and customers, a few things are clear. First and foremost, as they observed customers increasing their digital spending during the pandemic, they are now observing them optimizing their spending to accomplish more with less.
According to a filing with the US Securities and Exchange Commission, as of June 30, 2022, Microsoft had approximately 221,000 full-time employees worldwide, 122,000 of whom were based in the United States.
According to Nadella, the company will have eliminated less than 5% of its workforce by the end of its fiscal third quarter this year, which ends in March.
He said that severance costs, changes to their hardware portfolio, and the cost of lease consolidation will cost the company $1.2 billion in the second quarter.
“These decisions are difficult, but necessary.”
Since the beginning of the year, a number of tech companies have drastically reduced their workforces as a result of rising interest rates and inflation. As people return to their normal lives after the pandemic, demand for digital services has also decreased.
Amazon (AMZN) and Salesforce (CRM) both announced that they will be laying off 10% of their employees, respectively. Meta, the parent company of Facebook (FB), has also recently announced 11,000 layoffs, the largest in the company’s history. Axios reported in October that Microsoft had laid off less than 1,000 workers from several divisions.
CEOs of tech companies, including Mark Zuckerberg of Meta and Marc Benioff of Salesforce, have blamed themselves for hiring too many people early on in the pandemic and not understanding how a surge in demand for their products would slow down once Covid-19 restrictions were lifted.
Tech sector layoffs have increased at a startling rate despite the tight labor market overall. According to a recent report from the outplacement firm Challenger, Gray & Christmas, tech layoffs increased by 649% in 2022 compared to the previous year, while job cuts in the economy as a whole only increased by 13% during the same time period.
Microsoft’s earnings for the second quarter will be released on January 24. The Azure cloud computing business of the software company increased revenue over the three months through September, despite a slight decrease in sales in the company’s personal computing division.
Even though Microsoft is cutting a lot of money, Nadella said that the company will keep investing in important areas for the future. He called AI developments “the next major wave” of computing. His letter to workers comes amid rumors that Microsoft will make a significant investment in OpenAI, the company behind the AI chatbot ChatGPT.