Microsoft is cutting 10,000 employees, nearly 5% of its workforce, joining other tech companies that have scaled back their expansions in the era of the pandemic.
The company said in a filing Wednesday that the layoffs were in response to “macroeconomic conditions and changing customer priorities.”
The Redmond, Washington-based software giant said it will also make changes to its hardware portfolio and consolidate its leased office locations.
Microsoft is cutting far fewer jobs than it added during the COVID-19 pandemic as it responded to massive demand for its workplace software and cloud computing services with so many people working and studying from home.
“A lot of this is just over-exuberance in hiring,” says Joshua White, a finance professor at Vanderbilt University.
Microsoft’s workforce has grown about 36% in the two fiscal years since the pandemic broke out, from 163,000 employees at the end of June 2020 to 221,000 in June 2022.
The layoffs represent “less than 5 percent of our total workforce, with some reports occurring today,” CEO Satya Nadella said in an email to employees.
“While we are cutting positions in some areas, we will continue to hire people in key strategic areas,” Nadella said. He stressed the importance of building a “new computing platform” using advances in artificial intelligence.
He said customers who accelerated their spending on digital technology during the pandemic are now trying to “optimize their digital spend to do more with less”.
“We also see organizations in every industry and region being cautious as some parts of the world are in recession and others are anticipating a recession,” Nadella wrote.
Other technology companies are also cutting jobs amid concerns about an economic slowdown.
Amazon and enterprise software maker Salesforce announced major job cuts earlier this month as they slashed payrolls that increased rapidly during the pandemic lockdown.
Amazon said it will cut about 18,000 positions. It is the largest layoff in Seattle company history, though only a fraction of the 1.5 million employees worldwide.
Facebook parent Meta is laying off 11,000 people, about 13% of its workforce. And Elon Musk, Twitter’s new CEO, has slashed the company’s workforce.
Nadella made no direct mention of the layoffs on Wednesday when he attended the annual meeting of the World Economic Forum this week in Davos, Switzerland.
When asked by the forum’s founder, Klaus Schwab, what tech layoffs meant for the industry’s business model, Nadella said companies that boomed during the COVID-19 pandemic are now seeing a “normalization” of that demand.
“To be honest, we in the tech industry will also have to become more efficient, right?” said Nadella. “It’s not about everyone doing more with less. We will have to do more with less. So we will have to show our own productivity gains with our own kind of technology.”
Microsoft did not immediately respond to questions about where the layoffs and office closures would be concentrated. In June, it had 122,000 employees in the US and 99,000 elsewhere.
White, the Vanderbilt professor, said all industries are looking to cut costs ahead of a possible recession, but technology companies could be particularly sensitive to the rapid rise in interest rates, a tool that has been used aggressively by the industry in recent months. Federal Reserve in its fight against inflation.
“This hits tech companies a little harder than industrials or consumer staples because a lot of Microsoft’s value is in projects with cash flows that won’t pay off for years to come,” he said.
One of the projects that has attracted attention lately is Microsoft’s investment in its San Francisco startup partner OpenAI, maker of the writing tool ChatGPT and other AI systems that can generate readable text, images and computer code.
Microsoft, which owns the Xbox gaming business, is also facing regulatory uncertainty in the US and Europe, blocking its planned $68.7 billion acquisition of video game company Activision Blizzard, which had about 9,800 employees a year ago. postponed.
AP Business Writer Kelvin Chan contributed to this story from London.