DAVOS, Switzerland, Jan. 18 (Reuters) – Microsoft Corp. (MSFT.O) said on Wednesday it would cut 10,000 jobs and cash in at $1.2 billion as its cloud computing customers reassess their spending and the company braces itself for a possible recession.
The layoffs, much larger than Microsoft’s cuts last year, are adding up to tens of thousands of job losses in the technology sector that has long since seen strong growth during the pandemic.
Shares fell about 1%.
The news comes as the software maker is poised to ramp up spending on generative artificial intelligence, the industry’s new bright spot.
This week, the CEO praised AI to world leaders gathered in Davos, Switzerland, claiming the technology would transform its products and touch people around the world. Microsoft has looked at increasing its $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT.
In a letter 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 recession and others are anticipating it,” he said. “At the same time, the next big wave of computing is being born with advancements in AI.”
Nadella said the layoffs, which affect less than 5% of Microsoft’s workforce, would be completed by the end of March, with notices starting Wednesday. However, Microsoft would continue to hire in “strategic areas,” he said.
The January 18 timing coincides with the date its retail and cloud computing rival Amazon.com Inc (AMZN.O) has said more workers will be notified of its own 18,000 layoffs.
The cuts reflect a broader belt tightening in the technology sector. The CEO of another company that serves enterprises, Palantir Technologies Inc (PLTR.N), told Reuters this week that reducing cloud spending was a top-ten priority for his clients.
More than 150,000 technology company employees will face job cuts by 2022, according to tracking site Layoffs.fyi. Among them were 11,000 at Facebook’s parent company Meta Platforms Inc (META.O), representing the breadth of workforce cuts stretching from business IT to ad-based businesses and the consumer internet.
FALL INTO PERSONAL COMPUTERS
Microsoft said it would have to pay $1 billion in severance pay, among other things. Eligible personnel in the US, for example, get six months of health care coverage and stocks that vest.
The charges also cover hardware lineup adjustments and rental consolidation to build higher-density workspaces, Nadella said. Microsoft declined to detail the hardware changes or say whether it would stop developing a product line.
The Redmond, Washington-based company struggled with a slump in the PC market after a pandemic boom fizzled out, leaving little demand for its Windows software and related products.
In total, the indictment, which takes place in Microsoft’s second fiscal quarter this year, represents a negative impact of 12 cents per profit share, the company said.
Wedbush Securities analyst Dan Ives said, “Now is a time to take the Band-Aid off to preserve margins and cut costs in a softer macro.”
Due to an explosion in business demand to host data online and handle computers in the so-called cloud, Microsoft has taken a different tack in recent months.
In the first fiscal quarter of 2023, cloud growth fell to 35%, and the company predicted that the figure would drop again. In July last year, it said a small number of roles had been eliminated.
Still, Nadella tried to assure employees of the future. Generative AI, as evidenced by OpenAI’s ChatGPT that Microsoft will soon release through its cloud service, points the way forward.
“We are allocating both our capital and talent to areas of secular growth and long-term competitiveness for the company, he said. “We will come out stronger.”
Reporting by Jeffrey Dastin in Davos and Yuvraj Malik and Akash Sriram in Bengaluru; Edited by Shinjini Ganguli and Nick Zieminski
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