Microsoft has become the latest big tech company to reverse a pandemic-era hiring spree in the face of a slowing economy, as it announced plans to lay off 10,000 employees by the end of March, or nearly 5 percent of its staff.
The cut comes after a sharp correction that has swept the technology sector in recent weeks as the historic boom in digital demand caused by Covid-19 has faded.
Microsoft added 40,000 workers in its latest financial year, more than double the previous year, after chief executive Satya Nadella predicted that customers would continue to spend heavily on technology despite rising inflation and economic pressures.
Nadella sounded a more cautious note in a memo to staff on Wednesday, saying: “While we saw customers cut back on digital spending during the pandemic, we’re now seeing them optimize digital spending to make it cheaper.” He also said that customers across the board are becoming more cautious “because some parts of the world are in recession and other parts are anticipating”.
Despite making the company’s first job cuts in years, the move is less swingeing than some of the job cuts at some of Microsoft’s biggest rivals. Earlier this month, Amazon announced plans to cut 18,000 jobs, while software rival Salesforce, which had nearly 80,000 employees at the end of October, said it would cut 10 percent of its workforce. Facebook and WhatsApp parent Meta said late last year it would cut about 13 percent of its workforce.
“Generally in technology they are cutting 10 percent – Microsoft is cutting 5 percent, raising other concerns about the potential need to cut down the road,” said Brent Thill, an analyst at Jefferies. “Most of them consider the 5 percent that are underperforming, which should be done every year.”
The job cuts come amid a sharp decline in Microsoft’s revenue since the middle of last year. Microsoft’s revenue rose 18 percent in its most recent financial year, to the end of June, as an explosion in remote work and other changes caused by the pandemic boosted demand for new PCs and cloud computing services. Microsoft is expected to report growth of just 2 percent when it announces earnings next week.
Despite the cuts, Nadella said Microsoft would continue to hire, signaling another wave of investment as the software giant tries to lead a new wave of technology based on the latest advances in artificial intelligence. The tech industry “doesn’t forgive anyone who doesn’t adapt to platform changes”, Nadella told staff. “The next major wave of computing was born with advances in AI.”
Microsoft has been in talks to invest $10bn in OpenAI, one of the most prominent AI research groups. Speaking at the World Economic Forum in Davos on Wednesday, Nadella predicted that the latest AI will be “revolutionary” and have as big an impact on the world of technology as the rise of smartphones and cloud computing more than 15 years ago. Microsoft executives say they expect to use the technology in all of the company’s products and services.
In an official filing, Microsoft said the cost-cutting move would include “changing our hardware portfolio, and consolidating leases to create a higher density of our workspaces”. The move is expected to result in a $1.2bn charge for the second fiscal quarter, which ended in December, or a 12-cent hit to earnings per share, the company said.
Additional reporting by Ian Johnston in London and Steff Chavez