Microsoft cuts 10,000 workers, nearly 5% of workforce, joins other tech companies which has scaled back the expansions from the pandemic era.
The company said in a regulatory filing Wednesday that the layoffs were a 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 had added during the COVID-1[ads1]9 pandemic as it responded to a boom in demand for its workplace software and cloud computing services with so many people working and studying from home.
“A big part of this is just hiring hubris,” said Joshua White, a finance professor at Vanderbilt University.
Microsoft’s workforce grew by around 36% in the two fiscal years following the emergence of the pandemic, growing from 163,000 workers at the end of June 2020 to 221,000 in June 2022.
The layoffs represent “less than 5 percent of our total employee base, with some notices occurring today,” CEO Satya Nadella said in an email to employees.
“While we are eliminating roles in some areas, we will continue to hire in key strategic areas,” Nadella said. He emphasized 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 spending to do more with less.”
“We are also seeing organizations in all industries and geographies exercise caution as some parts of the world are in a recession and other parts are anticipating one,” Nadella wrote.
Other technology companies have also trimmed jobs amid concerns about an economic downturn.
Amazon and business software maker Salesforce announced major job cuts earlier this month as they trim payrolls that expanded rapidly during the pandemic shutdown.
Amazon said it will cut about 18,000 jobs. It’s the largest set of layoffs in the Seattle company’s history, though it’s only a fraction of its 1.5 million global workforce.
Facebook parent Meta is laying off 11,000 people, about 13% of its workforce. And Elon Musk, the new Twitter boss, has cut the company’s workforce.
Nadella did not mention the layoffs on Wednesday when he attended the World Economic Forum’s annual meeting. happening this week in Davos, Switzerland.
Asked by the forum’s founder Klaus Schwab what technology layoffs meant for the industry’s business model, Nadella said companies that thrived during the COVID-19 pandemic are now seeing “normalization” of that demand.
“Honestly, we in the tech industry have to become efficient too, right?” Nadella said. “It’s not about everyone else doing more with less. We must do more with less. So we have to show our own productivity gains with our own kind of technology.”
Microsoft declined to answer questions about where the layoffs and office closings would be concentrated. The company notified Washington state employment officials on Wednesday that it was cutting 878 workers at its offices in Redmond and the nearby cities of Bellevue and Issaquah.
As of June, it had 122,000 workers in the United States and 99,000 elsewhere.
White, the Vanderbilt professor, said all industries are looking to cut costs ahead of a possible recession, but technology companies may be particularly sensitive to the rapid rise in interest rates, a tool that has been used aggressively in recent months by the Federal Reserve in its fight against inflation.
“This hits technology companies a little harder than it does industrial or consumer goods because a large part of Microsoft’s value is on projects with cash flows that won’t pay off for years,” he said.
Among the projects that have attracted attention recently is Microsoft’s investment in startup partner OpenAI in San Francisco, 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, also faces regulatory uncertainty in the US and Europe delayed its planned $68.7 billion takeover of video game company Activision Blizzard, which had about 9,800 employees a year ago.
AP Business Writer Kelvin Chan contributed to this story from London.