Microsoft plans to lay off 10,000 employees as part of broader cost-cutting measures, the company said in a securities filing on Wednesday, making it the latest technology company to cut staff amid growing economic uncertainty.
Speaking before the layoff announcement at the World Economic Forum (WEF) in Davos, Switzerland, on Wednesday, Microsoft CEO Satya Nadella said the company was not immune to a weaker global economy.
“Nobody can defy gravity and gravity here is inflation-adjusted economic growth,” he told WEF founder Klaus Schwab in a live discussion.
In a memo to employees Wednesday, Nadella also cited shifting demand for digital services year into the pandemic, as well as looming fears of a recession.
“We are living through times of significant change, and as I meet with clients and partners, some things are clear,” he wrote. “First, as we saw customers accelerate their digital spend during the pandemic, we are now seeing them optimize their digital spend to do more with less.”
Microsoft had approximately 221,000 full-time employees globally as of June 30, 2022, according to a filing with the US Securities and Exchange Commission, with about 122,000 of those employees based in the United States.
Nadella said the job cuts represent less than 5% of the company’s total workforce, and the reductions will be completed by the end of the fiscal third quarter of this year, which ends in March.
He said the company will incur a $1.2 billion charge in the second quarter related to “severance costs, changes to our hardware portfolio and the cost of lease consolidation.”
“These decisions are difficult but necessary,” Nadella wrote.
Several tech companies have made big cuts to their workforce since the start of the year, as inflation weighs on consumer spending and rising interest rates squeeze funding. Demand for digital services during the pandemic has also slowed as people return to their offline lives.
Amazon ( AMZN ) announced it plans to lay off 18,000 people, and Salesforce said it is cutting 10% of its workforce. Facebook ( FB ) parent Meta also recently announced 11,000 layoffs, the largest in the company’s history. In October, Axios reported that Microsoft had laid off less than 1,000 employees in several divisions.
Tech CEOs, from Meta’s Mark Zuckerberg to Salesforce’s Marc Benioff, have blamed themselves for hiring too much early in the pandemic and misreading how a surge in demand for their products would cool once Covid-19 restrictions were eased.
While the overall labor market remains tight, layoffs in the tech sector have increased at a dizzying pace. A recent report from outplacement firm Challenger, Gray & Christmas found that tech layoffs increased 649% in 2022 compared to the previous year, compared to just a 13% increase in layoffs in the overall economy over the same period.
Microsoft will announce results for the second quarter on January 24. The software company’s Azure cloud computing business led to revenue growth in the three months to September, as sales in its personal computing division fell slightly.
Even as Microsoft makes significant cuts, Nadella said the company will continue to invest in “strategic areas for our future” and pointed to advances in AI as “the next big wave” of computing. His letter to employees comes amid rumors of a significant investment from Microsoft in OpenAI, the company behind the AI chatbot, ChatGPT.