DAVOS, Switzerland, Jan 18 (Reuters) – Microsoft Corp ( MSFT.O ) said on Wednesday it would eliminate 10,000 jobs and charge revenue by $1.2 billion, as cloud customers reassess their spending and the company prepares for potential recession.
The layoffs add to the tens of thousands announced in recent months in the technology sector, which has been downshifting after a period of strong growth during the pandemic.
The news comes even as the software maker is set to increase spending on generative artificial intelligence, which the industry sees as the new bright spot.
In a memo to employees, CEO Satya Nadella attempted to address the different outlooks for different parts of the business.
Customers wanted to “optimize their digital spend to do more with less” and “exercise caution as some parts of the world are in a recession and other parts are expecting one,” he said. “At the same time, the next big wave of computing is being born with advances in AI.”
Nadella said the layoffs, which affect less than 5% of Microsoft’s workforce, will end by the end of March, with notices starting Wednesday.
However, Microsoft will continue to hire in “strategic areas,” he said. AI is probably one of those areas. Nadella this week touted AI to world leaders gathered in Davos, Switzerland, claiming the technology would transform products and touch people around the world.
Microsoft has looked to increase its $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft soon plans to market through its cloud service.
Shares of the Redmond, Washington-based company ended 2% lower on Wednesday.
The announcement corresponds with the start of layoffs at its retail and online data rival Amazon.com Inc ( AMZN.O ), which began notifying employees on Wednesday of its own 18,000 job cuts.
In an internal memo seen by Reuters, Amazon said affected workers in the United States, Canada and Costa Rica would be notified by the end of the day. Employees in China will be notified after Chinese New Year.
Facebook parent Meta Platforms Inc ( META.O ) has announced 11,000 job cuts, while cloud-based software company Salesforce Inc ( CRM.N ) said it would cut 10% of its 80,000-member workforce.
Overall, more than 97,000 tech cuts were announced in 2022, the most for the sector since 2002, when 131,000 cuts were announced, according to outplacement firm Challenger, Gray & Christmas.
“We haven’t seen this activity since the dot-com bust,” said Andrew Challenger, the company’s senior vice president.
Microsoft is laying off 878 full-time employees at its Redmond headquarters, according to an update on Washington State’s Worker Adjustment and Retraining Notification (WARN) page. Under US law, most employers are required to report layoffs affecting 50 or more workers at a single location.
SKY GROWTH DECREASES
Microsoft’s billion-dollar charge will cut profits by 12 cents a share in the company’s fiscal second quarter this year and could reverberate outside the technology sector, some analysts said.
“Here’s one of the growth companies with a very distinct user base that says the economic conditions may not be nearly as good as we thought they were,” said Brian Frank, a portfolio manager at Frank Funds who has owned Microsoft shares on and off . during the last few years.
The charge can be attributed to severance costs as well as adjustments to Microsoft’s hardware lineup and leases to build higher-density workspaces, Nadella said.
Microsoft declined to detail the hardware changes or say whether it would stop developing a product line.
Microsoft’s cloud revenues rose in recent years from an explosion in corporate demand for hosting data online and handling computing in the so-called cloud. But growth slowed to 35% in the first fiscal quarter of 2023, and the company expects more cooling to come. Last July it said a small number of roles had been eliminated.
Reporting by Jeffrey Dastin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bengaluru; additional reporting by David Randall in New York; Editing by David Gaffen, Nick Zieminski and Rosalba O’Brien
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