© Reuters. The Microsoft logo is seen outside its offices in Herzliya, near Tel Aviv, Israel, December 27, 2022. REUTERS/Rami Amichay
By Jeffrey Dastin and Yuvraj Malik
Davos, Switzerland (Reuters) – Microsoft (NASDAQ:) Wednesday it announced it would cut 10,000 jobs and impose a $1.2 billion charge on revenue as cloud computing customers reassess their spending and prepare for a potential recession.
The much bigger job cuts than by Microsoft last year add to the tens of thousands of job cuts across the tech sector that have downshifted following a period of strong growth during the pandemic.
The news also comes as software makers look to increase spending on generative artificial intelligence, which the industry sees as the new bright spot.
In a memo to employees, CEO Satya Nadella tried to deal with different realities.
Customers want to “optimize their digital spending to do more with less,” and “some parts of the world are in recession, others are forecast to. So we have to pay attention,” he said. “At the same time, the next big wave of computing is emerging 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 notifications beginning Wednesday. However, Microsoft said it would continue hiring in “strategic areas.”
AI could be one of those areas. Nadella promoted his AI to world leaders gathering in Davos, Switzerland, this week, arguing that the technology would transform AI products and impact people around the world.
Microsoft is considering adding a $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft plans to bring to market soon through its cloud services. .
Shares of the Redmond, Wash.-based company fell about 1%.
The announcement comes in response to the initiation of layoffs at retail and cloud computing rival Amazon.com Inc (NASDAQ:), which cuts 18,000 jobs at its company began informing employees of
In an internal memo obtained by Reuters, Amazon said it will notify all affected workers in the United States, Canada and Costa Rica by the end of the day. Chinese employees will be notified after Chinese New Year.
The cuts reflect a broader belt tightening in the technology sector. More than 97,000 job cuts have been announced for 2022, according to outplacement firm Challenger Gray & Christmas.
“We haven’t seen this kind of activity since the dotcom bankruptcy of 2001 and 2002,” said Andrew Challenger, the company’s senior vice president.
Among these cuts are 11,000 jobs at Facebook’s parent company, Meta Platforms Inc (O:), and the scope of the job cuts extends beyond enterprise IT to ad-based businesses and the consumer Internet. up to.
The CEO of Palantir Technologies (NYSE:) Inc, another company that serves businesses, told Reuters this week that reducing cloud spending was a top 10 priority for customers.
Graphic: Tech giant lays off staff amid recession fears (https://www.reuters.com/graphics/BIGTECH-LAYOFFS/znpnbzqbkpl/chart_eikon.jpg)
computer slump
Nadella said Microsoft’s $1 billion is due to severance payments, as well as adjustments to Microsoft’s hardware lineup and consolidation of leasing to build denser workspaces.
Microsoft didn’t provide details about the hardware changes or whether it will stop developing the product line.
The company is dealing with a slump in the personal computer market after the pandemic boom subsided, leaving little demand for its Windows software and accompanying products.
The charge, due in Microsoft’s second fiscal quarter of this year, will have a negative impact on earnings of 12 cents per share.
Wedbush Securities analyst Dan Ives said: “This is a ‘rip off the band-aid’ moment to preserve margins and reduce costs.
Microsoft’s cloud revenue has surged in recent years due to soaring corporate demand to host data online and handle computing in the so-called cloud. However, growth in the first quarter of 2023 fell to 35%, and the company expects the decline to continue. Last July, it announced that a handful of positions had been eliminated.
Graphics: Azure growth slows down as cloud market matures and becomes more competitive Azure growth slows down as cloud market matures and becomes more competitive