West News Wire: As its cloud computing clients analyze their spending and the business prepares for a potential recession, Microsoft Corp. has announced it will cut 10,000 positions and incur a $1.2 billion loss.
The layoffs, which were announced on Wednesday and were far larger than those made by Microsoft last year, added to tens of thousands of job losses in the technology sector, which is long past its period of unabated expansion during the pandemic.
The announcement was especially striking coming from Microsoft, a software provider with significant generative AI investments and a promising future for the sector.
With so many people employed, Microsoft will nevertheless eliminate considerably fewer positions than it had increased throughout the COVID-19 pandemic in response to a surge in demand for its office software and cloud computing services.
Microsoft’s workforce expanded by about 36 percent 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.
In a note to employees, chief executive Satya Nadella said the layoffs, affecting less than 5 percent of the workforce, would conclude by the end of March, with notifications beginning on Wednesday.
The timing corresponded with the date its rival Amazon.com Inc said more employees will be notified in its own 18,000-person layoffs.
Nadella said 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 anticipating one”.
Another company serving enterprises, Palantir Technologies Inc, said this week that reducing cloud spending was a top-10 priority of its customers.
In addition to severance costs, Microsoft would take a billion-dollar charge from changes to its lineup of hardware products and from consolidating leases “as we create higher density across our workspaces”, Nadella said.
The charge in the second quarter of fiscal 2023 represented a negative impact of 12 cents per share profit, Microsoft said.
Wedbush Securities analyst Dan Ives said, “This is a rip the band-aid off moment to preserve margins and cut costs in a softer macro, a strategy the Street will continue to applaud.”
Microsoft shares were up less than 1 percent.