DAVOS, Switzerland, Jan 18 (Reuters) – Microsoft Corp (MSFT.O) It said Wednesday it would cut 10,000 jobs and take a $1.2 billion charge in revenue as its cloud-computing customers reassess their spending and the company faces a possible recession.
The layoffs add to tens of thousands announced in recent months in the tech sector, which has slowed following a period of strong growth during the pandemic.
The news comes as the software maker prepares to ramp up spending on artificial intelligence, which the industry sees as a new bright spot.
In a memo to employees, CEO Satya Nadella sought to address the divergent outlook for different parts of the business.
Clients will need to “optimize their digital spending to do more with less” and “be cautious as some parts of the world are in a recession while 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 the announcements beginning Wednesday.
However, Microsoft will continue to hire in “strategic areas,” he said. AI is likely to be one of those areas. Nadella told world leaders gathered in Davos, Switzerland this week about AI, saying the technology will transform its products and touch people around the world.
Microsoft has seen its $1-billion stake in OpenAI, the company behind a Silicon Valley chatbot sensation called ChatGPT, which it plans to market soon through its cloud service.
Shares of the Redmond, Washington-based company fell about 1%.
The announcement coincides with the start of layoffs at its retail and cloud-computing rival Amazon.com Inc. (AMZN.O) It began notifying employees of its own 18,000-person layoffs on Wednesday.
In an internal memo seen by Reuters, Amazon said affected workers in the US, Canada and Costa Rica would be notified by the end of the day. Employees in China will be notified after Chinese New Year.
Along with Amazon, Facebook parent Meta Platforms Inc (META.O) Cloud-based software company Salesforce Inc. has announced it will cut 11,000 jobs (CRM.N) It said 10% of its 80,000-member workforce would be cut.
Overall, more than 97,000 job cuts were announced in tech in 2022, the highest number of 131,000 cuts in the sector since 2002, according to outsourcing firm Challenger, Gray & Christmas.
“We haven’t seen this activity since the dot-com bust,” said Andrew Challenger, the company’s senior vice president.
The company is laying off 878 full-time employees at its Redmond headquarters, according to an update on Washington State’s Workforce Adjustment and Retraining Notice (ALERT) page. Under U.S. law, most employers must report layoffs that affect 50 or more workers at one location.
Cloud growth slows
Microsoft’s billion-dollar charge will reduce earnings per share by 12 cents in Microsoft’s second fiscal year this year, and will reverberate beyond the technology sector, some analysts said.
“Here’s one of the marquee growth companies with a very unique user base that maybe the economic conditions weren’t as good as we thought they would be over the last several years,” said Brian Frank, a portfolio manager at Frank Funds, which has held Microsoft shares on and off.
Nadella attributed the charge to severance costs and adjustments to Microsoft’s hardware lineup and lease consolidation to create higher-density workspaces.
Microsoft declined to detail the hardware changes or say whether it would stop making any product lines.
Microsoft’s cloud revenue has been boosted in recent years by an explosion of corporate demand to host data online and manage computing in a system known as the cloud. But growth has slowed to 35% in the first fiscal year of 2023, and the company expects further declines. In July last year, it said a small number of roles had been cut.
Reporting by Jeffrey Dustin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bangalore; Additional reporting by David Randall in New York; Editing by David Kaffen, Shinjini Ganguly and Nick Zieminski
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