© Reuters. The Microsoft logo is seen outside its offices in Herzliya, near Tel Aviv, Israel, December 27, 2022. REUTERS/Rami Amichay
By Jeffrey Dustin and Yuvraj Malik
DAVOS, Switzerland (Reuters) – microsoft corporation (NASDAQ:) said Wednesday it would cut 10,000 jobs and charge $1.2 billion to profit as its cloud computing clients reassess their spending and the company braces for a possible recession.
The layoffs add to the tens of thousands announced in recent months across the technology sector, which has shrunk after a strong period of growth during the pandemic.
The news comes even as the software maker is poised to increase spending on generative artificial intelligence that the industry sees as the new bright spot.
In a note to employees, CEO Satya Nadella tried to address the diverging perspectives of different parts of the business.
Clients wanted to “optimize their digital spend to do more with less” and “be careful as some parts of the world are in a recession and other parts anticipate 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 notifications beginning Wednesday.
However, Microsoft would continue to hire in “strategic areas,” he said. AI is likely to be one of those areas. This week, Nadella pitched AI to world leaders gathered in Davos, Switzerland, saying the technology would transform their products and affect people around the world.
Microsoft has considered increasing its billion-dollar stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft plans to commercialize soon through its cloud service.
Shares of the Redmond, Washington-based company closed down 2% on Wednesday.
The announcement coincides with the start of layoffs at retail and cloud computing rival Amazon.com Inc (NASDAQ:), which began notifying employees Wednesday of its own job cuts of 18,000 people.
In an internal memo seen by Reuters, Amazon said affected workers in the United States, Canada and Costa Rica would be informed by the end of the day. Employees in China will be notified after the Chinese New Year.
Facebook parent company Meta Platforms Inc (NASDAQ:) has announced cuts of 11,000 jobs, while cloud-based software company Salesforce (NYSE:) Inc said it would cut 10% of its 80,000-member workforce. .
Overall, in 2022, more than 97,000 job cuts were announced in technology, the highest for the sector since 2002, when 131,000 cuts were announced, according to relocation firm Challenger, Gray & Christmas.
“We haven’t seen this activity since the dotcom crash,” said Andrew Challenger, the company’s senior vice president.
Microsoft is laying off 878 full-time workers at its Redmond headquarters, according to an update on the Washington State Worker Retraining and Adjustment Notification (WARN) page. Under US law, most employers must report layoffs that affect 50 or more workers at one location.
GRAPHIC: Big tech companies lay off staff amid recession fears (https://www.reuters.com/graphics/BIGTECH-LAYOFFS/znpnbzqbkpl/chart_eikon.jpg)
DECREASE IN CLOUD GROWTH
Microsoft’s $1 billion charge will cut earnings by 12 cents per share in the company’s fiscal second quarter this year and could resonate beyond the technology sector, some analysts said.
“Here’s one of the most prominent growth companies with a very different user base saying maybe economic conditions aren’t as good as we thought,” said Brian Frank, a portfolio manager at Frank Funds who has owned shares of Microsoft intermittently. During the last years.
The charge is attributable to severance costs, as well as adjustments to Microsoft’s hardware lineup and lease consolidation to build higher-density workspaces, Nadella said.
Microsoft declined to detail the hardware changes or say whether it would stop developing any product lines.
Microsoft’s cloud revenue has skyrocketed in recent years due to an explosion in corporate demand to host data online and drive computing in the so-called cloud. But growth slowed to 35% in the first fiscal quarter of 2023, and the company projects more cooling to come. In July last year, he said a small number of roles had been cut.
GRAPHIC: Azure growth plunges as cloud market matures, competition increases Azure growth plunges as cloud market matures, competition increases (https://www.reuters.com /graphics/MICROSOFT-RESULTS/lbvgnodqkpq/chart.png)
