DAVOS, Switzerland, Jan 18 (Reuters) – Microsoft Corp (MSFT.O) said on Wednesday it would cut 10,000 jobs and charge $1.2 billion to its profits as its cloud computing clients reassess their spending and the company prepares for a possible recession. .
The layoffs, far larger than Microsoft’s cuts last year, come on top of tens of thousands of job cuts across the tech 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 divergent realities.
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,” she 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, Wash.-based company fell about 1%.
The announcement coincides with the start of layoffs at retail and cloud computing rival Amazon.com Inc (AMZN.O), which began notifying employees of its own job cuts of 18,000 people.
In an internal memo seen by Reuters, Amazon said all 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.
The cuts reflect a wider fit of the belt in the tech sector. More than 97,000 layoffs were announced in 2022, the highest number in the industry since 2002, when 131,294 layoffs were announced, according to outplacement firm Challenger, Gray & Christmas.
“We haven’t seen this activity since the dotcom crashes in 2001 and 2002,” said Andrew Challenger, the company’s senior vice president.
Among those cuts were 11,000 at Facebook’s parent company, Meta Platforms Inc.
The CEO of another company that provides enterprise services, Palantir Technologies Inc (PLTR.N), told Reuters this week that reducing cloud spending was one of the top ten priorities for his clients.
SLUMP ON PERSONAL COMPUTERS
Microsoft’s $1 billion is due in part 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.
The company has dealt with a slump in the personal computer market after the pandemic boom faded, leaving little demand for its Windows software and accompanying products.
The charge will have a 12-cent per share negative impact on earnings, which will be taken in Microsoft’s fiscal second quarter this year.
“This is a ‘rip off the Band-Aid’ time to preserve margins and reduce costs,” said Dan Ives, an analyst at Wedbush Securities.
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 fell to 35% in the first fiscal quarter of 2023, and the company projects further declines to come. In July last year, he said a small number of roles had been cut.
Reporting by Jeffrey Dustin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bengaluru; Edited by Shinjini Ganguli and Nick Zieminski
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