DAVOS, Switzerland, Jan 18 (Reuters) – Microsoft Corp (MSFT.O) said on Wednesday it would cut 10,000 jobs and bill $1.2 billion as its cloud computing customers reevaluate their spending and the company is preparing for a possible recession.
The layoffs, far larger than Microsoft’s job cuts last year, come on top of tens of thousands of job cuts in the tech sector that has long outpaced its strong growth during the pandemic.
Its shares fell about 1%.
The news comes just as the software maker is set to increase its spending on generative artificial intelligence, which is the industry’s new bright spot.
Just this week, its chief executive pitched AI to world leaders gathered in Davos, Switzerland, saying the technology would transform its products and affect people around the world. Microsoft has considered adding to its $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT.
In a memo to employees, CEO Satya Nadella attempted to address the differing realities.
Customers wanted to “optimize their digital spend to do more with less” and “be cautious as some parts of the world are in recession and others are anticipating one,” he said. “At the same time, the next great wave of computing is being born with advances in AI.”
Nadella said the layoffs, affecting less than 5% of Microsoft’s workforce, would end by the end of March, with notifications beginning Wednesday. However, Microsoft would continue to hire in “strategic areas”, he said.
The Jan. 18 timing is the date rival Amazon.com Inc (AMZN.O) said more employees would be notified of its own layoffs of 18,000 people.
The cuts reflect a wider belt squeeze in the tech sector. The CEO of another enterprise-serving company, Palantir Technologies Inc (PLTR.N), told Reuters this week that cutting cloud spending was one of its customers’ top ten priorities.
More than 150,000 tech company workers were laid off in 2022, according to tracking site Layoffs.fyi. Of these, 11,000 worked at Meta Platforms Inc
FALL OF PERSONAL COMPUTERS
Microsoft said it would take a $1 billion severance charge, among other changes. Eligible personnel in the United States, for example, will receive medical coverage and stock acquisition for six months.
The charge also relates to adjustments to its hardware lineup and consolidating leases to build higher-density workspaces, Nadella said. Microsoft declined to detail hardware changes or say whether it would stop developing a product line.
The Redmond, Wash.-based company has been grappling with a slump in the personal computer market after a pandemic boom ended, leaving little demand for its Windows software and accompanying products.
In total, the charge, which takes place during Microsoft’s second fiscal quarter this year, represents a negative impact of 12 cents per share of earnings, the company said.
Wedbush Securities analyst Dan Ives said, “This is a moment of tearing the band-aid to preserve margins and reduce costs in a softer macro.”
Rising in recent years from an explosion in enterprise demand to house data online and manage computing in the so-called cloud, Microsoft has struck a different tone in recent months.
In its first fiscal quarter of 2023, cloud growth fell to 35% and the company expected that number to fall again. In July last year, he said a small number of roles had been eliminated.
Still, Nadella sought to reassure employees about the future. Generative AI, as evidenced by OpenAI’s ChatGPT that Microsoft will soon release through its cloud service, is showing the way forward.
“We are allocating both our capital and our talent to areas of secular growth and long-term competitiveness for the business,” he said. “We will come out of this stronger.”
Reporting by Jeffrey Dastin in Davos and Yuvraj Malik and Akash Sriram in Bengaluru; Editing by Shinjini Ganguli and Nick Zieminski
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