Microsoft will cut 10,000 jobs with concern about a recession in the cloud technology sector

DAVOS, Switzerland, Jan. 18 (Reuters) – Microsoft Corporation (MSFT.O) On Wednesday, it said it would cut 10,000 jobs and charge $1.2 billion in profits, as cloud computing customers reassess their spending and the company prepares for a possible recession.

The layoffs, which were much larger than the cuts Microsoft made last year, add to the tens of thousands of job cuts across the technology sector, which has turned around after a period of strong growth during the pandemic.

The news comes even as the software maker prepares to ramp up spending on generative AI, which the industry sees as a new bright spot.

In a note to employees, CEO Satya Nadella attempted to address the disparate realities.

He said customers wanted to “optimize their digital spending to do more with less” and “be careful because some parts of the world are in a recession and other parts expect it to happen”. “At the same time, the next major wave of computing is being born with advances in artificial intelligence.”

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 will continue to recruit in “strategic areas,” he said.

Artificial intelligence is likely to be one of those areas. This week Nadella promoted artificial intelligence to world leaders gathered in Davos, Switzerland, claiming that the technology will transform its products and impact people around the world.

Microsoft has considered adding a $1 billion stake in OpenAI, the startup behind the Silicon Valley chat-bot sensation known as ChatGPT, which Microsoft plans to soon commercialize through its cloud service.

Shares of the Redmond, Washington company fell about 1%.

The announcement coincides with the start of layoffs at retail and cloud computing rival Inc (AMZN.O) which began with a notification to employees to cut the jobs of 18,000 people.

In an internal memo seen by Reuters, Amazon said all affected workers in the United States, Canada and Costa Rica will be notified by the end of the day. Employees in China will be notified after the Chinese New Year.

The cuts reflect broader belt-tightening in the tech sector. In 2022, more than 97,000 cut-off jobs were announced, the highest in the sector since 2002, when 131,294 cut-offs were announced, according to outside recruiting firm Challenger, Gray & Christmas.

“We haven’t seen this activity since the internet crash of 2001 and 2002,” said Andrew Challenger, the company’s senior vice president.

Among those cuts are 11,000 at Meta Platforms Inc, Facebook’s parent company

CEO of another serving company, Palantir Technologies Inc (PLTR.N)This week he told Reuters that reducing cloud spending was one of his customers’ top 10 priorities.

Reuters graphics

Stumbled upon personal computers

Nadella said Microsoft’s $1 billion valuation is partly due to severance costs as well as adjustments to Microsoft’s hardware lineup and lease consolidation to build high-density workspaces.

Microsoft declined to disclose details of the hardware changes or say whether it will stop developing any product line.

The company faced a slump in the PC market after the pandemic boom died down, leaving little demand for Windows software and companion products.

The fee will have a negative impact of 12 cents on a share of the profits, which will be taken out in Microsoft’s second fiscal quarter this year.

“This is a ‘lay off the band-aid’ moment to maintain margins and keep costs down,” said Dan Ives, analyst at Wedbush Securities.

Microsoft’s cloud revenue has risen in recent years from a surge in companies’ demand to host data online and handle computing in what’s called the cloud. But growth fell to 35% in the first fiscal quarter of 2023, and the company expects further downturns in the future. In July last year, she said a small number of roles had been cancelled.

Reuters Graphics Reuters

Additional reporting by Jeffrey Dustin in Davos, Yuvraj Malik and Akash Sriram and Nivedita Balu in Bengaluru; Editing by Chingini Ganguly and Nick Zieminski

Our standards: Thomson Reuters Trust Principles.

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