Microsoft on Wednesday became the latest addition to a growing list of big tech companies that announced plans to lay off workers over overstaffing amid the pandemic and concerns about the economy.
The company will lay off 10,000 employees, said Microsoft CEO Satya Nadella, as it seeks to cut costs amid economic uncertainty and refocus on priorities such as artificial intelligence.
Microsoft employed about 221,000 workers at the end of June, and the cuts amount to less than 5 percent of the global workforce.
With the cuts, Microsoft joined a string of other tech giants that have retreated after several years of frenetic hiring to cope with the pandemic-fueled wave of online services and the expansion of cloud computing. The tech industry grew faster than it had in decades, matching the growth of the dotcom boom in the 1990s.
Microsoft and its peers responded to rising customer demand by essentially hoarding technical staff. But the market slowed last year as workers began returning to their offices, inflation squeezed budgets and consumers sought entertainment away from home.
“The reality is you can adjust hiring very quickly, and that’s what’s going on,” said Brad Reback, an analyst at the investment bank Stifel. “I don’t think this is symptomatic of a bigger problem.”
The industry slowdown has been particularly hard on smaller tech companies, and those specializing in newer concepts like crypto have been significantly affected. But the tech giants have not been spared. Of the major companies in the industry, Google’s parent company Alphabet and Apple are the only companies to have announced significant layoffs yet.
Speaking at the annual meeting of the World Economic Forum in Davos, Switzerland, Mr Nadella said on Wednesday that after rapid acceleration during the pandemic, “quite frankly, we in the technology industry are going to have to get efficient too”. He added that the industry will have to “show our own productivity gains” using its own technology.
Yet some of the technology industry’s largest companies continue to measure their profits in the tens of billions of dollars. In the quarter ended September, Microsoft had $50 billion in sales generating $17.6 billion in profit. It has also continued to return cash to investors through quarterly dividends and a $60 billion share repurchase program approved by the board in 2021.
The company’s annual sales grew 58 percent in three years while employing more than 75,000 people. But rising interest rates and the prospect of a recession have dampened Microsoft’s prospects. In its last quarter, it reported its slowest growth in five years and warned more lukewarm results could follow.
Microsoft’s share price fell more than 1 percent during afternoon trading on Wednesday and is down about 22 percent over the past year, outperforming many of its tech peers. The company will publish its next quarterly figures on Tuesday.
Microsoft is moving forward with several expensive bets, including potentially another $10 billion in its investment in OpenAI, which makes the explosively popular ChatGPT artificial intelligence system, and a $69 billion acquisition of video game maker Activision that faces global challenges from antitrust regulators.
Mr Nadella said in a message to staff that the layoffs are “the kind of tough choices we’ve made throughout our 47-year history to remain a consistent company in this industry that is ruthless to anyone who doesn’t adapt to platform shifts. ”
The layoffs, which began Wednesday and will continue through March, are the company’s biggest in about eight years. Mr. Nadella cut around 25,000 jobs over the course of 2014 and 2015 when Microsoft backed out of its ill-fated takeover of mobile phone maker Nokia.
Despite the high-profile layoffs of some of the biggest names in tech – Microsoft, Amazon, Meta and others – the broader job market remains strong overall. Cooling wage growth has some investors optimistic that it will ease pressure on the Federal Reserve to keep raising interest rates, but hiring has slowed only slightly.
The skills of engineers and other technical talent are still in high demand. Those laid off are likely to find jobs directly in industries such as banking, retail or healthcare, which are digitizing their operations, rather than the big tech companies themselves, labor analysts and recruiters say.
Customers are trying to “do more with less,” Mr. Nadella wrote to employees. “We also see organizations in every industry and region being cautious as some parts of the world are in recession and others are anticipating it,” he added.
The changes, including severance payments and other restructuring costs, will cost $1.2 billion, Mr. Nadella said. In a regulatory filing, Microsoft said part of the cost would come from consolidating office leases, as well as “changes to our hardware portfolio.”
Microsoft makes the Surface line of laptops and tablets, and demand for personal computers has plummeted from the peaks of the pandemic, as businesses and families bought laptops to work and study from home. In October, Amy Hood, the company’s chief financial officer, told investors that the slowdown in consumer PC sales that began in September would continue at least through June.
Mr Nadella said the company would continue to hire in strategic areas and called advances in artificial intelligence “the next big wave of computing”.
Other tech giants have also cut costs. Amazon began what is expected to be a massive round of layoffs on Wednesday, as part of its plans to cut the company’s workforce by about 18,000 jobs.
“The exit from Covid this past year has been challenging,” Doug Herrington, Amazon’s head of retail and operations, wrote in a message to staff obtained by The New York Times Wednesday morning.
He added that while the company had reduced costs, “we have determined that we need to take further steps to improve our cost structure so that we can continue to invest in the customer experience that draws customers to Amazon and grows our business.”
Mr. Herrington wrote that the company would continue to invest in areas such as healthcare and groceries.
Business software company Salesforce said this month it planned to lay off 10 percent of its workforce, or about 8,000 employees, and Meta, Facebook’s parent company, announced late last year that it would cut more than 11,000 jobs.
