Microsoft to lay off 10,000 workers as slowdown hits software business

BY TOM DOTAN | UPDATED JAN 18, 2023 10:37 AM EST

Company’s revenue growth has slowed amid economic concerns

Microsoft Corp. said it was laying off 10,000 employees, becoming the latest tech titan to announce an additional round of cuts amid concerns about the health of the global economy.

Chief Executive Satya Nadella said in a blog post to employees Wednesday that the layoffs would affect less than 5% of the company’s global workforce.

Mr. Nadella pointed to the economic slowdown in his note, telling employees that companies globally had begun to “exercise caution as some parts of the world are in a recession and other parts are anticipating one.” He added that the company would be taking a $1.2 billion charge in its soon-to-be-announced earnings related to severance costs.

In his note to employees, Mr. Nadella didn’t specify which parts of the company would be hit by the cuts. He said the company would be pulling back in some areas but continuing to hire in key strategic areas.

Last year, Microsoft had more than one round of layoffs but didn’t announce how many positions it cut. One round, which started in July, affected less than 1% of the company’s total workforce of more than 200,000 people, the company said at the time.

The tech sector had been on a yearslong hiring spree as companies invested in expansion and competed for talent by offering lucrative pay packages. As Covid-19 set in, the pace of hiring accelerated as the companies rode a wave of supercharged demand.

Microsoft was among the tech companies that ramped up hiring in recent years. The company reported 221,000 employees at the end of its fiscal year through June. That was up 22% from the previous year.

Some tech companies have in recent months pivoted to slashing thousands of positions as the business climate has deteriorated on the back of economic slowdown concerns, high inflation rates, rising interest rates and other factors.

Tech employers cut more than 150,000 jobs in 2022, estimates Layoffs.fyi, a website that tracks the events as they surface in media reports and company releases.

Amazon.com Inc. announced that it was laying off 18,000 people. This month, business software provider Salesforce Inc. said it planned to lay off 8,000 employees, or 10% of its global workforce—the biggest head count reduction in the company’s history.

On Tuesday Unity Software Inc. said was laying off 284 employees. The provider of tools for creating videogames and other applications had earlier announced layoffs in June when it cut around 225 jobs.

Microsoft’s move comes the week before it is scheduled to announce its latest quarterly earnings. Late last year, the Redmond, Wash., company said a sharp decline in personal computer sales and the dollar’s strength were weighing on expansion. In the three months through September, its revenue grew 11% from a year earlier, its weakest increase in more than five years.

The issue of declining PC sales that has been squeezing Microsoft’s Windows business looks to be around for some time. Worldwide shipments were down 29% in the fourth quarter last year compared with the previous year, according to preliminary data from research firm Gartner Inc. Analysts don’t expect that trend to improve until 2024.

Microsoft shares were little changed on Wednesday. They have slipped around 20% over the past 12 months, broadly in line with the tech-heavy Nasdaq Composite Index. Microsoft has fared better than many of the consumer-facing tech leaders. Meta Platforms Inc. is down close to 55% and Alphabet Inc. has lost around 30% in the past year. Amazon shares have fallen around 40%.

Photos: Tech Layoffs Across the Tech Industry

Speaking at the World Economic Forum in Davos, Switzerland before announcing the layoffs, Mr. Nadella said the tech industry has to prepare for tougher times.

“We in the tech industry will have to get more efficient—it’s not about everyone else doing more with less, we will have to do more with less. We will have to show our own productivity gains,” he said.

The lion’s share of Microsoft’s business is selling software and cloud services to corporations. That enterprise business hasn’t so far been hit as hard as the businesses which depend on e-commerce and selling advertising.

Microsoft has been enjoying some positive news this year, as it negotiates increasing its investment in artificial intelligence startup OpenAI. This week the company announced it was opening up access to OpenAI tools such as image generator Dall-E 2 and the technology behind ChatGPT, which can answer questions and write essays and poems.

In his note Wednesday, Mr. Nadella specifically mentioned AI as a priority, calling it “the next major wave of computing.”