DAVOS, Switzerland, Jan 18 (Reuters) – Microsoft Corp ( MSFT.O ) on Wednesday said it would cut 10,000 jobs and take a $1.2 billion charge to profits as cloud computing customers reassess their spending and the company is preparing for a potential recession.
The layoffs add to the tens of thousands announced in recent months in the technology sector, which has shrunk after a period of strong growth during the pandemic.
The news comes even as the software maker is poised to increase spending on generative artificial intelligence, which the industry sees as a new bright spot.
In a note to employees, CEO Satya Nadella tried to address the different perspectives for different parts of the business.
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 other parts are expecting one,” he said. “At the same time, the next big wave of computing is being born with advances in AI.”
Nadella said the layoffs, affecting less than 5 percent of Microsoft’s workforce, would end by the end of March, with notices beginning Wednesday.
However, Microsoft will continue to hire in “strategic areas,” he said. AI is likely to be one of those areas. This week, Nadella touted AI to world leaders gathered in Davos, Switzerland, claiming the technology would transform its products and touch people around the world.
Microsoft is considering adding to its $1 billion stake in OpenAI, the startup behind the Silicon Valley chatbot sensation known as ChatGPT, which Microsoft plans to launch soon through its cloud service.
Shares of the Redmond, Washington-based company fell about 1%.
The announcement coincides with the start of layoffs at its retail and cloud computing rival Amazon.com Inc ( AMZN.O ), which began notifying employees on Wednesday of its own 18,000 layoffs.
In an internal memo seen by Reuters, Amazon said affected workers in the United States, Canada and Costa Rica would be notified by the end of the day. Employees in China will be notified after Chinese New Year.
Along with Amazon, Facebook parent Meta Platforms Inc ( META.O ) announced 11,000 job cuts, while cloud-based software company Salesforce Inc ( CRM.N ) said it would cut 10 percent of its 80,000 workforce. members.
Overall, more than 97,000 tech job cuts were announced in 2022, the highest level for the sector since 2002, when 131,000 layoffs were announced, according to outplacement firm Challenger, Gray & Christmas .
“We haven’t seen this activity since the dot-com crash,” said Andrew Challenger, the company’s senior vice president.
The company is laying off 878 full-time employees at its Redmond headquarters, according to an update on Washington State’s Worker Adjustment and Retraining (WARN) page. Under US law, most employers are required to report layoffs affecting 50 or more workers at one location.
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CLOUD GROWTH DECREASES
Microsoft’s billion-dollar charge will reduce earnings by 12 cents per share in Microsoft’s fiscal second quarter this year and could reverberate beyond the technology sector, some analysts said.
“Here’s one of the fast-growth companies with a very distinct consumer base that says maybe the economic conditions aren’t as good as we thought they were,” said Brian Frank, a portfolio manager at Frank Funds who has owned shares of Microsoft from time to time over the past few years.
The charge was driven by benefits 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 development of a product line.
Microsoft’s cloud revenue has soared in recent years from an explosion in corporate demand for hosting data online and processing computing in the so-called cloud. But growth fell to 35% in the first fiscal quarter of 2023, and the company is predicting further declines. In July last year, a small number of roles were said to have been eliminated.
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Reporting by Jeffrey Dustin in Davos and Yuvraj Malik, Akash Sriram and Nivedita Balu in Bengaluru; additional reporting by David Randall in New York; Editing by David Gaffen, Shinjini Ganguly and Nick Zieminski
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